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KSM Blog | Katz, Sapper & Miller CPA

How Buy Here-Pay Here Dealers Should (Not) Manage Collections

Posted 4:00 AM by

As a Buy Here-Pay Here (BHPH) dealer, one of the cornerstones of your business is collections. But getting loans on the books is not enough – you have to collect them consistently and efficiently. In the process of pursuing overdue accounts, how far can you go to ensure you receive what is owed?

In 2010, the Consumer Finance Protection Bureau (CFPB) opened its doors in response to the financial crises and Great Recession. Operating as an independent branch of the U.S. Government with annual budgets of nearly $600 million, the CFPB’s mission is to protect consumers in the financial sector, which includes lending and debt-collection practices.

BHPH Investigation

In response to complaints filed against one of the nation’s premier BHPH dealers – DriveTime Automotive Group, Inc. and DT Acceptance Corporation (DriveTime) – the dealer found themselves in the crosshairs of a CFPB investigation, resulting in an $8 million fine. When the formal consent order was released by the CFPB in November 2014, the findings against DriveTime’s collection practices were alarming:

  • Calls to Workplaces – Collectors ignored customers’ pleas to stop calling them at work. One customer was even contacted 30 times after an initial plea.
  • Calls to Third-Party References – In an effort to contact their customers, collectors called the customers’ references provided during the loan underwriting process. Both the customer and their references insisted the collectors stop calling (to no avail).
  • Calls to Wrong Numbers – To reach customers that had fallen out of contact, collectors used third-party databases to “skip trace” for new phone numbers, a practice that frequently led to wrong numbers. Even after the collectors were made aware of the issue, collection calls persisted.
  • Credit Information Furnishing – DriveTime outsourced its credit furnishing in November 2011, and, in the process, furnished duplicate account information and inaccurate current balances on charge-off accounts for thousands of customers. Additionally, the company’s written furnishing policies were inadequate and outdated.

Best Practices for Collecting

Often, using your best judgment leads to reasonable collection practices. However, your collectors, who are incentivized by meeting delinquency and charge-off benchmarks, may be willing to do whatever it takes to collect that elusive account. Setting guidelines during training sessions – and following through on those guidelines by monitoring a sample of each collector’s calls and frequency – helps create accountability.

As previously discussed, the CFPB called for thorough written policies and procedures to be in place for underwriting, collection and credit furnishing. This cannot be emphasized enough. It is imperative to have written policies and procedures in place that your employees have reviewed.

While DriveTime was caught and penalized for their aggressive collection practices and careless furnishing habits, they are certainly not alone. Working alongside numerous BHPH dealers, we have observed that the best collection practices do not entail hounding customers with multiple calls a day. Rather, building a relationship with customers from the onset of the loan and understanding their problems often enables them to put the dealer first. They will seek you when issues arise, and, ultimately, find a way to get caught up on their payments.

Frequently revisiting your collection practices, ensuring they are clearly communicated in writing, and establishing proper training and monitoring programs can help protect you from scrutiny and improve your charge offs.

This article appeared in Sept./Oct. 2015 edition of The Showroom.

About the Author
Jeff Taylor is the partner-in-charge of the firm’s Dealership Services and Buy Here-Pay Here Services Groups. Jeff is experienced in the areas of mergers and acquisitions, cash management, financing, forecasts and projections, tax planning, and business structuring. Connect with him on LinkedIn

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