Untapped Growth Amidst Auto Loan Delinquencies

By Catherine York Powers, CEO, Constant

March 5, 2024

Credit unions grabbed significant auto loan market share in 2021 and 2022 at a time when car prices surged. This drove up the average monthly payment north of $750. With the backdrop of higher rates and tighter credit conditions, CEOs are grappling with a dual challenge: tackling auto loan delinquencies and while looking for untapped revenue opportunities.

In this illogical landscape where the economy continues to grow while delinquencies climb above pre-pandemic levels, credit unions are finding silver linings. Auto delinquencies are rising yet hidden growth opportunities are emerging.

Let’s dive into how digital banking add-ons and leveraging small first-party data sets are not just financial game-changers, but potential member retention lifesavers for credit unions. We’ll start with how to reduce delinquency through avoiding short payoffs and providing early-stage hardship relief and move to untapped revenue streams related to auto payoffs.

How Members Can Avoid Delinquency

Delinquency rates on credit cards and auto loans spiked to their highest since the Great Recession, according to the New York Fed, posing a real threat to the financial stability of credit unions. The upswing in delinquency rates is an indication that the interest rate hikes are hitting consumers who are struggling with the higher cost of borrowing. Early intervention is key to keeping your members out of delinquency.

Rather than waiting for a member to ask for hardship assistance (which usually happens after they’re delinquent), a digital banking add-on can be the superhero by proactively presenting members who are less than 30 days past due offering relief options specific to them.

In a world where members have to endure a slow and frustrating process involving calls, visits, and forms, this new approach allows them to resolve their financial struggles entirely online. It's all about speed, convenience, and a happier membership base.

Avoid Unnecessary Delinquencies From Short Payoffs

One culprit in the world of monthly losses is the short payoffs based on estimates in digital banking. This occurs when well-intentioned members pay the estimated payoff amount which is usually lower than the actual payoff amount including per diem, fees and expenses. These small dollar underpayments create a cumulative impact that's akin to death by a thousand cuts for credit unions.

Formal payoff quotes on letterhead sound simple enough but are a rarity in most digital banking platforms. By providing accurate and detailed payoff quotes pulled directly from the core, these add-ons ensure members see the exact amount owed, including per diems, expenses, and fees.

A few simple configurations can eliminate the ‘estimate payoff’ practice and the related small dollar collections efforts. Collectors should be focused on complex financial hardships and delinquent members, not avoidable errors. The goal? Less frustrating, time-consuming calls with members and fewer write-offs.

Untapped Revenue and Boosting Member Retention

In this illogical market, there are members nearing the financial cliff and driving surging delinquencies and members who are solvent.

Leveraging your digital banking platform with add-ons doesn’t stop at delinquency management. Americans swap vehicles frequently, on average every 2-3 years. By incorporating unique features that inquire about the member's reason for seeking a payoff amount, for example, credit unions can gain valuable insights.

These insights pay immediate dividends by leveraging immediate recapture opportunities. Members seeking payoff quotes in order to sell or trade-in their vehicles can be seamlessly connected to new loan offers rather than taking the risk the member exits for a better offer elsewhere. It's a win-win situation, fostering member retention and creating new revenue.

Example:

Let's take a real-world example: an auto finance CUSO with 145,000 auto loans received 100 payoff quote requests daily or 3,000/month. Roughly 80% left for a loan offer elsewhere. By leveraging the digital banking add-on, credit unions aren't just providing prompt formal payoff quotes; they're rerouting members to an in-house loan, encouraging them to stick around.

In the ever-evolving market, CEOs are steering their ships toward innovation to support multiple outcomes, sometimes all at once. The integration of digital banking add-ons for loan servicing offers a transformative opportunity to reduce losses, streamline processes and enhance member retention. By proactively addressing delinquencies and embracing technology for member engagement, credit unions are not just staying afloat in today’s market; they're tapping into unexpected revenue.

Connect with Constant to learn more.

About Constant

Constant's executives, experienced in managing billions in retail debt, grew frustrated with legacy core system constraints and manual operations. They boldly transitioned loan servicing from manual to digital self-service, reshaping the operations landscape. Constant’s mission is to empower members to self-serve online and help credit unions grow through meaningful interactions with their members.