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March 28, 2019

Auto Loan Delinquencies Are Rising, But It May Be By Design

(New York, NY): In February, the New York Federal Reserve Bank reported that 7 million Americans are 90 days or more behind on their auto loan payments, which some interpret as a possible recession indicator. But looking at delinquency numbers pulled from a broad range of lending organizations can be misleading and does not fully explain if trends are wide-spread or concentrated within individual auto portfolios. Insight from Auriemma Group provides much-needed context to clarify the factors driving this figure and how lenders have planned and prepared for the increase in delinquencies.

Between 2014 and 2018, 90+ day delinquency rates increased by almost 50% to 3.58%, according to Auriemma Roundtables data. An explanation for this increase: Several lenders with sizable market share made calculated decisions to dive deeper into credit tiers, approving significantly more loans for customers with FICO scores below 620.

“The overall increase in delinquent borrowers is a byproduct of strategic decisions to expand acceptance criteria, rather than an indicator of broader market conditions,” said Luigi Condina, Director within the Auriemma Roundtables practice.

The industry has sought to manage rising delinquency rates through use of the following loss mitigation strategies and collections effectiveness techniques:

  • Delaying repossession assignment, which keeps customers in their vehicles longer and provides more opportunities to cure
  • Proactive outreach to offer hardship programs that get customers back in their cars
  • Improving collections effectiveness by expanding digital channels like text messaging

The number of US consumers behind on their car payments is a figure that should drive awareness and preparedness, not panic, on behalf of auto lenders.

Auriemma’s Auto Collections Roundtable is focused on best practices for many facets of collections management, loss mitigation, and repossession strategy for more than 25 auto lenders, representing nearly 75% of the market.

About Auriemma Group

Auriemma Group’s mission is to give clients access to data and intelligence that drive decision-making. We provide information and advisory services in four areas: co-brand partnerships, consumer research, corporate finance, and operational intelligence. Founded in 1984, Auriemma serves the consumer finance industry from our offices in New York City and London. For more information, visit us at www.auriemma.group or call (212) 323-7000.