Innovation across the order-to-cash process in the B2B space has allowed businesses to weather the ever-evolving complexities of the last few years. From allowing teams to make smarter credit decisions, deliver invoices electronically and make payments remotely, each step of the process is relying on technology in new ways with an increased sense of urgency. What about collections?

Today, we find ourselves at a new crossroads with the potential for a recession looming over many industries. With the inevitability of increased days sales outstanding (DSO) that this type of economic uncertainty brings forth, it’s crucial that collections becomes even more of a priority for organizations. Of course, a streamlined collections process is imperative no matter the economic circumstances. But with data suggesting that late payments have increased due to the financial challenges of the last few years, it’s fair to say that the role of the collector has intensified, too. For example, according to an Atradius study, late payments affected 47% of the total value of all B2B credit sales in the second half of 2021. Meanwhile, as recently as the end of last year, the trade gap – which is measured in outstanding receivables – stood at $3.1 trillion.

Of course, these are figures which are sure to cause anxiety for AR teams tasked with maintaining their organizations’ cash flow during yet another financial crisis. Late payments and follow-up delays already had a detrimental impact on many businesses during the pandemic, with the average DSO increased from 39.7 days to 42.6 days. And now there is a chance that this number will grow during a recession that although some experts predict would be shallower than 2008, will still be impactful. As they prepare, it’s safe to say that collections has become more important than it’s ever been – and that artificial intelligence could be the solution to streamline the collections process. Here’s how:

Injecting a Much Needed Dose of Predictability Into Cash Flow

Lagging DSO may not be an imminent threat in ordinary times, but in a landscape rife with uncertainty, predictable cash flow is imperative. A fact that makes the ability to predict when an invoice will be paid by a customer all the more alluring for collections and AR teams, with access to this type of information also crucially enabling suppliers to influence what their customers pay as well as when.

One of the advantages of AI is that it’s always learning and improving with time. An algorithm can predict that a payment will arrive tomorrow. But if the payment is not received tomorrow, the algorithm learns and will no longer take this feature into account – ultimately taking cash forecasting to the next level. 

To be able to forecast cash flow like this, however, it’s important to track and monitor the payment behavior of customers. That is, the speed with which they pay invoices in relation to the agreed payments terms. So, for example, if a debtor typically pays an invoice 7 days after its due date, we speak of a payment behavior of +7 days. 

But a lot of parameters influence and impact the payment behavior of a customer. Some of these influencers include the amount an invoice is worth, the date of an invoice, the date of payment, the risk profile of the customer, and their likelihood to dispute an invoice. Payment behavior says a lot about a debtor, but a change in payment behavior is also an important determinant. Recognizing all these payment patterns is no guarantee for the future, but you can derive a number of things from them.

With this ability to analyze data from a variety of parameters, teams can gain a powerful, real-time window into their cash flow and identity where their receivables are. This allows them to stay ahead of potential cash flow issues by using large amounts of available data in every platform to optimize all aspects of collections. Moreover, for companies that rely on their credit revolver to meet obligations, cash forecasting helps their treasury department know how much money they need to borrow. This is especially important for seasonal customers who have dips in revenue based on the nature of their business.

Indeed, AI’s power not only enables teams to harness the power of insights from the past but also leverage the power of foresight. 

Making the Right Decision at the Right Time

A successful collections strategy is a proactive one and involves taking actions at the right time to avoid issues turning into bigger problems. Admittedly, this can be hard to do at scale when you have a multitude of customers with a wide variety of factors impacting how and when they pay. And unfortunately there is no crystal ball that can tell us when a customer will pay. But what if you could determine the optimal collection procedures and give collectors insights into the results of their actions? Thanks to the power of AI, you can. 

Take a customer with an 80% chance of paying a bill on time. Although this may seem like a dependable customer, data shows that the longer an invoice goes unpaid, the harder it is to retrieve the payment in full. Therefore, an additional, prompting action could prove to have a positive impact on his/her payment behavior, and potentially increase the likelihood of payment by 20%. 

What AI’s power also gives AR and collections teams is an incredible opportunity to more easily improve relationships with customers in a way that facilitates faster payments. For example, it enables collections professionals to prioritize the parts of the job that they are best at, whether it be contacting customers personally in the first phase of a collections process or perhaps in the later phases. By leveraging AI to both predict payment behavior and handle more cumbersome tasks, it frees collectors up to focus on portfolio responsibilities that deserve more of a human touch and therefore, make a much bigger impact. 

Taking all this into account with AI can further optimize the collections process. In the end, the algorithm will learn what the most efficient procedure is, depending on the match between the collections team and the customer, and the workload of the controller.

With AI analysis, you can foresee payment problems, generate a plan, and get step-by-step advice to resolve it. You can also simulate collections scenarios and project likely success. 

Elevating the Customer and Employee Experiences

It’s no secret that late payments strain business relationships. A collections process guided by AI can bolster CX and strengthen relationships by getting ahead of issues and creating a customized approach that fits the needs of any given customer. 

Indeed, AI in the collections process can help organizations strengthen relationships when they matter most. And in this highly competitive labor market, this very much includes businesses relationships with their employees who are also increasingly prioritizing great work experiences. 

The truth is, in the finance world, collections professionals are often overlooked because they are forced into a reactive and uncomfortable role. In reality, however, they are responsible for bringing money into the organization and should be treated with the same level of importance as other teams such as sales and marketing. Yet, they often lack the technology and support that their cross-departmental colleagues have to execute their workflows strategically.

For example, today’s sales teams leverage AI for a wide variety of reasons, from automating workflows, determining things like the highest probability of prospects to convert, and identifying when and how to reach out to prospects. With these types of tools, collections teams can take a much more strategic approach. After all, the best time to collect is not when the invoice is past due. 

Supporting Collections Teams in Every Economic Environment

No matter the economic circumstances, it’s clear that AI continues to have a big impact on the collections space and credit management. Although it will never replace the invaluable work of a collector, it has the potential to make them much more effective and efficient by boosting their ability to maintain their organizations’ cash flow at a time when external challenges pose enormous threats. 

Cash flow is the lifeblood of every B2B company. Poor cash flow, on the other hand, can prevent B2B companies from meeting their financial obligations, limit profitability, and inhibit growth. Elevating the role of AI in collections not only contributes to the financial health of a company in a more efficient way, but enables businesses to strengthen relationships with their two most important stakeholders – their buyers and their employees. Both of which will be critical for survival in any market downturn. 

The post Leveraging AI to Create a Smarter & More Successful Collections Process appeared first on PaymentsJournal.

The Consumer Finance Protection Board (CFPB) issued an advisory opinion regarding the use of convenience fees, also known as “pay-to-pay” fees by collection agencies.  It is becoming increasingly common for collection agencies to charge a fee to the consumer for the convenience of making a payment via phone, even though in many cases it costs the collection agency less to handle these types of payments.

“Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” said CFPB Director Rohit Chopra. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.” 

Chopra also emphasized that the absence of a prohibition of a fee by the CFPB does not make it legal; only fees specifically listed in the consumer’s loan agreement or specifically authorized in legislation can be applied to collections transactions.

While this advisory opinion specifically addresses fees applied by collection agencies for loan payments, we have to wonder if similar guidance is forthcoming on the growing numbers of merchants that are applying surcharges to credit and debit card transactions for everyday purchases.  Rules governing surcharging and its less transparent variant “cash discounting” have been established by most card networks and individual states, but so far have escaped the scrutiny of the CFPB.  Although the application of surcharges and convenience fees to debit card transactions are expressly prohibited by all card networks and state laws, many merchants have implemented programs that can’t or don’t distinguish between credit cards and debit cards.

Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group

The post CFPB Issues Advisory on Convenience Fees appeared first on PaymentsJournal.

With small businesses across the UK having to constantly evolve and adapt in line with government guidance and consumer demand, the past two years have been filled with challenges. While many had hoped 2022 would be a more positive year, the ever-changing macroeconomic circumstances – fueled by the war in Ukraine – continue to create problems. How are late payments contributing to the difficulties?

For SMEs, rising utility prices, wage inflation, and a reduction in consumer spending may all have a detrimental impact on the bottom line, making it more important than ever to ensure payments are collected as efficiently as possible, on time, every time.  

An ongoing challenge

According to research undertaken by the Small Business Commissioner and Barclays Bank, 26 per cent of businesses report that late payments from customers have become more frequent as the cost of living continues to spiral. In fact, the Federation for Small Business (FSB) recently reported that 61 per cent of small firms were impacted by late payment of invoices over the first quarter of 2022, while 7 per cent experienced late payment for the first time between January and March.

