Recently, amongst many other agencies, we received the Primeritus contract and would like to take a moment to thank you and the Primeritus Vendor Relations team for their interest in continuing their business relationship with our company. Last fall, we were excited about your promotion and the great things that Primeritus president Phil Hanks said about you. “Keith is one of those rare individuals that genuinely wants to help everyone, which is why we chose him to oversee our agent network. We look for individuals who are here to not only help grow our business, but to help grow our partnerships with agents and clients alike.”
Keith, we are glad that Primeritus has chosen an individual to handle the agent network that is as wise and far thinking as you are and we have a few ideas we would like to run past you. Over the years we have maintained an equitable relationship and performed well with many of the companies Primeritus recently purchased. In fact, when Relentless was just starting out, many of those purchased companies provided the stepping-stones needed to grow into the company we are today. Keith, with that said, after reviewing the most recent Primeritus contract, we would like to address an issue that may have not been fully taken into account by its authors.
Since July 21, 2011 when the Consumer Finance Protection Bureau was founded, many recovery agencies have been aware that the consolidation of old rules, laws and new regulations would have a strong effect on the auto finance and collateral recovery industry. Throughout 2012, the CFPB progressively expanded their power and proposed new rules to protect the consumer and provide them with a venue for complaints and recourse. The CFPB has stated that since third party vendors for lending institutions are part of the lending process and handling the consumer auto loans on behalf of the lending institution, they will be held to the exact same standards and intensive regulations as the lender.
The repossession process begins when a lender encounters a breach of contract due to non-payment by the consumer. Using a third party repossession agency, the lender executes provisions of the contract and recovers their collateral. The collateral is then paid current or in full by the consumer or remarketed to cover the debt. Obviously, no consumer wants this process to take place, as it can be fraught with negative emotions. Even if the repossession process is handled properly, courteously, professionally and with respect, the consumer is bound to have a complaint, at the minimum, solely based on his or her dissatisfaction even though the consumer knows they did not make the payment as required by the contract.
In 2013 the gears really started turning. At the start of the year, a public form was posted on the CFPB’s website for auto loan and repossession complaints. The CFPB now has an easily accessible and widely available means to be notified of the many complaints that the repossession process may generate nationally. Rest assured, the CFPB will follow up on these complaints. Additionally, the results of the complaint form are publicly available for download and viewing. Just recently, we downloaded the data on the major lending institutions and compared their number of complaints and how fast they responded to them. We could see the trends where some major institutions initially took longer to respond to complaints, until they realized how serious it was to cross the CFPB and greatly reduced the time it took to respond. The lenders themselves saw the importance of compliance and reacted strongly to become compliant! Having this information publicly available has a wide variety of ramifications, especially legally, and has become an effective passive tool the CFPB wields in forcing compliance in the lending industry. No company wants to be at the top of a public list showing complaints. Additionally, no company wants that information to be used against them in a court of law.
In the last months, this drastic industry change has been a clarion call for many professional agencies throughout the country to make major adjustments in their method and process of doing business. Keith, we all know that CFPB compliance has taken a high priority and must become part of the everyday process of running a repossession business. As the repossession agencies strive to create the necessary and required infrastructure, enhance employee training, intensively document their internal processes, and provide a venue for complaints with a process they follow to respond, they are beginning to experience their first taste of the financial costs. The fact is that this new compliance dynamic is extremely costly to institute.
Recently, in the conversations we have had with some of the large lending institutions we serve, they have been very clear on how important our compliance with the CFPB is to them. I am sure you and Primeritus have had many of the same discussions. Lenders have realized that it is in their best interest to cut ties with vendors that jeopardize their public image and create liability situations because the vendor cannot or will not become compliant. One client stated that they believe that at least 40% of repossession agencies in the United States will go out of business this year due to non-compliance. While this number may be up for debate, the fact of the matter is that lending institutions recognize that compliance is extremely important, and have elevated it to the levels rivaling recovery rates and general vendor performance.
If the lender’s suspicions are even partially true, compliant, financially stable, professional repossession agencies, in the next year, may become few and far between. The laws of Supply and Demand dictates that the remaining solid agencies will be in much greater demand to the lenders who desperately need them to recoup the millions of dollars they have invested in their missing collateral. While this situation should not be taken advantage of by the repossession agencies that survive, it will become a real and honest bargaining chip in negotiating rates.
In Relentless’ case, and we are generally frugal, the cost for third party audits, employee hours spent on compliance, and infrastructure improvements are thousands of dollars and we are only a few months into 2013. These same costs are being absorbed by agencies across the country and inside of the Primeritus agent network. As the smallest granular elements of the auto lending industry supply chain, individual agencies feel these costs stronger than those in the chain above them.
As agency owners, we should be thinking about compliance in the same way we think about fuel costs. Running each account costs us time, effort, wear and tear, and scare resources. Now we have to factor in the high cost of compliance. We are still reacting to the situation as it develops, so it is hard to place a monetary value, but the cost compliance is high enough that it is an industry changing dynamic. Foreword thinking agency owners know that in order to continue as a stable, quality vendor for their clients, put food on the table of their hard-working employees, and make a decent living, the compensation for their services must reflect a major increase.
Relentless will not be part of the 40%; we intend to survive this industry transition by making a commitment to protect our clients through maintaining CFPB compliance. In this light we are currently working through the process of completing our first audit with Vendor Transparency Services, a third-party repossession vendor verification company at http://vtscheck.com. Another element of this commitment is to not cut corners and have in place a robust infrastructure, which is only possible through agreeing to perform services for equitable rates. If a company agrees to provide a service for a rate that is below their bottom line, eventually this will drag them down to financial ruin. Keith, I submit to you and Primeritus that the recent major changes in the industry warrant not only a revamp of the current contract, but a complete overhaul on the way Primeritus’ views their vendor network. CFPB compliance issues will create major changes in your vendor network, and adjusting the contract to increase benefits and compensation to the agencies will allow more resources to be devoted to agencies implementing compliance measures, thus keeping them in business and making Primeritus’ network stronger.
Lenders, forwarding companies, and repossession agencies, all members of the same industry supply chain, are all in the same sticky situation. Each of our groups are now devoting heavy effort towards CFPB compliance. While many look at compliance as extra work and cost, in the long run it is a positive professional turn for the auto lending industry. Keith and Primeritus, in addition to Relentless, we feel that we can reasonably speak for many agency members of the Primeritus network in saying that we welcome open lines of communications and hope you take into account the ongoing changes in our industry for the betterment of all parties involved.