Maintaining auto insurance coverage is what most would consider “old news.” For borrowers and lenders alike, it is a necessary investment that protects all invested parties from experiencing loss. Specifically for lenders, getting borrowers to comply with the terms of their auto loan contract is particularly critical as a breach of contract could have an adverse effect on your bottom line.
However, what many lenders are learning is in light of COVID-19 and the economic uncertainty that has accompanied the shutdown of many businesses and industries across the country, many consumers are under significant financial duress. Financial hardship measures have been put in place to support consumers, providing payment extensions and loan forbearance options, but with an economic future that is wrought with uncertainty, there is a high likelihood that insurance coverage—and the subsequent tracking and placement of collateral protection insurance (CPI)—will be impacted.
Walking the Tightrope
From a financial institution perspective, balancing risk with your member service is much like walking a tightrope. Given the current state of affairs in our economy, financial institutions are certainly being sensitive to the financial stress some of their borrowers are experiencing; however, they are not immune to auto loan portfolio risk. Some of the risk management-related concerns my financial institution clients have expressed include:
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