Risk Management Priorities for the New Year

AFSA’s Industry Expertise allows Business Partners to provide thought leadership and best practices information directly with AFSA member companies. For more information about taking part, contact Dan Bucherer.

By: Suzi Straffon, Director, Finance Company Markets | Allied Solutions

Rising inflation.

High vehicle prices.

Escalating monthly payments.

These conditions are leading to financial stress for borrowers, and as a result, loan defaults are increasing. Lenders are in a precarious position to support borrowers while protecting their portfolio. Here are three key risk management areas to keep in the forefront in 2023.

A Repossession Renaissance

Repossession activities are back on the table and Cox Automotive reports that repossessed vehicle sales are trending towards normal (i.e., pre-pandemic levels). As repossession activities resume, the CFPB remains firm in its guidance on vehicle recovery best practices , particularly wrongful repossessions.

Despite repossession activity resuming, the industry is facing a rapid decrease in collection and repossession vendors, with many closing their doors due to ongoing pandemic-induced economic effects. Fewer resources combined with increased demand is resulting in significant hikes in service fees.

Refund Restitution

Regulators continue to heavily focus on compliant refund processes for ancillary products that no longer benefit the borrower. GAP, in particular, remains in the regulatory spotlight – both on the Federal and state level. California recently implemented a notable law that adds new requirements to the sales and administration of GAP.

Click here for more information on California Assembly Bill 2311

Recent CFPB Supervisory Highlights stress the need for lenders to reexamine their product refund practices. The CFPB continues to litigate against lenders for noncompliance, with some of the largest fines in history being levied in recent months.

Calibrating Credit Risks

As interest rates fluctuate it is more difficult to rely on traditional scoring for credit decisioning. This challenge sits in tandem with lenders struggling to maintain liquidity in a pending recession. Poor credit decisioning can harm liquidity if too little risk is taken or could cause unnecessary risk exposure if too many high-risk borrowers are approved. Lenders need to recalibrate and gain a true sense of lending risk in 2023.

With these challenges in mind, three critical practices for auto lenders in 2023 will be:

Secure repossession resources. Fair wages are the key to securing agents for collateral repossession in 2023. Offering fair contracts can optimize repossessions while maintaining compliance. Fair and equitable relationships with existing vendors are encouraged.
Make your customer whole. Treat each customer with fairness in all transactions. Steer clear of possible UDAAP violations by maintaining a compliant, end-to-end product refund process.
Use data analytics to make better decisions. Data analytics can forecast the competing risks of charge-off and pay-off and provide intelligent analytics from across all business channels. Leverage your existing data to give your decision makers a true sense of lending risk.

Continue to take advantage of industry insights. Outsource risk and recovery processes to industry experts. Leveraging your vendors’ strengths will help protect and enhance your portfolio so you can maintain focus on your core business in 2023.

Allied Solutions will be in Dallas at the 2023 Vehicle Finance Conference! Come find us at Booth #1 or Kiosk #1.

About Allied Solutions

Allied Solutions is one of the largest providers of insurance, lending, risk management, and data-driven solutions to auto finance companies and financial institutions in the US. With their consultative approach and commitment to the market, Allied Solutions uses technology-based solutions customized to meet the needs of 4,000 organizations. Allied Solutions is headquartered in Carmel, Indiana and maintains several offices strategically located across the country. Allied Solutions is a wholly owned and independently operated subsidiary of Securian Financial Group. Together, Allied and Securian boast 100+ years of industry experience.

Link: https://www.coxautoinc.com/market-insights/dont-panic-loan-defaults-and-repossessions-are-rising-and-thats-normal/

Link: https://www.consumerfinance.gov/about-us/newsroom/cfpb-moves-to-thwart-illegal-auto-repossessions/

Link to CA AB 2311 FAQ doc

Link: https://vimeo.com/783018952/b75b766536

January 18th, 2023