The CPI Wall – The Great Barrier to Direct Credit Union Repo Assignments

Skip Insurance and the CPI Relationship

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For decades, the relationship between credit unions and their preferred repossession agents was a close one. Recovery rates were high and it was a mutually beneficial business relationship that everyone prospered under. But over the years, these relationships have become more fractured and have greatly reduced. The reason is simple; credit unions have found another way to get recovery; skip claims.

It’s never wise to keep pall your eggs in one basket, and that’s why so many repossession agencies strive to maintain and grow their direct assignment relationships. Since both the credit union movement and the professional repossession industries blossomed at about the same time in the 1930’s, their relationships grew side by side.

But just as the repossession industry has changed dramatically over this time, so has the credit union industry. And one of the changes effecting these direct relationships is an insurance product that has dramatically changed how credit unions assign their repossessions and why.

CPI

For anyone unfamiliar with the term CPI, it is an abbreviation of the term Collateral Protection Insurance. Sometimes referred to as FPI (Forced Place Insurance), this is the backup insurance program that credit unions maintain to protect their collateral in the even that the borrower fails to maintain their own.

Premiums for CPI polices range anywhere from 3%-6% of the loan balance for a twelve-month policy and are usually amortized out for ten months. These significantly increase the borrower’s payments and often exasperate any payment stress the borrower may already be under. There are numerous reasons why CPI can be added to a loan, but in short, it is due to insufficient or a complete lack of insurance coverage as required under the terms of the auto loan contract.

And while these premiums protect the collateral, there are additional coverages beyond the traditional mandatory comp and collision insurance that credit unions opt to include for their own benefit. The one with the greatest benefit to the credit union is; Skip, Confiscation, or Conversion Coverage. Or Skip Insurance as it is commonly known.

Skip

Skip insurance is pretty straightforward in itself. If the lender cannot locate and recover their delinquent CPI covered collateral, they get paid the fair market value of it after giving the CPI carrier 90 days to repossess it. Different carriers have different time frames, but this one is most common.

But there’s usually a catch; they have to make a 30-day attempt to recover it themselves. Many CPI carriers require that the credit unions assign it for what they call “Pre-Skip”. This requires using the CPI carrier’s preferred assignment method, the same Forwarding Company they use.

Until a little more than a decade ago, only the nation’s largest credit unions used forwarding companies and the agency credit union relationship was strong. The growth of skip insurance changed all that.

All of this insurance process requires time and time. is working against every credit union collections department. They only have a few months to recover the collateral before showing a loss.

The Crunch

As a matter of generally accepted accounting principles (GAAP), all collateral secured loans are to be charged off in the month after they turn 180 days delinquent. On average, most credit unions do not start the repossession process until they are 60-days delinquent. This 120-day window is the crux of the problem.

If they credit union assigns out and assignment at day 60, and if after 30 days it is not recovered, the loan is now at approximately 90 days delinquent. That leaves 90 days for the CPI carrier to use their forwarding provider to recover it before having to payout on the claim.

It’s simple math; the loan will usually be over 180 days delinquent when the claim gets paid out.

Now, there are exceptions to everything, but those are few and usually involve collateral being recovered late in the assignment stage. When the skip claim process is followed as prescribed by the CPI carrier, credit unions tend to get their claim payoffs before charge-off and thus reduce their losses.

Nowhere in that time frame is enough time for a credit union to make an attempt to repossess the collateral at any point in between without using the CPI carriers preferred forwarding company.

Recovery Ratios

As I’ve reported in several stories on repossession volume through the years, and quoting the CFPB, repossession recovery ratios began to show a steep decline between 2019-2022. Going from a 38% recovery rate on all repossession assignments down to 27% its of little wonder credit unions had begun to lean in heavily on their skip insurance in recent years.

And while recovery ratios have improved to about 30% industry wide, it is still a far cry from where it was and the skip insurance process has filled the void. This preference and process is cemented into almost every credit union in the nation and is well accepted, if not adored, by every C-Suite executive down to the lowest collections desk.

Why the recovery ratios are down is something I have spoken of before and it is all related.

The Cost

When a credit union’s claim losses rise above a certain threshold, the rate of the CPI coverage rises to accommodate for not only the expected losses, but for the administration of them. So, the expense of the CPI policy, paid for in advance by the credit union for 12-month periods to the defaulted borrower rises and every month unpaid for by the borrower is an earned premium and expense to the credit union which will not be refunded.

This expense carries on until the coverage is cancelled either by the evidence of self-insurance by they borrower or by claim pay out. And as you can see, if 70% of credit union repossession assignments go all the way to 180 days delinquent to receive a skip claim payment, the amount refunded on a CPI policy is often minimal.

In short, they will pay up front anywhere from 5%-6% of the loan balance for this process. That is, until premiums go up to accommodate the higher skip claim losses that are the result of low repossession rates.

Offsetting these expenses, for the credit union, this process reduces a lot of the repossession management duties and therefore the allocation of time to it (time is money.) What expenses are incurred are covered under the CPI policy, which is billed to the defaulted borrowers. However, every single month an assigned repossession with CPI on it goes unrecovered, the credit union loses a month of pre-paid non-refundable CPI premiums.

Until skip claim settlement payments are reduced or the expenses outweigh the benefits, this process is unlikely to change.

Same Clients, Different Source

If your company works for any of the major national forwarding companies, you are probably already receiving credit union assignments as one of several repossession agencies employed in a staging strategy. For the vast majority of repossession agencies, this is as close as you will ever come to getting work from any of the major repossession assignment volume credit unions like Navy FCU or Boeing FCU, with or without the skip claim coverage.

In the CFPB’s January report on repossessions, they reported that in 2018, on the examined banks, they found that repossession assignments to forwarders were only 31% of the volume. Fast forward to 2020 and it was 50%. I think it’s safe to say, the credit union volume is experiencing something very similar.

For those seeking work from smaller credit unions, that segment of the credit union industry is shrinking. At the end of 2019, the NCUA reported that there were 5,236 federally insured credit unions. By the end of 2024, only 4,571 remained.

Through merger and conservatorship, on average, over 100 credit unions disappeared per year. It’s a slowly dying and consolidating industry and one that begins looking more and more like the big banks with every passing year.

But they are not alone. According to The Bureau of Labor Statistics (BLS), in 2020 they counted that there were 848 reported repossession agencies in the nation. By 2022, during the pandemic, that number had shrunk to 800. And by the end of 2024 it had only grown to 855.

With record volume in repossession assignments, there simply aren’t enough repossession agencies to improve recovery ratios. These results will keep skip insurance in strong demand for some time to come.

For the record, I am not trying to dissuade anyone from pursuing direct assignment volume from credit unions. I am merely explaining a part of the credit union process that many of you may not be aware of. Credit Unions tend to have higher recovery ratios and fees and I strongly encourage everyone to pursue these relationships! They need it as does every agency who wishes to maintain a balanced assignment pool.

So, if you have good direct assignment relationships with your local credit unions, consider yourself lucky. Do what you must to maintain them. For those of you wishing to get more, be aware, there just aren’t as many credit unions as there used to be and the skip claim process is not going away.

Kevin Armstrong

Publisher