The final car payment has been debited from a consumer’s bank account, and they’re ready to celebrate paying off their loan. But that’s not their final interaction with their lender, who will likely need to issue a refund for the difference between that last car payment and the outstanding loan balance. With Americans borrowing around 2.3 million auto loans—representing a total volume of $52.8 billion*—every month, lenders end up writing millions of overpayment refund checks every year. Carrie Creed, Onbe’s resident expert on consumer refund solutions for automotive finance companies, weighs in on how lenders can modernize their refund processes, reduce costs, and deliver a better customer experience.
Why is issuing auto loan refunds such a challenge for lenders?
The majority of automotive lenders still send customer refunds using physical paper checks. These companies are built around accepting payments, so issuing checks—and dealing with lost or stolen checks, escheatment, and other complexities—is not their core competency. Especially as these organizations continue to grow, they need a more efficient process for handling refunds.
What is the biggest area of opportunity for lenders looking to modernize their refund processes?
Eliminating the expense of checks, which can cost anywhere from $3 to $12 each, can be the most impactful change. The cost of checks has a large range because companies pay varying amounts for check printing, postage, customer service, handling lost and stolen checks, managing escheatment, and combatting risk and fraud. By switching to another payment solution, lenders can dramatically reduce their expenses and administrative burden.
Lenders also need to have the opportunity to offload their escheatment management process to a compliant disbursements provider. Today, it’s common for lenders to use a check vendor, which writes refund checks from the company’s bank account. The vendor performs many of the administrative tasks, including printing checks and stuffing envelopes, but they usually don’t handle the escheatment of uncashed checks, and this responsibility ultimately still falls on the auto lender. In contrast, a managed disbursement provider can take care of everything from processing the refund to escheating unclaimed funds—and everything in between.
Why should lenders offload escheatment management?
Escheatment, the process of reporting unclaimed funds to the state, is highly complex and regulated. Keeping track of these ever-changing regulations may require multiple full-time employees, and any missteps come with the risk ofboth fines and penalties. As companies grow and need to handle a higher volume of refunds, that risk continues to become larger. However, working with a managed disbursements provider allows lenders to focus on their core competencies while leaving regulatory nuances to the specialists.
What consumer pain points should automotive lenders solve for?
What I find with most auto lenders today is that their customer refund experience involves sending a very basic check that comes with little to no branding or communication. When the check arrives in the mail, recipients often don’t know what the payment is for and have the hassle of cashing it—if they even remember to do so. Having a branded payment experience designed to comply with complex state and federal laws and regulations, and that provides clear communications about the purpose of the refund, prevents confusion and increases customer satisfaction. Customers get the funds they’re entitled to and can enjoy a positive last experience with their auto lender. This improved experience leads to fewer customer service calls and happier customers.
How can lenders meet diverse consumer payment preferences?
Since automotive lenders serve a wide range of demographics, payment choice is imperative. In a typical scenario, a lender might send a refund via a physical or virtual prepaid card with the option to choose another payment method. Most customers enjoy the instant gratification of using their prepaid card for immediate online or in-person spend, while some will select one of the other options available to them.
Another solution is to offer a digital solution with upfront choices for how to redeem your refund. Through a consultative approach, Onbe can advise on the right payment mix to ensure cost-efficiency while providing the most flexible and convenient payment options to your customer.
What is the most surprising thing lenders should know about switching from checks?
By choosing a more modern payment solution, lenders can offer a better product, with less administrative hassle, for less money—AND customers are happier. It sounds too good to be true, but it’s the result of being able to streamline your refund processes, reduce risk and fraud, and offer more cost-efficient payment methods. This is a win-win scenario for both lenders and their customers. The one thing I hear most often from our refund clients is, “I only wish we’d started this process sooner.”
Learn more about Onbe’s payment solutions for automotive companies: https://www.onbe.com/industries/automotive
*According to the most recent CFPB data (2019)