Auto Loan Providers May Be Impacted By Changes To The Fair Debt Collection Practices Act

• The amendment calls for the number of times third-party debt collectors can make phone calls to borrowers with delinquent accounts to 7 per week.
• Experts fear regulators could extend this limitation onto direct lenders as well.
• Frequent phone calls are an effective way for auto loan providers to collect from delinquent accounts.

Once a borrower defaults on a loan, there are a few methods employed by lenders to recover part or whole of the outstanding debt balance. This recovery is essential for lenders to remain profitable in the financial products market.

However, last year the Consumer Financial Protection Bureau recommended a few changes to the Fair Debt Collection Practices Act, effectively making it more difficult for lenders to collect the outstanding debt.

For auto loan providers, implementation of these changes could mean that they would no longer be allowed to call borrowers to give them reminders about pending repayments more than a certain number of times. According to the American Financial Services Association (AFSA), this could lead to more instances of delayed repayments, causing many more vehicles to be reclaimed by the lenders.

Experts are of the opinion that auto loan providers need to prepare for the impact of these changes should they be implemented by the authorities, and consulting legal advisors at this point would be wise.

The amendments are targeted towards acts that can be concluded as unfair, deceptive, or even abusive. And since the persistent phone calls made by creditors can potentially fall under that category, regulators can limit creditors from making more than a certain number of calls to borrowers even though creditors don’t fall under the jurisdiction of the CFPB.

According to the changes recommended in the amendment, debt collectors hired by lenders as a third party would not be able to make more than 7 phone calls in a week to borrowers, and must wait for at least 7 days after borrowers have been reached by the bank before making any further phone calls. Although none of this mentions lenders specifically, there are concerns by the AFSA that its members may be limited accordingly as well.

A 2019 study published by the AFSA had revealed that there was a positive correlation between the number of times lenders made phone calls to customers maintaining delinquent accounts and the repayment rate. Any limit on the number of phone calls can lead to higher instances of repossession of vehicles by creditors. The AFSA had concluded that it took 30 attempts at the minimum to connect with 20% of all borrowers in a month, with 11% answering after 49 attempts.

Considering the fact that the auto loan industry in the US is collectively worth a whopping $1.25 trillion, and also that, as per data provided by Experian, 2.25% and 0.75% of all auto and lease debt is delinquent on a 30 days and 60 days basis, such limitations can cause panic among auto loan providers, and the best way forward is to develop methods that stay compliant with regulations while producing effective results at the same time.