COVID forced companies to act quickly to mobilize remote operations, and HR, legal, and consumer regulatory compliance was disregarded by the government organizations that laid down the mandates. While delinquencies are holding up on surface level, forbearances and stimulus is masking the true health of consumer loans.
Once the forbearance periods are up, and the stimulus money gone, and all states open up repossessions (California still deems repossession agents to be “non-essential”) we will get a better picture of the truth. Those companies that already had flexible omni-channel infrastructures in place are a leg up on those that did not, and as we head into Q4 of this year, omni-channel will enable better collections results.
Immediate Pressure
When COVID restrictions forced office closures, consumer lenders and servicers had to act immediately to stand up remote operations. State and local governments dictated which businesses were deemed “essential” and “non-essential,” with no concern about how the “work from home” situation addresses the HR, legal, and consumer protective compliance regulations that were the basis for a lot of operational standards.
Some Relief
Government stimulus programs pumped liquidity into the pockets of borrowers, and into the bank accounts of lenders, resulting in some breathing room for both contingencies. Interviews that I conducted with small-to-midsized consumer lenders indicated that portfolio performance and loan delinquencies have been holding up, meeting or even exceeding forecasts built prior to COVID. Loan forbearance was widely offered and uniformly accepted by consumers, much to the surprise of the regulators that approved stimulus funds to these consumers – with the expectation that consumers would use this money to meet their obligations, not delay them.
Initial Bumpiness
While things held up on face-level, there are vulnerabilities in how many lenders are operating. The first issue (that is in the rear-view) was the realization that many operations staff (think underwriters, loan processors, servicing agents) did not have data service at their residence. Laptops have been on back-order. Fancy telephony systems with dialers and IP capabilities may not have worked from employee’s homes. These issues are all behind us.
Reality Sets in While You Get Set Up
The need for omni-channel communications, where customers can engage with a lender in the time, place, and most importantly format, was immediately evident. Customer text (including 2-way) chat (including multi-channel and simultaneous attendant), and email customer management are critical to keeping in touch with borrowers during remote operations. For many, these operations were quickly thrown together with little strategy behind them, and little compliance review done prior to hitting “go.” Lenders that had a flexible and robust omni-channel infrastructure already in place were ahead of the curve. The flexibility of these systems to function in a remote configuration was also put to the test.
Looking Past COVID
Industry must be engaged and implement flexible systems that provide equal power to the internal agent and the external customer. Getting specific on customer communications preferences and communicating with them via their preferred format is no longer something to strive toward. Even “lenders of last resort” will find that the costs of operating without an omni-channel suite will result in frustrated borrowers who have more hurdles to collecting that payment.
So, what comes next is a matter for the crystal ball. While delinquencies have held up during COVID, there has been liquidity to kick the issue down the street. Collateral recoveries that were basically shut down are starting to open back up. The pressure to collect cash to fund operations and meet debt and ABS obligations will force the collection and recovery issue for all collateralized contracts. Given how states are loosening some of the consumer protections, some of this truth will reveal itself in Q4 of 2020, with a major portion of it (thinking of California) until Q1/Q2 of 2021.
Joel Kennedy is Director of Business Development at Nortridge Software Company. He has a passion for growing and improving the auto finance ecosystem. Joel has over 24 years’ experience helping big banks down to start-up finance companies to build, grow, improve, and repeat. He is the current President of the National Automotive Finance Association.
