If a borrower owes money on the principal of the car...even a dollar? Then the lender still can claim that the principal has not been paid in full, so they continue to hold a lien on the title to the property.
In theory, if the principal was paid, the borrower could claim that they deserve clear title.
Now...in practice it is not quit so clear...since even if the principal was paid, if there was money owed on the contract in the form of late fees, the lender could still claim they have a security interest...then it goes to the contract (the language of the contract) to sort out if, in fact, the lender will maintain a security interest, despite the principal of the loan being satisfied. And in most consumer credit contracts, there is language that protects the creditor (as you may expect...they are the ones who draft the contracts)
As for can the company continue to report this as a late payment?
Again, I may sound like a broken record...but it falls to the contract.
Under the law, the contract provisions can determine how payments are to be applied in the event of late fees. As I mention, most consumer contracts
require that the late fees be extinguished BEFORE the principal can be reduced.
So what you describe? IF you have a significant late fee outstanding? And you are still under contract that requires a set payment each month? Then they can demand that payment each month. If you do not pay as required, they can report this to the credit reporting agencies.
Now...I would be concerned with the statement
such payment will not move the account forward unless it is a full P&I payment of $689,
That is not accurate.
The creditor is entitled to collect its late fees. But every dollar you pay MUST be applied to the account.
So if you are paying a partial payment, that may result in a late report to the credit reporting agencies. But they MUST give you full credit for the payment (so it must reduce the late fees accordingly)