When a dealer's first-EMI default rate runs at more than three times the network average, the problem is usually at origination. How to audit the files and what to do with the dealer.
Why first-EMI defaults point at origination
A borrower who never pays the first instalment usually never intended to, or was never able to. That is a sourcing problem, not a collections problem: income was overstated, the borrower was a front for someone else, or the vehicle was never delivered as described. When one dealer's FEMI rate runs at several times the network average (about 2%), look at the dealer before you look at the borrowers.
The audit
- Pull every file the dealer sourced in the last three months, not only the defaulted ones.
- Visit the defaulted borrowers first. Check that the borrower exists at the address, owns and uses the vehicle, and recognises the loan. Photograph the vehicle and its chassis number.
- Compare the files. Look for the same phone number, address, employer or income document across different borrowers; the same introducer; down payments paid in cash on the same day.
- Check the money. Did the down payment come from the borrower's account? Did the dealer receive the full disbursement and deliver the vehicle?
- Talk to the sales staff who logged the files, separately.
While the audit runs
- Hold new files from the dealer. Vehicles already sanctioned can be delivered.
- Hold dealer payouts on the files under review.
- Every loan from the dealer carries EWS signal K1 (15 points) until the audit is closed.
Outcomes
- Process gaps only: retrain, tighten checks for 90 days, lift the hold.
- Misrepresentation by the dealer or its staff: end the empanelment, recover payouts, and refer to Legal.
What to tell the borrowers
Nothing about the dealer. Collect as usual, and record any statement that suggests the borrower was misled; it is evidence for the audit.