The Broken Bond Between Lenders and Agents – Positive Resolution

Talking About Repo Fees Is Easy. Rebuilding the Relationship Is Harder.

EDITORIAL

There was a time, not too long ago, when the bond between lenders and repossession agents was strong. The lenders would go to the field and communicate with the borrowers and at times, perform their own repossessions. And when they couldn’t get a payment or the vehicle, they turned to their agent networks to help them achieve a “Positive Resolution.”

Those days are long gone. And with them went a bond that had taken decades to form.

The Collectors

It was fun. Back before cell phones, you’d get a call on the two-way radio telling you a client has a rush assignment they had spotted. And rush you did because these assignments were almost 100% recovered on first run.

Yes, the collector had spotted the collateral. Why; because they were in the field. Yes, in the field, not sitting in a cubicle. Collectors actually knocked on doors an talked to borrowers and on occasion called their local agent from a pay phone and waited for the agent.

This was not at all unusual, it was a requirement. Major lenders like General Motors Acceptance Corporation, Ford Motor Credit as well as banks, credit unions and regional banks and finance companies collectors were required to actually “work” their accounts and they did a fine job.

When they weren’t comfortable cutting the keys with their Curtis Key Gun and taking it themselves, then they called their “partner” repossession agencies. You would meet them around the corner and they would often give you the keys, a copy of the contract and a copy of the title and off you went. Usually, they waited, watched and applauded the agent’s successful recovery or even intervened if the borrower came out.

Collectors were different then. So were lenders. Even at the executive level, many of them had worked the field at some point of their career.

Career Paths

That field experience sometimes created entirely new career paths.

Eagle Group XX member and industry legend Millard Land began at Ford Motor Credit in the early 1970s before purchasing Adjusters Inc. of Houston in 1973 and spending the next 45 years in repossession.

Edward Dunleavy followed a similar path. After ten years with Domestic Finance Company, he opened Professional Adjustment Agency in Schenectady, New York, in 1959, eventually building what became a multi-generational repossession business.

The traffic also went the other direction. In 1982, future Wells Fargo CEO John Stumpf began his career with Minneapolis-based Norwest Corp., working as a repossessor.

These weren’t isolated curiosities. For much of the industry’s history, lenders, collectors and repossession agents occupied overlapping worlds. Many understood the other’s job because they had actually done it.

But everything changed.

Distance

Technology made lending and collections faster and more efficient. It also created distance.

As communications improved, collectors stopped going into the field. Local loan-support and branch operations were consolidated into regional and state service centers. By the early 2000s, the field collector had largely disappeared.

And with them disappeared much of the face-to-face relationship between lender and agent.

The bond began to strain.

A New Model

It really wasn’t a new model. Repossession forwarding has been around almost as long as there have been organized repossession agencies. It was the repossession agencies themselves that provided this service for their lender clients and, for only a small fee.

This is not intended to be an indictment of the forwarding industry. They have problems of their own that I’ll get to shortly. But when third parties entered the full-time forwarder market in the mid 2000’s, they leveraged three things to their benefit.

Efficiency
Speed
Cost Savings

There is nothing inherently wrong with any of these. But the devil is in the details.

Forwarding offered lenders another significant savings: fewer internal employees were needed to manage repossession assignments. But there was another savings built into the emerging model: agencies were increasingly expected to accept assignments on contingency.

Forwarders didn’t create the distance between lender and agent. That process was already well underway. But forwarding added another layer between them at precisely the time the old personal relationships were disappearing.

And with that additional layer came another economic reality. The lender became increasingly insulated from the actual cost of performing the repossession, while agencies competed for assignment volume under a contingency model.

That helped open the door to the stagnant fee environment the industry finds itself in today.

The relationship wasn’t strong because lenders paid agents more, it was strong because lenders and agents knew each other, understood each other’s jobs and recognized that they needed one another to achieve the same objective: a positive resolution.

That relationship had already become strained.

Now the bond was broken.

Insulated by Distance

From professional experience, there is one thing I can tell you; lending institutions are on a constant drive to reduce expenses. From desk chairs to paper clips, everything is accounted for. And for vendors, they are under a constant microscope and can be changed and used against each other to manage expenses and performance.

And this is where the forwarding industry sits, squarely between the lender and the repossession agency.

A forwarding company who requests a fee increase is often subjecting their company to scrutiny if not all out termination. Increasing expenses is not a thing that lenders do without a fight.

They will not pay any more for the services they need than they have to. Please read that again and understand it.

And while repossession agencies suffer from inflation, rising insurance costs and soaring gas prices, there is little forwarding companies can do to help because they suffer from most of the same issues. Stagnant fees caused by one forwarder being used against the other.

They may understand the agency’s problem perfectly and still lack the leverage to solve it.

This relationship between lender and forwarder creates in most cases, a great deal of insulation from direct contact and furthers the distance between agency and lender.

