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2012-02-29 "Misguided Missiles" by Thomas B. Hudson, Attorney

Recently I saw an announcement regarding CA Senate Bill 459 and while reading it I couldn’t help but think of its effect on the recovery agency business owner. I think it’s important to recognize how today’s economic climate has negatively affected the small business owner and some of the consequences of the marginalization of fees. Since I’ve been in the recovery industry for over 30 years I can honestly state from experience that there are things under the surface not thought about but have grave consequences.

 

The ramifications are not immediately obvious to some in the lending industry as to the decreased margins.  However, what is very obvious to the business owner is the lack of resources to properly run their respective business.  Oh sure you’ll see some prosper but by in large most are having issues not recognized unless you peel back the curtain and look behind the scenes. 

 

Take for example hiring.  This industry was always considered a ‘profession’ with those who wanted to make a career within it. Although a ‘blue collar’ industry, those within it take great pride at their craft.  An employee was recruited and taught to be an expert at skiptracing and collateral recovery.  For their hard work and expertise they were handsomely rewarded.  Employees were not hard to find as the money enticed them to enter the industry and learn the trade.  Along the way they coped with the long hours and the obvious peril because they were fairly compensated.

 

In today’s market,employees are much more difficult to find as they cannot be compensated commensurate with the work and the high risks involved.  You cannot entice someone to work long hours, only to promise that the only way they’ll earn a living is by working contingent assignments with several “residence addresses” that have been passed through multiple agents.  BOY, where do I sign up for this job!

 

In addition, the recovery agent today must be computer literate, possess a clean driver’s license, possess a clean background, be clean cut, pass a certification course, possess locksmith skills, and have wrecker training.  I’m certainly not advocating that these things are not critically important,but I am stating that finding individuals who possess this type of skill set is harder than ever due to the lack of fees paid to the recovery agent.

 

The reason SB 459 was passed is due to the fact agency owners (and of course other owners in various industries) cut corners; knowing that the only way to survive is by adding an additional 25 plus percent to their pocket by not paying their employee’s workers comp insurance, payroll taxes, and health insurance.  Clients ask that agents meet their contractual requirements written by their legal counsel, which again is appropriate.  What is inexcusable is that clients mandate the recovery agent comply withthose contractual requirements while demanding a reduced fee for their services.  It is perfectly OK to demand what you need to protect your financial institution. It’s not OK to do so at the expense of the vendor.  Profit is what’s needed to add jobs, make needed repairs, pay payroll taxes, pay insurance, improve the business, etc.  With lower margins and thinned profits what’s cut first?  Interview a recovery agency owner today and ask them what they have had to cut to survive.  I’ll bet you will hear some of the following:

  • Health benefits
  • Vacation Pay
  • Holiday Pay
  • Phone Allowance
  • Training
  • Vehicle Maintenance
  • GPS Tracking of equipment
  • Lot repair or improvement
  • Security Cameras
  • Overtime
  • Technology upgrades or improvements

 

 

What you won’t hear the recovery agent tell you

  • I dropped coverage on trucks I listed on the policy I sent to you
  • I canceled my Workers Comp policy
  • I lowered my Garagekeepers limit on my policy
  • I didn’t fix the LPR cameras I bought so I’m not scanning
  • I’m using subcontractors
  • I’m storing cars in places I shouldn’t due to a cut back in staff or equipment
  • I didn’t meet payroll this week so I lost staff
  • I didn’t change the tires on my truck…yes I know they’re bald
  • I did take the wheels and tires off the repo to earn money
  • I did take the personal property and sell the items on the Internet
  • I did tell the transporter that the vehicle isn’t available as I didn’t have staff to release it and I was not there
  • I didn’t release the car so I can get an additional day of storage from the customer
  • I love forwarders as they pay well.

 

Additionally, clients are now hiding behind the middleman, forwarder, facilitator, front man, etc...to mitigate their own risk and mitigate costs associated with the repossession process.

 

What’s reprehensible is the fact these ‘facilitators’ will seek to maximize their profits off the backs of the vendors they hire.  Truthfully, this is America and we all understand we make a buck together by doing things that are mutually beneficial.  HOWEVER, these forwarders sign a contract with a lender at a high rate, or in some cases a low ball rate to feed their auctions, with a promise to insulate the lender from liability (recovery agent) only to create more liability by paying a fraction of what that recovery agent needs to prosper and survive. 