This level of disruption to cashflow could have a significant impact on business performance and growth. The same FSB research found that 10 per cent believe that the amount they are owed in late payments could be used to recruit more staff, and 12 per cent said they could expand their products or service offering to grow their business.

Alongside these challenges – many of which are fuelled by wider macroeconomic instability, SMEs are struggling to secure finance from banks. The latest findings from the Small Business Index (SBI) highlight how successful finance applications have plummeted to the lowest level on record.

Just 9 per cent of small firms applied for finance in Q1, 2022, the lowest proportion since SBI records began, and out of the 1,200 survey respondents, just 19 per cent described the availability of credit as “good” – the lowest since 2016.

Nearly half (42%) of the businesses that did manage to secure finance plan to use the additional capital to manage cash flow issues, with a much smaller number planning to use the funds for equipment updates, expansion or recruitment.

Preventing late payments from becoming a critical issue

The situation is clearly challenging for businesses, and no matter the size, a backlog of late payments can create significant problems.

Without a digital payments solution in place, businesses are forced to manually process each and every payment. Not only is this resource-intensive, it’s also far more challenging to take quick action should a customer miss a payment. In most cases, a late payment involves reaching out to the customer to understand why the payment has been missed and what action needs to be taken.

Remember, this activity happens outside of the standard process, and at a time when operating costs are spiralling, recruiting new staff is simply not an option for a large number of SMEs.

With the right payments technology in place, businesses can not only offer more choice for customers around how and by what means they make payments, they can also take more robust action to prevent late payments becoming an issue.

Deploying a digital payments system will simplify processes, removing the need to manually manage databases or staff time being wasted reviewing late payments. Should a customer miss a payment, this will automatically be flagged within the system, helping ensure the issue is resolved in a timely manner.

From a consumer point of view, having a regular automated payment set-up minimises the chance of missing the payment, while also providing more certainty for the business and allowing them to reliably predict revenue streams.

Given the wider economic uncertainty, it’s important to remember that many overdue invoices or late payments are the result of a customer who can’t pay, rather than won’t pay. With a flexible digital payments solution in place, businesses can offer customers a broader range of payment options depending on their individual circumstances, as well as reducing the administrative burden associated with chasing late payments.  

The post Ensuring Payments Are Collected on Time, Every Time appeared first on PaymentsJournal.

Bill collections still uses many manual, paper-based, and inefficient processes. However, that is beginning to change as fintech digital innovations are transforming the collections space and making it easier for consumers to pay off debt quickly and seamlessly.  

To find out how, PaymentsJournal sat with Don Apgar, Director of Merchant Services Advisory Practice at Mercator Advisory Group, and Lance Carlson, Co-founder of HealPay.  

From Antiquity to Modernity 

There is still “a lot of antiquated technology” in the bill collections space, noted Carlson. He added that a common practice in the industry until recently involved storing a spreadsheet with names and overdue account balances on USB drives, and one party would sell the stored information to another that would then collect the debts. This, of course, is a laborious, manual process rife with human error, often leading to mistakes and confusion. Overall, the collections process is often a frustrating one for both consumers and businesses trying to get the debt paid. 

“However, you are starting to see things modernizing,” said Carlson. “We’re starting to automate many of these manual processes.” 

HealPay, for example, offers a consumer-facing digital portal that enables users to set up one-time or recurring payments with merchants or collection firms without having to log in.  

Businesses and collection firms have access to a portal that integrates with leading receivables and claims management software, automates formerly manual processes, and uses data analytics to offer intelligent payment options for partial, full and minimum payments. 

A Better Consumer Experience Leads to More Paid Bills 

While such tech innovation makes things easier for businesses and creates a much better experience for consumers, does it lead to more debt being repaid? That was a question Apgar posed: “How does a friendlier approach to the consumer result in more collections?” 

Carlson began by acknowledging that a segment of the populace simply will not pay past-due bills and “you can’t force them to pay bills if they don’t want to,” but that most consumers do not fall into this category. “Most people do want to pay down their past-due bills, and they feel better when they do so,” he added. 

For many consumers, getting a letter or a phone call from a collection agency — which can sound threatening — scares them and makes them less inclined to pay the money owed. But tech innovation that allows consumers to pay their debt from the comfort of their own home on the device of their choice makes them much more likely to do so, Carlson said. 

Giving flexible payment options also makes consumers more likely to pay overdue bills. Platforms such as HealPay enable businesses to offer consumers repayment installment plans, say, over the course of 12 or 18 months. Such options are much more palatable to consumers than asking them to make one large payment at once.  

“People’s life circumstances always change and maybe right now they can’t pay off $1,000 all at once,” said Carlson. “But if they have customized payment options that are easy and convenient and that enable them to repay as soon as possible, that’s a much better option.” 

Finally, he added that many consumers may have overdue bills simply because they forgot about them by mistake. But receiving a possibly ominous-sounding letter or phone call about this debt is not the best way to proceed. Instead, offering consumers a secure and easy digital means of repaying means they will be much more likely to pay the bill. 

Ultimately, offering consumers quick and easy digital methods to pay their debt leads to a much higher rate of repayment, Carlson said. 

The Power of Orchestration 

While this digital ideal is surely better than the traditional methods of bill collection, the digital approach requires orchestration between disparate systems and payment mechanisms.  

“How do you orchestrate payments across many different industries, dealing with merchants of different sizes?” Apgar asked. 

Carlson acknowledged the task is difficult, not only dealing with different data but complying with many different regulations as well. There are many statutes companies that store credit cards (or any kind of payment card) information must adhere to. For example, the Payment Card Industry Data Security Standard (PCI DSS) requires companies that accept, process, store, or transmit credit card information to follow a stringent set of security standards to ensure they are maintaining a secure environment.  

Luckily, tech can help with the orchestration required. HealPay works with Spreedly, a payments orchestration platform that allows clients to use its PCI-compliant data vault that tokenizes and secures payment methods. Spreedly uses APIs to allow clients such as HealPay to access third-party payment services and enable and optimize digital transactions. 

The Spreedly platform enables HealPay to operate much more efficiently and process payments quickly as opposed to “having to build a system where we are storing credit card information in each of our partner’s data vaults,” added Carlson  

Treating People Like Humans 

Digital innovation in the bill collections space is creating an environment where consumers feel better about paying back overdue bills, turning what has long been an emotionally stressful experience into something better. 

“You have to treat people like humans and with respect,” Carlson said.  

Doing that turns bill collections from being a potentially embarrassing experience for consumers to a point of pride where consumers feel good knowing they are paying off debt at their own pace. 

“People, by and large, want to pay their bills,” Apgar concluded. “If you make it easier for them to do so, they’ll do it more frequently.” 

The post How Digital Innovation Makes Bill Collections Kinder (& More Effective)  appeared first on PaymentsJournal.

November 30, 2021, is the kick-off date for modifying Regulation F, which governs collections’ dos and don’ts. The change comes at a time when credit card collections are at an all-time low. Credit card issuers are not directly affected since the Fair Debt Collection Practices Act (FDCPA) covers third-party collectors, but issuers must follow some essential documentation requirements.

The American Banker summarizes:

Banks, credit card companies, and debt collectors pushed for an overhaul of federal debt collection rules, and they are poised to reap the benefits of unlimited contact with consumers by email and text messages.

But with the Consumer Financial Protection Bureau’s rules set to take effect November 30, many creditors and collectors are scrambling to make changes that require a high degree of coordination with each other.

Though the rules do not apply specifically to banks and other lenders seeking to collect debts, they do require technology changes and the sharing of information for third-party debt collectors to take advantage of certain “safe harbors” that will protect them from legal liability.

The update modernizes the Fair Debt Collection Practices Act of 1977, passed long before the days of mobile phones and email. There are two significant changes, the first covering texts and emails, the second covers aged debt. The statute of limitations often outlaws aged debt, but the customer must raise an affirmative defense.

Communications with Texts and Emails

When Jimmy Carter was in the White House, the internet concept was never considered. Back then, cellphones were elite products, and a Motorola mobile cost $3,995 in 1970’s dollars and weighed more than 2 pounds. But I digress.

Under the new ruling, as the National Consumer Law Center summarizes:

• Collectors cannot call a consumer more than seven times a week
• Consumers can stop all collection calls
• Collectors must provide an itemized breakdown of the debt
• Collectors must contact consumers before reporting to a credit bureau
  

Time-Barred Debt

Credit card collection goes through a cycle internally; after write-off, credit card accounts usually get placed with collection agencies, who earn commissions for each dollar collected. The standard practice is that credit cards will pass through three collection agencies over two years, then get pulled back and placed into a warehouse. Credit card companies will often sell the warehouse debt for pennies on the dollar. For example, according to ProPublica, the largest debt buyer in the U.S. is Encore Credit: “Last year, on average, the company paid 8.6 cents on the dollar for each account. So for a typical debt of $3,142, Encore paid $271.”

“To earn a profit on that investment, Encore and other debt buyers pursue debtors in near perpetuity. As a result, Encore is still collecting tens of millions of dollars each year from debts it bought in 2009 or earlier. The key to that persistence is the courts.”

What happens with Time-Barred Credit, sometimes called “Zombie Credit,” is that many debts become uncollectable after a certain period. For example, the term is six years in Massachusetts, but in Florida, the time is four years. Unlucky for those in Rhode Island, the term is ten years, but the term is only two years in California. (Here is a link by state.)

The tricky part about the statute of limitations is that it is an affirmative defense. In consumer credit, most judgments are won by creditors because consumers fail to appear. If they do not appear, they can not claim that the debt is time-barred.

Now, under the revised FDCPA Code, lenders will need to advise the consumer that the debt is time-barred.

See this Mercator classic report for a deeper dive into the art and science of third party collections.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

The post Modernizing Credit Card Collection Regulations: Updating the FDCPA appeared first on PaymentsJournal.

Payment collections in any industry can be a daunting yet necessary task. Fortunately, to help automate this process, many new technologies have been developed. Automating any high-volume tasks can help save businesses time and money, and collections are no different. In fact, it is estimated that 85% of customer interactions will be handled without human agents by the end of this year.

Managing an inbound call center presents a series of unique challenges. This type of business requires a great deal of flexibility due to many factors such as shifting workloads, many agents in different roles, and high employee turnover, so having automated systems in place is critical to saving time and money.

An example of an automated customer service solution to increase efficiencies in collections is an IVR (Interactive Voice Response). This type of solution uses a pre-recorded response to meet caller needs through customized recordings, menu selection, and routing options. IVR’s can help your business streamline call flows and improve overall operational performance by routing customers to the right agent effectively and quickly.

When customers do not have an IVR option and need to speak to an agent to pay a bill, there is a lot of time wasted on both the customer and the agent’s end. For example, a customer has to give the agent their account information, which the agent then needs to pull up. Next, the customer needs to read off their credit card number, which the agent then needs to type into the system, and they both need to wait for the system to process the payment. This scenario presents many unnecessary steps, which also increases First Call Resolution (FCR) metrics that many call centers are expected to lower.

It is clear that not having automation technology can hurt a business’s bottom line, so what are the specific benefits of IVR technology for the collections industry?

• Agent time savings
• Cost savings 
• Increased customer satisfaction 

Time savings is a substantial benefit to the business’s bottom line. If automated systems, like an IVR, can be used for simple tasks like bill payments, this frees up the agent to help customers with more complex customer service situations. Even if customers prefer to speak to a live agent for bill payments, having an IVR in place helps route them to the right agent the first time, reducing the occurrences of needing to transfer customers to other agents or departments.

In addition to saving time, these automated systems, especially cloud-based IVR solutions, also provide financial savings through operational efficiencies. Implementing a system like this is the best way to funnel incoming calls by segmenting them into logical groups and getting them directly to the right agent. Another example of IVRs improving the bottom line for businesses is when they see fluctuation in staff, business contracts, or both. The automated system ensures that even in high call/low staff situations, the call center is routing customers in the most efficient way possible.

When it comes to customer satisfaction, many people think they would rather talk to a live agent for every issue; however, according to research by Nuance, 67% of people preferred self-service options over speaking to a call center agent. Having an IVR system available allows you to satisfy the 67% who prefer to use this system and save time for them and the agents.

A recent case study by TCN with a client in the healthcare space showed a significant increase in the amount of money collected, with 38% of the payments coming after business hours — something that would not have been possible without an automated system. This just further drives home the point that organizations need to provide several options for customer service activities like bill payments.

