Ally Bank 2014 Annual Report Download - page 51

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
39
Servicing
We have historically serviced all retail contracts and leases we originated. On occasion, we have sold a portion of the retail contracts we
originated through whole-loan sales and securitizations, but retained the right to service and earn a servicing fee for our servicing functions.
Ally Servicing LLC, a wholly-owned subsidiary, performs most servicing activities for U.S. retail contracts and consumer automotive leases.
Servicing activities consist largely of collecting and processing customer payments, responding to customer inquiries such as requests for
payoff quotes, processing customer requests for account revisions (payment extensions and rewrites), maintaining a perfected security interest
in the financed vehicle, monitoring certain vehicle insurance coverages, and disposing of off-lease vehicles. Servicing activities are generally
consistent for our Automotive Finance operations; however, certain practices may be influenced by local laws and regulations.
Our U.S. customers have the option to receive monthly billing statements and remit payment by mail or through electronic fund
transfers, or to establish online web-based account administration through the Ally Account Center. Customer payments are processed by
regional third-party processing centers that electronically transfer payment information to customers' accounts.
Servicing activities also include initiating contact with customers who fail to comply with the terms of the retail contract or lease
agreement by sending reminder notices and/or contacting via telephone when an account becomes 3 to 15 days past due. The type of
collection treatment and level of intensity increases as the account becomes more delinquent. The nature and timing of these activities depend
on the repayment risk of the account.
During the collection process, we may offer a payment extension to a customer experiencing temporary financial difficulty. A payment
extension enables the customer to delay monthly payments for 30, 60, or 90 days, thereby deferring the maturity date of the contract by the
length of extension. Extensions granted to a customer typically do not exceed 90 days in the aggregate during any 12-month period or
180 days in aggregate over the life of the contract. During the deferral period, we continue to accrue and collect finance charges on the
contract as part of the deferral agreement. If the customer's financial difficulty is not temporary and management believes the customer could
continue to make payments at a lower payment amount, we may offer to rewrite the remaining obligation, extending the term and lowering
the monthly payment obligation. In those cases, the principal balance generally remains unchanged while the interest rate charged to the
customer generally increases. The use of extensions and rewrites help mitigate financial loss in those cases where management believes the
customer will recover from short-term financial difficulty and resume regularly scheduled payments or can fulfill the obligation with lower
payments over a longer period. Before offering an extension or rewrite, collection personnel evaluate and take into account the capacity of the
customer to meet the revised payment terms. Generally, we do not consider extensions that fall within our policy guidelines to represent more
than an insignificant delay in payment and, therefore, they are not considered Troubled Debt Restructurings (TDRs). Although the granting of
an extension could delay the eventual charge-off of an account, typically we are able to repossess and sell the related collateral, thereby
mitigating the loss. Of the total amount outstanding in the U.S. traditional retail portfolio at December 31, 2010, only 6.1% of the extended or
rewritten balances were subsequently charged off through December 31, 2014. A four-year period was utilized for this analysis as this
approximates the weighted average remaining term of the portfolio. At December 31, 2014, 7.9% of the total amount outstanding in the
servicing portfolio had been granted an extension or was rewritten.
Subject to legal considerations, in the United States we normally begin repossession activity once an account becomes greater than 70
days past due. Repossession may occur earlier if management determines the customer is unwilling to pay, the vehicle is in danger of being
damaged or hidden, or the customer voluntarily surrenders the vehicle. Approved third-party repossession vendors handle the repossession
activity. After repossession, the customer is given a period of time to redeem or reinstate the vehicle by paying off the account or bringing the
account current, respectively. If the vehicle is not redeemed or reinstated, it is sold at auction. If the proceeds do not cover the unpaid balance,
including unpaid earned finance charges and allowable expenses, the resulting deficiency is charged off. Asset recovery centers pursue
collections on accounts that have been charged off, including those accounts where the vehicle was repossessed, and skip accounts where the
vehicle cannot be located.
At December 31, 2014 and 2013, our total consumer automotive serviced portfolio was $81.3 billion and $77.7 billion, respectively,
compared to our consumer automotive on-balance sheet portfolio of $77.6 billion and $74.1 billion. Refer to Note 11 to the Consolidated
Financial Statements for further information regarding servicing activities.
Remarketing and Sales of Leased Vehicles
When we acquire a consumer lease, we assume ownership of the vehicle from the dealer. Neither the consumer nor the dealer is
responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer
at scheduled lease termination, the vehicle is returned to us for remarketing. We generally bear the risk of loss to the extent the value of a
leased vehicle upon remarketing is below the expected residual value determined at the time the lease contract is signed. Our ability to
efficiently process and effectively market off-lease vehicles affects the disposal costs and the proceeds realized from vehicle sales. Our
methods of vehicle sales in the United States at lease termination primarily include the following:
• Sale to dealer — After the lessee declines an option to purchase the off-lease vehicle, the dealer who accepts the returned off-lease
vehicle has the opportunity to purchase the vehicle directly from us at a price we define.
• Internet auctions — Once the lessee and dealer decline their options to purchase, we offer off-lease vehicles to dealers and certain
other third parties in the United States through our proprietary internet site (SmartAuction). This internet sales program maximizes
the net sales proceeds from off-lease vehicles by reducing the time between vehicle return and ultimate disposition, reducing