 

Forwarders and lenders squeeze every profit center from the recovery agent and have the audacity to state, ‘if you won’t do it someone else will’, or ‘your recovery percentage dropped why’?  I’ll tell you why, it’s because my truck broke down, my staff quit, I didn’t have the fuel to run 50 miles or more one way on a contingent file that has several unqualified addresses.  Where is the logic in all this?

 

A lender will contract with an auction to transport vehicles at a higher cost than the recovery agent would charge.  Why would they do something so illogical?  It’s due to the ignorance or arrogance of some managers but most often it’s determined on whose budget it hits.  If each repo is budgeted at X, then any additional expense is going to raise the cost per repo.  If it were my budget I wouldn’t let that happen.  I would want that expense, although higher, although a profit center to the recovery agent, although a minimal detriment to their own company, to be written to post repo or better said, someone else’s budget.  That’s an easy example, here’s another one.  A vehicle gets recovered and needs a key to be cut in order to obtain mileage, remove personal property, and be transported as an operable vehicle.  Some clients will deny the key fee since they think the agent is making a profit, lying, or is gouging.  Doesn’t the vehicle need a key to sell at top dollar at the auction?  Of course it does, so the auction cuts it, the auction makes the profit as it’s now on someone else’s budget and the recovery agent’s profit that is important to his/her survival is gone.  I’ve heard it and seen it countless times, ‘send the vehicle to auction without a key’.  The vehicle now left the recovery agent’s lot as an inoperable vehicle, which means the transporter can charge more to the client for transport and possibly damage it by dragging it onto the transport truck. 

 

So let’s think for a moment,the lender just paid more to the auction for transport and a key.  Why would a lender do something so illogical?  These are two incremental profit centers for the recovery agent that adds to the total dollar earned per repo.  It’s a win win instead of a win lose.

 

Why in the world does a client need a ‘locksmith receipt’ from a recovery agent?  Did the vehicle need a key or did it not need a key?  Did the agent lie and charge for the key when in fact he got it from the customer?  Clients demand locksmith receipts primarily because they think recovery agents lie and the vehicle didn’t need the key.  If the agent does this, he needs to be terminated.  But WHY does a recovery agent take this gamble?  It’s due to the fact that fees have been driven down to unacceptable levels.  Again, look behind the curtain.  Clients add an additional monitoring and cost point due to the mistrust.  This mistrust starts due to the financial inequity of the relationship. 

 

Lenders attempt to insulate themselves from liability only to sully their multibillion dollar corporate name by having a low ball agency deal with their customer in the field.  Corporations spend millions on their brand only to get trashed by saving $50.00 to $100 per recovery.  Oh sure, the costs per recovery add up with the additional $50.00 to $100.00 but what’s the cost for trashing your name by dealing with a forwarder.  I’ll wager no one has done that analysis.Let me be clear. I’m not advocating the demise of the forwarder.  Rather, I’m advocating that clients demand that forwarders use the bulk of the negotiated fee to pay the recovery agent appropriately, and timely.

 

Repossessions should not be at $250.00 to $275.00 contingent.  EVERY single cost has risen yet fees have been driven down to perilous levels.  Every contractual demand has gotten more stringent, yet fees have decreased substantially. If you are a lender, poll your ‘facilitator’ and ask them how they pay their recovery agents. If you’re paying a close fee what percentage is being passed along to the recovery agent?  I know first-hand that some forwarders get huge close fees only to keep the fee to themselves.  If they are paying agents subpar rates what’s your exposure?  What’s your reputation worth?  Ask Santander, CAC, American Recovery, PAR, or Renovo what their name is worth in “repo space”. They are all garbage despite them all writing large checks to cover the issues and law suits that arise.  Poll them and ask them how much they pay each year to cover the mistakes made in hiring the wrong agent?  Of course, mistakes happen to the best of us but agents used to cover their own mistakes.  Now they are forced to cut corners which further leads to the potential for mistakes, Wrongful Repossession litigation, insurance claims, physical injury, even death.

 

Simply put, demand whatever you want from a recovery agentin terms of compliance, and monitor their compliance.  The higher the demands the better in the long run for both the recovery agent and the lender since both will be protected.  However, do not do so thinking the agency owner is not being affected by the continuous reductions in fees, which affects the lender in the long run.  You, the lender are not insulating yourself by such predatory practices.  Somewhere along the way you are paying the price as this is not an industry where you can cut corners and not suffer the consequences.  Behind the curtain there are things cutting you back!