Technology is constantly evolving to keep up with customer demands, so staying on top of the latest capabilities is key to staying competitive. Cryptocurrency has gained a lot of traction in recent years, so eventually, automated systems may need to have a way also to accept these forms of payments to satisfy their customers and collect on their bills. But for now, having an automated IVR system in place is the best way to save time and money for the businesses while increasing customer satisfaction.

The post How Automation in Payment Collections Can Increase Efficiencies and Save Money appeared first on PaymentsJournal.

Probably the least regarded segment of credit cards is the lowly collection agency. They work at the back end of the credit cycle and generally earn 30% to 50% commissions when they get the delinquent customer to repay. These third-party agents recover debts that were too hard for banks to resolve.

The collection agency industry is subject to aggressive regulatory control, often requiring state licenses, and under the mandate of several federal rules, including the Fair Debt Collection Practices Act (FDCPA). In addition, investigative bodies include the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).

As outlined in the Mercator Report, Credit Card Charge-off Collections Take Brains, not Brawn, Collection agencies provide relief for credit card issuers. Once the account charges off, banks must prioritize their resources and move on to subsequent delinquent accounts. With a constant flow of aging accounts, the bank is better off employing a third-party agent than to devote its collection resources.

But, like many other industries, collection agencies feel the pain from COVID-19. In front of the charge-off cycle were payment deferrals, which decreased account delinquency flows. With fewer aging customers, collection agency referral placements plummeted. This trend translated to lower delinquencies, and now the Federal Reserve indicates that only 7% of consumers have accounts placed with collection agencies, down from a pre-COVID level of 15%. Additionally, the amount placed with a collection agency dropped from $1,500 to $1,390. That means fewer accounts and lower balances.

From any position in payments, it is hard to feel sorry for the collection agency. These entrepreneurial businesses range from one-person shops to publicly traded corporations. Collection agencies “clean up after the parade” and deal with the mundane task of collections rather than the excitement of marketing, rewards, or developing technologies.

The Bureau of Labor Statistics notes that 223,100 bill and account collector jobs exist for third-party agents, though it suggests a declining outlook of 2020. The median pay for a collector is $18.32 an hour.

But what will happen if credit card delinquency improvements sustain through 2022? Will it cause job losses for collection agencies? And then who will collect from the collectors?

The downward credit delinquency trend still holds in the U.S. market. There are some stress signs, but on the whole, the numbers look strong. So, for now, don’t feel sorry for debt collector job stress; know that soon enough, the delinquency will rise, and collectors will be back to work.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

The post Credit Card Delinquencies: Volume Decreases Choke Collection Agencies appeared first on PaymentsJournal.

It may be the calm before the storm, but the numbers are exceptional.  Collection managers, take solace in the fact that in 15 days, all your potential charge-off is in the collection work queues.  And these days, the operational results are better than ever.  Seeking Alpha published five headlines that indicate the second half of the year will be easy-breezy for collection operations. 

• Alliance Data Systems (NYSE: ADS) Card Services segment’s reported a delinquency rate of 3.2% as of May 31, 2021, compared to 4.8% in the same period a year ago.
• Bank of America (NYSE: BAC) reports an improving delinquency rate of 1.03% as of May 31, down from 1.17% in April and 1.46% in May 2020.
• Capital One Financial’s (NYSE: COF) credit card delinquency rate of 1.69% improves from 1.92% in April and 3.15% in May 2020.
• The first of the credit card companies to report credit quality metrics for May, Discover Financial Services (NYSE: DFS) credit card delinquency rate declined to 1.50%  in May 2021 from 1.69% in April and from 2.36% in May 2020
• Synchrony Financial’s (NYSE: SYF) credit card delinquency rate of 2.2% improves from 2.4% in April 2021 and 3.6% in May 2020.

Operational numbers run ahead of the Federal Reserve reporting Q12021 delinquency was a record low, at 1.89%.  Even with this historic low, 2Q numbers should look better.

Make hay while the sun shines, but remember, what goes up must come down, and the inverse is also true.  What goes down will also go up.

2022 might exhibit some stress as credit card issuers bulk up, but for now, enjoy exceptional operational results in credit management.

Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

The post 2021 Credit Risk: Locked and Loaded in 15 Days appeared first on PaymentsJournal.

