The Federal Reserve Bank of New York recently reported that a record 7 million Americans are behind on their auto payments, according to Business Insider. This was for auto payments more than 90 days behind the due date plus any grace days. That number is quite staggering, considering that’s more delinquencies than even the Great Recession of 2007-2010.Even though other indicators in the economy suggest that our economy is doing well, this one indicator has the Fed not so ready to raise interest rates and declare these “the best of times.”
Many reasons could be the cause of this statistic.
For one, cars are more expensive than they’ve ever been. Even used car loans are at an all-time high. According to Experian Information Solutions, Inc., the monthly payment for a new vehicle climbed to $530 (in 2018), and the average monthly payment for a used vehicle has reached $381.
Many of the delinquent car payments reported for Q4 of 2018 are from borrowers who are younger than 30. Employment opportunities may be higher in flux for the under 30 group, as they may be underemployed while finishing a college education; putting off car payments to focus on life changes such as moving or marriage; or being new to first-time car ownership and not understanding the importance of timely payments.
Many of our institutions say delinquencies occur if the car is totaled or has mechanical problems, so the borrower stops driving it and stops making payments.
Lending institutions do everything they can before starting the repossession process. Some institutions set up Collection Queues to generate a list of accounts when the borrower is only three days late making their payment.
But after doing everything possible to encourage the borrower to bring the account current, many institutions are left with no other choice than to initiate repossession of the vehicle. State and Federal regulations often make this process even harder than it needs to be. Additionally, there’s the expense of a repossession. Such as:
- Hiring a company to repossess the vehicle, which can cost anywhere from $300 to $1500.
- Storage fees.
- Reconditioning the vehicle for auction.
It’s such a headache that some banks don’t even bother with the car repossession process.
That is likely not a luxury for your institution. Even though there are major losses involved, repossessing a car can make up much of the cost. The amount from selling the car is then subtracted from the balance on the original loan, and the borrower remains liable for the remaining deficiency, including fees involved with the repossession.
Using GOLDPoint Systems software, the following steps outline how to flag an account as being repossessed, as well as important screens and transactions used in this process.
Use the Repossession transaction (tran code 2203-00) in CIM GOLDTeller to identify that property securing the loan account has been repossessed or is in the process of being repossessed. This transaction does not process an amount for the repossessed property. Use the Sale of Security transaction (tran code 2510-03, described below) to process the amount gained from selling the repossessed security, if applicable.
Running this transaction will cause the account to have Hold Code 93 (Repossession by Grantor), which will affect monthend Credit Reporting. Accounts with Hold Code 93 are assigned Account Status 96 (Merchandise was repossessed by credit grantor; there may be a balance due), which is reported in Base Field 17A in the Credit Report transmission (FPSRP184). See the Credit Bureau Status (Account Status) topic in the Credit Reporting manual for more information.
If this transaction has not been set up for your institution, it may resemble the following in CIM GOLDTeller:
If you have proper security clearance, you should change it to look similar to this:
- Account Number: Enter the account number for which you want to run the Repossession transaction. See the Running Transaction topic in the CIM GOLDTeller manual for more information.
- As of Date: Enter the date the repossession took place or will take place. This date updates the Date of Repossession field (FCRPOD) on the Loans > Bankruptcy and Foreclosure > Foreclosure, Repossession and Judgment screen in CIM GOLD. The date can be before today's date up to today's date. However, it can't be earlier than the Last Transaction Date on the loan.
- F/M New Data (Field 115): Change the name of this field to “General Category.” The General Categories that indicate a repossession are:
- 81 - Repossessed — non-real estate property
- 85 - Repossessed assets. Stops late charge assessments.
You may want to make this a drop-list. Note: If the loan is charged off, whatever is entered in this field will be ignored and the account will retain the charge-off General Category (82, 83, 84, 86, 87, 88, 89).
See the following sections in CIM GOLDTeller that explain how to change names of fields and how to create drop-lists:
CIM GOLDTeller > Functions > Administrator Options > Transaction Design > Field Properties Screen
CIM GOLDTeller > Functions > Administrator Options > Transaction Design > Creating a drop-list field
- F/M Old Date (Field 114): You should either hide this field or change the name of the field to "Hold Code." If this field is left blank (or you hide the field), a Hold Code 93 (Repossession by Grantor) will be placed on the account after the transaction is run. If any other Hold Code is entered in this field, that Hold Code will be placed on the account after the transaction is run.
Hold Code 93 affects monthend Credit Reporting. Accounts with Hold Code 93 are assigned Account Status 96 (Merchandise was repossessed by credit grantor; there may be a balance due), which is reported in Base Field 17A in the Credit Report transmission (FPSRP184). See the Credit Bureau Status (Account Status) topic in the Credit Reporting manual in DocsOnWeb for more information.
- Y/N Field 1 (Field 210): You should change the name of this field to "Discontinue Statements?"
- If you do not check this box, then nothing changes in the Statement Code or Advertising fields on the Loans > Account Information > Additional Loan Fields screen, Valuation/Billing tab.
- If you do check this box, the Statement Code field becomes "1 - No Statement" and the Advertise field becomes "0 - Do Not Advertise." These fields determine whether Consumer Finance statements (FSRP180, FPSRP280, FPSRP296, and FPSRP298) are sent to borrowers and whether or not advertising messages/fliers are included.
Note: These fields are also found on the Loans > Marketing and Collections screen, CIF tab.
After entering the fields on this transaction as explained above, click <Send> and the account will now be flagged as “Repossessed.”
Assess Repossession Fees
If you want to assess all repossession fees back on to the loan account at this time, use the Miscellaneous Fees fields on the bottom of the Marketing and Collections screen to assess those fees, as shown below:
The loan will remain on your books until those fees are paid off, or until the loan is designated as written off (see Sale of Security below). Also see the Miscellaneous Fees topic in DocsOnWeb.
Sale of Security
Once the Repossession transaction has been run, and the vehicle is sold, you need to run the Sale of Security transaction (tran code 2510-03).
If the amount of the loan is not enough to pay off the loan balance, and you want to write off the remaining amount of the loan, use the Sale of Security Full Write-off transaction (tran code 2510-05) to write off the remaining amount of the loan balance.
For more information concerning these two transactions, see the following links to applicable topics in DocsOnWeb: