With Hurricane Elsa soaking the East Coast and the worst drought in decades threatening the US West, loan servicers are finding themselves in familiar territory. The typical response is to staff the phones so affected borrowers can ask for hardship relief – then the back office gets busy. If these and other disasters happen multiple times a year, how can servicers help frustrated borrowers get a faster turnaround?
While the economy shows active signs of recovery – unemployment is down from 14.8 percent to 5.8 percent – a portion of the population continues to suffer financially. Thirty-five percent of borrowers, or about 2.2 million homeowners, are still in forbearance, and according to a recent Bankrate survey, fewer than 4 in 10 people have enough savings to pay for an unexpected $1,000 expense in cash. That is alarming, given America’s $14.6 trillion household debt.
Your response in crises can create customer loyalty or frustration
Since March 2020, forbearance plans and hardship relief have been inextricably linked to the pandemic, making the current crisis feel episodic. The reality is that hardship assistance is an ongoing need for consumers. Individual family crises, weather related-events, government shut-downs, and other events threaten borrowers’ ability to pay their loans. These moments create an opportunity for auto finance companies to build loyalty, which is everything when your customers decide to upgrade or trade-in their vehicle.
It’s human nature to respond to a crisis in the same manner as we’ve done before, especially if those strategies get the job done. Going forward, servicers should question whether turning to outsourced call centers, hiring campaigns or third-party letter vendors for their relief efforts is in the best interest of their borrowers or themselves.
As a result of the pandemic, consumers prefer to manage their finances online among other things, and they want answers fast. The accelerated adoption of self-service features by the largest financial institutions highlights the manual processes by others to be inefficient, costly and error-prone. At a time when the Consumer Financial Protection Bureau (CFPB) is flexing its oversight muscle, manual processes that result in borrower harm or disparate treatment could lead to brand-damaging and expensive outcomes.
Here’s what you can do to modernize hardship relief efforts (and reduce risk)
Now is the time to analyze (and improve) your lending, loan servicing, and loss mitigation strategies that serve all of your borrowers, especially the vulnerable ones living in disaster regions. Here are three immediate steps you can take:
1. Educate your team on compliance risks
• Dust off UDAAP and train your people – all of them. If your people cannot define UDAAP, they certainly won’t be able to spot it when it’s happening
• Increased training can help keep teams fully versed on available relief options and decrease non-compliance risks
2. Proactively reach out to borrowers; don’t wait for them to come to you
• Reach out to borrowers on their preferred channels so you actually connect to provide hardship assistance or other options
• Get ahead of the disaster by offering emergency preparedness information addressing what if scenarios like how to contact you if the phone lines are down or internet is not working
3. Adopt self-service technology
• Automating key parts of the loan servicing process can help avoid major disruptions and inevitable layoffs every time there is an event
• Self-service, loss mitigation tech can help reduce a borrower’s reluctance to reach out and ask for help. Feelings of dread and fear – or even misplaced information on a servicer’s website can delay a customer’s initial outreach or prevent it altogether.
• The combination of self-service tools and improved customer service leaves borrowers feeling in control of their loan repayment, leading to an improvement in payment outcomes
While there are certainly challenging months ahead, there is still time to put in place a plan that allows for improved team training, proactive borrower communications and automating – soundly and at scale – some key touch points in the loan servicing process. Reducing just a fraction of outdated, manual error-prone processes will increase consumer transparency and curb compliance risks, so your vulnerable customers get the relief they need and continue to stay in their homes, and drive their cars – and can at the same time improve your loss projections.