In a letter to JPMC shareholders, Jamie Dimon gave an outlook that “the Biden Administration’s $2.3 trillion infrastructure plan could lead to an economic ‘Goldilocks moment.’”  The Goldilocks moment has nothing to do with blondes or bears. For the uninitiated, that means “fast, sustained growth alongside inflation and interest rates that drift slowly upward.

Jamie continued in an interview with WSJ Editor Matt Murray. Dimon’s noted that “the economy is strong through 2023.  Consumers are in great shape, home prices are up, and the world is recovering better than it did during the Great Recession”.  In short: “there will be a boon.”

What this means to credit card lenders

The collection function worked better than most expected.  Results came from a well-fortified risk management scenario, driven by CECL accounting requirements (see here for more on Current Expected Credit Losses).   Collection technologies, effective usage of FICO Scores, and government interventions helped navigate the economic storm.

Lending is starting to open up. The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices (also known under the funky acronym of SLOOS), reports “Banks also eased standards across all three consumer loan categories—credit card loans, auto loans, and other consumer loans.”

Unlike the Great Recession, where U.S. revolving debt slipped by more than $150 billion and took two years to rebuild, 2020 saw a more modest decline. As of the most recent publication, the metric stands at $974.4 Billion, up $8 billion over January 2021 and about $100 billion behind the Pre-Covid peak of $1.1 trillion.  That is good news for borrowers, merchants, and adequately positioned credit card firms.

A $100 Buy Now Pay Later fintech loan is one thing, but start pushing out credit cards with $5,000 limits and expect strong consumer purchasing coast to coast.  We do anticipate some market changes, most of which will be positive.  Top banks such as Bank of America, Chase, Citi, and specialized card companies including American Express, Capital One, and Discover appear to have their lending approvals back in gear.  Now is the time for credit unions, community banks, and regionals to start facing off again.  Slow action will be costly in terms of lost revenue and account attrition.

As we commented two years ago, do not let the fintechs scare you.  Now is the perfect time for credit card issuers to get back into lending and thank their collection colleagues for holding the ship steady.

Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

The post Lenders, Wake Up; Collectors, Stand Down; Credit Card Issuers, Get Ready appeared first on PaymentsJournal.

If you owe money, it just got harder to hide from the debt collectors.

The Consumer Financial Protections Bureau (CPFB) has recently ruled that debt collections agencies can now use social media outlet like Facebook and Twitter to try to recover outstanding debt. Further, email and text dunning notices are also fair game. The CPFB says it is simply modernizing the debt collection process to allow it to use more modern means of connecting to those who owe money.

According to an article in The Register, the CPFB was simple updating old rules:

The CFPB claims that the new rules were the result of “a deliberative, thoughtful process spanning more than seven years and reflects engagement with consumer advocates, debt collectors, and other stakeholders.” It updates rules written 40 years ago, long before the advent of modern technology and smart phones.

But in the lengthy report and explanation on the new rules, it rejected significant public comment that social media should be completely off bounds for debt collectors, using the phrase “the Bureau declines to prohibit private social media communications and attempts to communicate” repeatedly in response to concerns.

I think it is important to point out that debt collection agencies cannot post to someone’s public site. In other words, the world will not be able to see Facebook timelines with “Where’s the money” posted next to the kitten videos. Rather the collection agencies will have to coerce the debtor to “friend” them or “follow” them (or however people connect on social media) on specific social media outlets and then, and only then, can they start sending them direct messages (DMs) asking for the money. The friending option isn’t required for email or text messages.

The ruling does allow some opportunity to consumers who feel that they are being harassed be debt collectors through the channels that are already available. It notes that the “general prohibition on harassing, oppressive, or abusive conduct” applies to these new ways of contacting consumers just as it has for phone calls and mail debt collection notices.

As you might imagine the consumer advocacy organizations are not at all happy about this ruling and they have already started to make their displeasure known to the CPFB.  As an article in Slash Gear reports:

Many people and consumer protection agencies are against the new regulations. Consumer Reports created a petition this week, aiming to stop abusive debt collection. The petition warns that the collectors could harass people even if they don’t owe money.

At first glance, this seems like a truly draconian move by the CPFB. After thinking about it, though, if a person chooses not to friend or follow or BFF a debt collection agency, on its face, where’s the harm? But, on the other hand, why even open up this door for the collections agencies? Rules are meant to be broken, right?

Overview by Peter Reville, Director, Primary Research Services at Mercator Advisory Group

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