Auto Loan and Collection Challenges in 2021
By Suzi Straffon, Director, Finance Company Markets; Anne Holtzman, Senior Vice President, Claim & Recovery | Allied Solutions
While vaccination rates are on the rise and cities begin to reopen, the credit union industry is still pivoting to respond to pandemic-driven economic issues. Though auto loan delinquencies have remained low, lender accommodations as well as government stimulus payments may be masking the true economic impact. Moderate increases in auto loan delinquencies are expected this year as federal programs wane and lenders rescind accommodations.
Here are 4 economic impacts to consider:
- Unemployment: Currently, the unemployment rate stands around 6.1%. This has decreased significantly from the 7.9% rate in Q3 2020, but is still higher than the pre-pandemic rate of 3.5%. Economic volatility is expected to continue through 2021; but there are some positive signifiers such as lenders’ continued reduction of loan loss reserves, indicating an increase in confidence regarding consumers’ financial stability.
- Repossessions: Repossessions totaled 1.3M in 2020, a more than 20% decline from 2019’s total of 1.7M; however, repo volume is expected to rise later in 2021. The decline last year may have been a boon to borrowers, but it has also negatively impacted repossession companies. This is forcing many agencies to close their doors, and another 15%-20% of these companies are anticipated to shut their doors by the end of 2021. Additionally, service rates are increasing, so credit unions are facing difficulty in securing repossession resources. Repossession agents go where the volume and buying power is, so consider aggregating with partners to compete with larger institutions. These partnerships will ensure volume and incentivize collection firms to sustain a relationship.
- Regulations: Under President Biden’s administration the CFPB is expected to be much more active than it was last year. The new acting director of the CFPB, Dave Uejio, has shared that consumer treatment in repossessions is a major concern, as well as lenders optimizing deficiency balances before taking collection actions against borrowers. In addition to the CFPB, credit unions will soon be facing CECL compliance. While credit unions aren’t required to comply until Jan. 1, 2023, implementing CECL-related technology, processes, and procedures can take up to 12 months or more to implement.
- Vehicle Sales: Used vehicle sales are expected to remain strong, but pricing may decline as long-overdue lease returns and sales of other repossessions flood the market. Looking ahead through 2021, new vehicle demand is expected to climb back up as consumers are looking for alternatives to public transportation, returning to work, and taking advantage of loosening travel restrictions. New vehicle SAAR (Seasonally Adjusted Annual Rate) is projected around 15.5M to 16M, while used vehicle SAAR is expected to reach 39.3M.
To weather these factors for 2021, credit unions will want to shore up resources, tools, and technology, including leveraging data analytics to review auto loan portfolios. Whether strategizing for your member relationships, payment collections, or repossessions, analytics can be turned into actionable insights, helping credit unions work with borrowers, as well as ensure compliance and member sensitivity.
Remain optimistic and ahead of the curve with solid strategies for the coming months. For more information, check out our webinar Driving Auto Loan Success: 3 Risk Challenges Credit Unions Are Facing.