Creating a Proactive Collections Action Plan Amidst Record Consumer Debt

Creating a Proactive Collections Action Plan Amidst Record Consumer Debt

Recent data from the Federal Reserve Bank of New York indicates that American credit debt has reached a historic high, surpassing $1 trillion for the first time. Household debt has surged by $2.9 trillion since the end of 2019, and interest rates on credit cards are hovering near a record 20%. These statistics, along with increasing credit card and auto loan delinquencies, are clear indicators of financial stress among U.S. households.

In light of these rising numbers, it is imperative for lenders to establish a proactive and reasonable collections plan to manage these rising debt levels effectively. Waiting until a portfolio becomes severely distressed before taking action is rarely effective. To minimize long-term damage, it’s essential to develop a collections action plan in advance.

A Proactive Collections Action Plan:

1. Communication: Open and consistent communication should be integrated into your collections plan from the outset. Welcoming customers with a friendly call at the time of account opening sets the stage for expectations and relationship building. Regular communication throughout the customer’s journey is crucial. This approach is particularly effective during periods of rising delinquencies, as it motivates customers to stay current and fosters goodwill.
2. Education: Many customers facing financial difficulties make hasty decisions to skip payments, not fully aware of the long-term consequences on their credit scores and future borrowing costs. Educating customers about these effects can encourage them to work with you to find a suitable arrangement. Empower them with knowledge about the choices they make and the implications of those choices.
3. Empathy: Empathy is a vital component of any successful collections strategy. Avoid resorting to aggressive or judgmental tactics, as these will likely lead to customer disengagement and potential defaults. Instead, approach customers with empathy, understanding their struggles, and assuring them that their business is valued. An empathetic approach will motivate customers to collaborate on resolving their financial issues.
4. Solutions: Collaborate with trained agents and a reputable servicing and collections partner to determine realistic payment arrangements. Rather than demanding full payment from customers who are unable to meet such demands, take the time to understand their individual circumstances and offer reasonable solutions. Providing flexibility and incentives for customers to become current will strengthen the lender-customer relationship.

Conclusion:

With consumer debt reaching unprecedented levels and delinquencies on the rise, having a proactive collections action plan is essential for lenders. By focusing on communication, education, empathy, and solutions, you can effectively manage delinquencies and defaults. Don’t wait until your portfolio is severely distressed; take action now to protect your assets and maintain a healthy lending environment.

Our team at XperiSource is ready to assist you in implementing a comprehensive plan to reduce delinquencies and defaults.  Contact me directly @ louis.ochoa@xperisource.com.  I also invite you to follow XperiSource’s LinkedIn page to keep up with the latest trends, news, and resources in our field.

Here’s the link to XperiSource’s LinkedIn page: https://www.linkedin.com/company/xperisource/