Auto lenders are entering a period in which collections performance will depend on more than identifying borrowers who are falling behind. They also must account for what happens between the monthly statement and the receipt of payment.
The Federal Reserve Bank of New York’s “Quarterly Report on Household Debt and Credit,” released in August, put outstanding auto debt at $1.71 trillion in the second quarter, with transitions into early delinquency ticking higher. Meanwhile, the PYMNTS Intelligence report “The Service Commerce Performance Gap” found a separate source of payment delay inside the servicing process, as 22% of auto loan borrowers surveyed said billing dissatisfaction sometimes or very often leads them to postpone payment.
The friction translates into an estimated $12.3 billion in monthly auto loan payments exposed to delay, giving lenders a reason to examine billing and servicing alongside the credit indicators they already use to manage repayment risk.
The estimate is based on an average monthly auto loan payment of $650 and an estimated population of 86 million borrowers. Applying the 22% survey rate produces roughly 19 million borrowers whose payments can be affected by dissatisfaction. The $12.3 billion is an upper-bound estimate of monthly payment volume exposed to delay.
Payment Execution Is Only Part of Servicing
The underlying scores show where lenders have room to improve.
Automobile loans scored 75 out of 100 for payment execution in the PYMNTS Intelligence Service Commerce Performance Index. The scores were lower for payment options, at 69, and issue resolution, at 70. Bill creation scored 72, delivery 71 and review 73.
For lenders, the gaps put more emphasis on the servicing activity surrounding a successful transaction. How easily borrowers can manage when and how they pay, understand what they owe and resolve an issue can become part of payment performance.
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The automobile loan index score was 60 among Generation Z consumers, compared with 63 for millennials, 68 for Generation X and 73 for baby boomers and seniors. Across all four industries studied, 36% of Gen Z consumers said dissatisfaction sometimes or very often caused them to delay payment, compared with 8% of baby boomers and seniors.
A borrower who has delayed payment, or has taken to contacting customer service about a disputed balance, encountering repeated payment failures or seeking a change in payment timing before tendering the monthly payment, is generating a servicing history alongside a credit history. Connecting the two gives lenders another way to understand changes in payment behavior and determine where an account should be routed.
Collections Can Start With Servicing Data
The credit backdrop gives lenders an incentive to make greater use of those signals.
The New York Fed said transitions into early delinquency for auto loans ticked higher and new auto delinquencies remained elevated.
Traditional collections systems respond primarily to payment status, including current, late or delinquent. Billing data adds information about the interactions that occur before and around that status change.
For example, lenders can examine whether borrowers who contact support repeatedly, dispute bills or encounter unsuccessful payment attempts subsequently take longer to pay. They can also determine whether resolving those issues changes subsequent payment behavior.
The approach turns servicing records into another input for account management. Instead of waiting for days past due to become the first signal, lenders would use activity already occurring inside their billing and customer service systems to identify accounts where payment timing may be changing.
For auto lenders, the next step is to connect these servicing signals with account performance. Disputes, support contacts, unsuccessful payment attempts and requests involving payment timing already reside within lenders’ systems. Linking them to subsequent payment behavior can show which interactions are associated with delays, how long those delays last and where intervention has the greatest effect.
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