COMMENTARY: Getting consumers’ payments back on track

IRVING, Texas – 

According to the recently released S&P/Experian Consumer Credit Default Indices, United States auto loan defaults dropped 10 basis points to 0.56% in May. This comes on the heels of the release of Experian’s State of the Automotive Finance Market Report, which showed significant decreases in delinquency rates on automotive loans Q1 2020. 

In fact, the report indicates that both 30-day and 60-day delinquencies dropped compared to last year, with 30-day delinquencies seeing a more significant decrease from 1.98% in Q1 2019 to 1.93% in Q1 2020,

In routine times, these figures would absolutely be looked at as positive economic indicators. However, due to new realities during COVID-19, lenders should be particularly wary about these seemingly positive indicators.  The reality is that these figures are being masked by a variety of factors.  In fact, I am certain that the “real” numbers are unquestionably quite a bit worse than what this data shows.

It’s been well-documented that the CARES Act has essentially stopped negative credit reporting, provided that consumers enter into agreements with lenders. And lenders have been very open to these agreements and have provided a tremendous amount of goodwill deferments to borrowers to help them through the pandemic. Not surprisingly, we’re already hearing chatter from organizations like TransUnion that millions of Americans are taking advantage of this goodwill and have been skipping payments. 

I’m not here to send a doom and gloom message, as I believe that auto finance will always be one of our economy’s strongest industries. Nor am I suggesting that these deferments were inappropriate — millions of Americans lost their jobs through no fault of their own and were entitled to some level of support.

However, Kroll Bond Rating Agency recently pointed out that modifications made by lenders now will “simply delay the inevitable” as lenders’ ability to collect cash has been reduced so dramatically. I agree with this sentiment to some degree, but there are many good borrowers who want and will be able to make timely payments once their temporary problem is resolved. These deferments will provide the assistance necessary to deal with their short-term financial crisis. 

Louis Ochoa

With that in mind, I believe now is the time for lenders to take collective action to balance fiscal responsibility with taking care of only those customers who truly need help.

In my view, going forward lenders will need to move away from offering blanket deferments to all customers, and tailor their loss mitigation programs to an individual’s circumstances.  Many Americans have remained employed, with some even increasing their income — these borrowers can and will pay.  Getting these borrowers weaned off of the assistance programs and back into the habit of paying is paramount. 

This should serve as a reminder of the importance of having experienced and skilled loan servicing professionals staffing your portfolio. A skilled professional is trained to interpret each unique situation and encourage those customers who can pay to do so. By no means should we stop offering assistance to those most affected, but it’s time to start employing a strategy to get your portfolio performance moving in the right direction.

Louis Ochoa is president and chief executive officer of Servicing Solutions, a full-service beginning to end loan servicing solution powered by compliance, technology, analytics and a management team of experienced industry leaders. Headquartered in Irving, Texas, Servicing Solutions has additional Class A call center facilities in Orange, Calif., and Tijuana, Mexico. The company’s core management team has been intact for the past 13 years and has serviced all asset types across the credit spectrum. 

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