Partners?

The repossession industry likes the word “partner.”

Lenders call agencies partners. Forwarders call agencies partners. Agencies call their clients partners.

But a meaningful business partnership requires more than a vendor agreement. It requires some recognition that the continued health of one party has value to the other.

That is where the word begins to ring hollow.

While repossession companies have increasingly chased assignment volume rather than recovery margins, lenders and forwarders have remained under constant pressure to control their own expenses.

The result has been predictable: everyone has an incentive to push costs toward the next party in the chain.

Eventually, there is nowhere left to push them.

The repossession agency sits at the end of that chain.

Whatever partnership once existed between lender and agent has been replaced largely by a vendor relationship.

The bond is broken.

Talk Is Cheap

It is always worthwhile when clients and their service providers sit down together to discuss the problems affecting their respective businesses. But productive meetings usually have one thing in common: they begin with a clear objective and end with something that can actually be accomplished.

That is why simply “talking to the lenders” about repossession fees is unlikely, by itself, to move the proverbial needle.

They already know fuel costs more.

They already know insurance costs more.

They already know that trucks, wages, compliance, technology and virtually every other expense involved in operating a professional repossession agency costs more than it did five, ten or twenty years ago.

The problem isn’t necessarily awareness, it’s incentive.

Remember what I said earlier: lenders will not pay more for the services they need than they have to.

That isn’t an indictment of lenders. That’s business and business responds to leverage.

Where Is the Leverage?

What happens if a lender listens politely to a presentation about rising repossession costs and then declines to increase its fees?

What is the repossession industry going to do, strike?

Of course not. Aside from the practical and potentially legal problems associated with anything resembling coordinated collective action, the industry is too fragmented for it anyway.

If one agency refuses the work, another will accept it, everyone knows that. If one forwarding company demands higher rates, another may offer to perform the same service under the existing structure.

That is precisely how you got where you are.

For years, repossession companies chased volume while lenders and forwarders learned that there was almost always someone willing to take the next assignment.

That isn’t leverage, that’s competition. And competition without an economic floor eventually becomes a race to the bottom.

And that’s exactly where the repossession industry has arrived.

The Conversation Has to Change

This is why the current calls for communication with lenders are important, but communication alone cannot be the objective.

The objective must be changing the conversation.

Instead of simply saying, “We need higher fees,” the industry needs to demonstrate what lenders receive in return for paying sustainable fees.

Capacity.

Compliance.

Coverage.

Technology.

Training.

Insurance.

Professionalism.

And perhaps most importantly, performance. Those things have value.

The repossession industry needs to become better at demonstrating that value rather than merely explaining its costs. Because lenders don’t purchase the cost of operating a tow truck.

They purchase results.

Positive Resolution

And that brings us back to where this story began. Positive Resolution. That was once the objective shared by collector and repossession agent.

Sometimes positive resolution meant a payment.

Sometimes it meant locating the collateral.

Sometimes it meant getting the borrower to surrender the vehicle.

And sometimes it meant putting the car on the hook.

Both sides were working toward the same objective because both sides understood what the other was doing.

Somewhere along the way, that relationship became a transaction.

Assignments became data.

Agents became vendor numbers.

Performance became scorecards.

And price became one of the easiest numbers on those scorecards to squeeze.

The Eagle Group XX proposal and the growing calls within the repossession industry for direct conversations with lenders may represent an opportunity to begin changing that.

But only if the conversation goes beyond asking for more money.

Rebuilding the Bond

The repossession industry cannot recreate 1985. Collectors aren’t going back into the field with contracts folded under their arms, Curtis key guns in their cars and rolls of quarters for the nearest pay phone.

Nor should they.

Technology has made lending and repossession faster, safer and more efficient in countless ways, but technology should not require the elimination of relationships.

Perhaps the answer isn’t recreating the old model. Perhaps it is rebuilding what made that model work.

Direct communication.

Mutual understanding.

Accountability on both sides.

And an economic relationship in which professional performance has recognizable value.

Lenders need reliable recovery capacity.

Forwarders need financially healthy agency networks.

And repossession agencies need compensation sufficient to maintain the people, equipment, insurance, technology and compliance infrastructure necessary to provide that capacity.

Those interests are not incompatible, in fact, they are inseparable.

For decades, lenders and repossession agents understood that because they actually knew each other. Somewhere between consolidation, outsourcing, forwarding, automation and cost containment, that understanding disappeared.

So yes, talk to the lenders, but know exactly what you want to accomplish before walking into the room.

The objective shouldn’t simply be a higher repo fee; it must be restoring value to the relationship.

Because if lenders, forwarders and recovery agencies can once again recognize that their success depends upon the health of the others, perhaps that broken bond isn’t beyond repair.

And perhaps, after all these years, there is still a path toward a Positive Resolution.