For collections & recovery executives, the consumer trends are sending mixed signals.
Some consumers are approaching the economic challenges ahead by paying down debt faster, according to TransUnion's Consumer Pulse US Q3 2022. This could lead to a reduction in delinquent and charged-off accounts. However, 16% of consumers reported that they are relying more heavily on available credit in order to pay their regular household bills, which means consumers who are already having difficulty making ends meet are incurring even more debt.
American consumers are also reducing their discretionary spending and increasing their savings in anticipation of a recession, which could lead to a reduction in originations for lenders. Any time originations are down, lenders should start focusing on servicing their existing customers, which includes delinquent and charged-off accounts.
Three (more) key points about the latest consumer spending trends
- Americans are not optimistic about their household financial health, which means you must prioritize empathy in collections. 2 in 5 American consumers reported a worse-than-planned household finances, largely driven by inflationary pressures and concerns over a recession. This number is an 11-percentage point increase from Q2, and for the first time since TransUnion began tracking this metric, significantly more consumers are reporting worse-than-planned household finances. It’s clear that despite increased wages and low unemployment, Americans feel uneasy about their finances. Collecting debt from consumers who have a negative outlook about their financial situation is challenging, which should be an incentive to invest in empathetic, easy, and accessible collections practices. Consumer experience will be critical in a downturn, learn more about how to prioritize it here.
- Consumers are still concerned with sharing personal information, so consumer trust is critical. 67% of participants said they would abandon an application for credit if their Social Security Number was required to complete it. This statistic speaks directly to applying for credit, but the same could be said for consumers who are engaging with online portals to service their delinquent or charged-off accounts. Consumers do not want to provide private information in order to access information online, and the CFPB says financial services companies who do not require multi-factor authentication to access data might not be in compliance with the FDCPA. Collections & recovery executives need to focus on establishing consumer trust, and they need to work with their vendors to do the same.
- Credit reporting is extremely valuable in collections, if you do it compliantly. 93% of consumers surveyed believe that credit monitoring was at least slightly important, and 61% reported checking their credit report at least monthly. With the CFPB’s renewed focus on credit reporting practices, there has been some back-and-forth among furnishers about the risk vs. the reward of credit reporting, and credit reporting is risky. But, the bottom line on credit reporting is that consumers pay close attention to it, and it’s one of the most effective ways to reach consumers with delinquent or charged-off accounts. Credit reporting compliantly will be absolutely critical to a successful collections & recovery strategy.
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