For creditors, getting through to customers who have defaulted on their loans or credit products is key to staying profitable.
Leaders at the American Financial Services Association are concerned that amendments to the Fair Debt Collection Practices Act proposed by the Consumer Financial Protection Bureau last year could limit how often auto lenders are able to seek repayment via phone calls. If that happens, consumers would be more likely to have late payments lead to vehicle repossession, AFSA contends.
Auto lenders should keep these possible changes on their radar and consult with legal experts in the event this change is implemented as proposed.
Celia Winslow, senior vice president of AFSA, told Automotive News that while the CFPB does not have jurisdiction over creditors, it is meaningful that the bureau included in its proposed amendments mention of its authority around UDAAP violations — short for unfair, deceptive or abusive acts or practices. That could allow other regulators to limit the number of calls creditors can make to customers.
"When creditors call consumers, they want to make sure they have the consent that they need, and they're calling their customers for a particular reason," Winslow said. "You want to pay your debts so your car doesn't get repossessed."
Changes to the rule would, among other things, limit third-party debt collectors to seven telephone calls per week. Once the bank reaches the customer, the third-party debt collector must wait at least a week before calling the consumer again. While lenders aren't third-party debt collectors, AFSA leaders are worried the association's members could end up being similarly restricted.
And in a study published in late 2019, AFSA concluded that when phone calls to customers are restricted, not all customers are reached in time to make payments on delinquent accounts. That means there would be a higher chance of vehicle repossessions in such cases. It requires at least 30 attempts to reach up to 20 percent of borrowers in a given month, AFSA found. And approximately 11 percent of borrowers require more than 49 telephone attempts before they're reached.
The U.S. vehicle financing business is a $1.25 trillion industry, AFSA notes. According to credit bureau Experian, 2.25 percent of total auto loan and lease debt is 30 days delinquent, and 0.75 percent is more than 60 days delinquent.
Auto lenders and other creditors should keep these possible changes in mind when refining their collection procedures. While potential implementation of the changes is down the road, following federal guidelines on how to contact customers is key to staying compliant and avoiding unnecessary lawsuits.