9 Insights for 2020: What's Next for Auto Finance?
January 22, 2020 | Produced by Anne Holtzman, Senior Vice President of Claims & Recovery at Allied Solutions
2020 is here, offering both a new year and the start of a new decade. But in order to look ahead, it’s also important to reflect back. In 2019, the auto finance industry experienced challenges and opportunities resulting from regulatory changes, data management growth, and the shifting infrastructure of both people and technology. This blog shares 9 insights learned in 2019 to help you prepare for what’s to come in 2020 and beyond.
1. There is a Growing Need For Consumer Education
As consumer negative equity continues to grow and consumer costs continue to rise, a growing need to provide financial literacy resources for consumers is emerging. In general, buyers are paying more for their cars over a longer time period. These increasing long-term expenses are playing a part in fueling rising household debt concerns. If dealers and lenders take the initiative to educate, they could help consumers better understand the purchasing process and how loan characteristics impact monthly payments.
2. The Magnitude of Risk Management is Being Reassessed
Extreme weather and natural disasters have changed how lenders think about their risk portfolios and total losses. In recent years, these disasters have increased in frequency and magnitude, as well as in cost. Consider that over the past 20 years, the United States averaged $24.43 billion in annual damage costs. However, total damage figures of nearly $41 billion in 2018 and over $89 billion in 2017 demonstrate how quickly these costs are increasing.1 Increased exposure has forced lenders to reassess how best to protect their collateral while serving their consumers.
3. Risk Strategy Can No Longer Remain Stagnant
It’s important for lending institutions to stay proactive in their preparations and review their risk plans at least once a year to adapt to changing market conditions and address their exposure. This review process will help identify what’s working and what could be improved. At a minimum, institutions should review their operation timelines, communication processes, collateral losses, and status updates to reevaluate their risk strategy’s effectiveness.
Click Here to Download the eBook: "What Happens After a Natural Catastrophe? Disaster Preparedness in 2019”
4. Communication Among All Stakeholders is Key When it Comes to Compliance
Regulators are considering consumer-friendly practices. This is leading to changing compliance requirements meant to make processes quick and painless for consumers. Pay attention to changing regulatory requirements in your state(s). Collaboration among dealers, providers, and lenders will help ensure an efficient and effective process that maintains relationships and accountability. Ask questions, document the process, and formulate a communication strategy to establish strong communication channels with both internal and external stakeholders.
5. Repossession Practices Are Changing
Repos are an important aspect to a risk strategy and help ensure loan collateral remains protected in a lender’s portfolio. This industry segment is shifting as location technology improves, car technology changes, and state compliance regulations are altered. These changes will require coordination among lenders and providers to create a more efficient, compliant repossession process.
6. Ancillary Product Refunds Face Compliance Concerns
In 2019, the Consumer Financial Protection Bureau (CFPB) listed auto loan servicing as an area of focus and oversight to examine “unfair, deceptive, or abusive acts or practices.”2 The CFPB’s announcement identifies ancillary product cancellations and refunds, and refunds after a repossession or total loss, as specific areas of interest. Lenders are facing increased scrutiny related to managing product cancellations and refunds, but few have the infrastructure to handle the process’ complexity. As a result, lenders will be seeking provider solutions to help address these concerns.
7. Data Is Growing
As more digital tools adapt and gather information, data’s availability continues to grow. Data is an important tool to identify strengths and weaknesses within a lender’s strategy and to identify new revenue streams. For example, zip code and mapping data gives a sense of exposure, data from insurance tracking technology provides early indicators of default or loss, notiﬁcation data shares inadequate insurance on collateral, and self-provided account holder data helps institutions communicate with consumers to avoid loan and mortgage defaults.
8. Introduction of AI and Other Evolving Technologies
Technological resources continue to emerge as support for growing industry needs. AI, in particular, is getting some attention as a way for lenders to manage data and communicate with their consumers. Tech innovations have helped improve process efficiencies and the customer experience. At Allied Solutions, we’re introducing robotics into our insurance tracking process to better serve our clients. However, with this rise in digital solutions, there have also been rising concerns about privacy and information security. Putting safety protocols in place to protect against data breaches is especially important for providers as they collaborate with lending institutions.
9. Lenders Are Seeking Supportive, Experienced Partners
With regulatory and compliance changes, new digital solutions, and ever-changing consumer demand all reshaping the market, lenders are no longer seeking product providers. Instead, they want solutions partners. These partners don’t just provide services, but also a support and industry expertise to meet all their lenders’ needs. Providers need to see this as an opportunity to continue to drive business and pave a path to greater collaboration in 2020.
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About Allied Solutions
Allied Solutions, LLC is one of the largest providers of insurance, lending, and marketing products to financial institutions in the US. Allied Solutions uses technology-based products and services customized to meet the needs of 4,000 clients, along with a portfolio of innovative products and services from a wide variety of providers. Allied Solutions maintains over 16 regional offices and service centers around the country and is a subsidiary of Securian Financial Group, Inc.
1 Summary of Natural Hazard Statistics in the US. National Weather Service. 1999-2018. https://www.nws.noaa.gov/om/hazstats.shtml
2 2019 Supervisory Highlight. CFPB. https://www.consumerfinance.gov/policy-compliance/guidance/supervisory-highlights/
Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.