CCC News & Insights

February 10, 2021

Driving Customer Loyalty, Retention in Automotive Lending

Consumer complaints against automotive lenders are on the rise, according to an October 2020 report from the U.S. Public Interest Research Group (PIRG) Education Fund and Frontier Group. Their analysis of consumer data revealed a record spike in auto lease and financing complaints from March to July 2020, even with many auto lenders offering payment assistance to customers in response to the pandemic.

Many of the complaints stemmed from outstanding auto loan balances, which reached a record $1.36 trillion in Q3 2020. And while lender portfolios are growing, so is the increased workload across lender call centers, loan payoff and customer service teams.

A deeper analysis of the U.S. PIRG report reveals a sizeable portion of the complaints are linked to accidents or total losses. In fact, 13 percent of the narratives associated with loan payoff complaints mentioned the term “totaled” and 11 percent mentioned “accident,” with multiple reports of late fees following an accident.

A total loss can be a highly manual, time-intensive process for consumers and automotive lenders. As lenders look to improve customer loyalty and drive operational efficiencies, digitizing total loss workflows could help reduce process complexity, free up resources and minimize the likelihood of missed payments.

Consumer Behavior After a Total Loss

When a vehicle is totaled — whether following a crash, severe weather or other incident — it could be weeks before the auto lender is notified of the total loss.

Customers often do not realize they must continue to make vehicle loan payments even though they are no longer in possession of the vehicle. As the customer waits for insurance to process the claim and pay off the loan, missed payments could occur, resulting in delinquency.

Lenders often only find out about the total loss when the customer’s payment becomes delinquent. At this point, the customer experience may already be compromised.

If the customer faults the lender for this negative experience, they may choose to finance a replacement vehicle through a different auto lender.

The sooner the lender receives notification of the total loss and the claim is resolved, the sooner they can engage with the customer to consolidate payment and discuss a new loan. Reducing the notification period is key to creating a positive experience.

Lender Availability & Total Loss

Though collision and property damage liability claim frequencies were down during the pandemic, fast-flowing traffic and higher vehicle speeds contributed to an increase in total loss vehicle claims.

With rising total loss frequency, particularly among younger vehicles with outstanding loans, more lender resources should be dedicated to total loss resolution. But customer service resources are already taxed.

Lender call duration went up 50% at the start of the pandemic as worried customers reached out about outstanding loans and forbearance programs. This uptick in call duration meant lenders had limited resources to devote to total losses, where lengthy phone calls and hold times between lenders and insurance carriers are a consistent roadblock to resolution.

Extended economic uncertainty could further impact lender availability and resources, making it more difficult to provide both customer assistance and timely total loss resolutions.

Lender forbearance programs have helped reduce customer vulnerability during the pandemic, as have stimulus checks, unemployment benefits and other financial assistance. In fact, auto loan delinquencies and lender losses reached record lows during the pandemic thanks in large part to lender assistance.

But many consumers still face financial hardship. Even with additional stimulus checks and extended financial aid, the vehicle debt isn’t going anywhere. Customer delinquency and default are likely to become more prevalent. As are complaints and phone calls from customers.

Why Lenders Are Going Digital

With the growing reliance on remote work, digitization is becoming increasingly vital. For automotive lenders experiencing high volumes of customer calls, it’s more important than ever to create a seamless digital experience to maximize resources. But many total loss workflows still rely on phone- and paper-based processes, increasing time spent with insurance carriers on the title release process.

By digitizing total loss workflows, lenders can streamline the exchange of information and documents with carriers while receiving earlier notice of total loss. With near real-time alerts when a financed vehicle is declared a total loss, lenders can proactively communicate with customers to minimize the likelihood of missed payments.

A poor total loss experience could erode trust in the lender. Conversely, improving the experience could go a long way in driving customer loyalty and retention.