Ding Dong, Collector Calling

San Francisco — Some finance firms are reverting to old-fashioned legwork to prod delinquent borrowers to catch up on their auto loans.

If customers in arrears can't be reached otherwise, bill collectors will go to their homes, says Bobbie Britting, senior analyst-consumer lending for the Tower Group, a research firm.

It is part of lenders rethinking collection procedures in the face of growing volumes of delinquent accounts, Britting says at the Consumer Bankers Assn.'s auto finance conference here, reporting on a study of revised best practices in loan collections.

“We're seeing all segments of auto lending facing increased delinquency rates, so the status quo isn't an option,” she says.

From 2007's second quarter to fourth quarter, delinquencies (payments beyond 30 days past due) increased 24%, she says. “Delinquencies are only 1% of all loans but, still, a 24% increase over two quarters is high.”

The American Bankers Assn. says the delinquency rate on indirect auto loans — those made through third parties, usually dealers, and making up 90% of all car loans — is 3%, a 17-year high.

With the house calls, “seasoned collectors” visit last-known addresses, Britting says, emphasizing that the intent is not to repossess vehicles.

Still, the practice unsettles Robert Zinsser, a conference attendee with unfond memories of his time as a bill collector.

“The onsite visits are something from the old days, but now we're dealing with a lot of people with guns,” he tells Britting.

She responds: “You've got to implement safety procedures. But an auto loan is a large loan. And, again, it's an attempt to make contact, not get the car back.”

Zinsser later tells Ward's that as a young loan collector in Pittsburgh during the 1970s, he sometimes made home visits “and a few times I thought I might get shot.”

While working for Ford Motor Credit, he once was told to go to a dilapidated residence to get an overdue payment on an 18-wheel truck.

He says: “The truck was parked outside the house. A woman came to the door and said the truck owner wasn't home. I looked at the truck and thought, ‘If it's here, he's here.’

“I called the office, and they said repo the truck. I'm thinking the guy may be in the house with a gun. And I didn't even know how to disengage the 18-wheeler's air brakes. So although I was a 21-year-old college kid, I told Ford Credit ‘no.’”

Meanwhile, Britting says some lenders have found success using college students to call delinquent borrowers and urge them to catch up on payments.

The shifts are short so the college students and other part-timers are less likely to burn out, she says.

Other best practices include ensuring collection-staff levels are adequate so workers aren't overwhelmed and making sure they use scripts for the calls. “They shouldn't wing it,” Britting says.

It's also important for lenders to “educate” customers in arrears, telling them that failure to make timely car payments hurts their chances of getting future financing and, in some cases, a job.

“Some customers only need a friendly nudge,” Britting says. “Others need sterner treatment because they are on the road to default.”

On the front end of the lending process, new-age procedures include getting borrowers' cell phone numbers “right off the bat” in case they need to be called later on collection matters, she says.

When a delinquent borrower can't be reached by phone, one bank has a novel plan B.

“If a customer won't talk to us, we've sent out cell phones for them to call us,” says Tom Wirth, president of U.S. Bancorp's Indirect Dealer Group.

They're specially rigged phones, he says. “You can only call us.”