As we near the middle of 2023, here are three major, but not-so-obvious trends that collections & recovery execs need to be aware of:
1 - Speculation, and therefore risk, travels at social media speed.
Perhaps the most glaring lesson we need to learn from the collapse of SVB is the way it happened, which Aleks Whitchurch, CEO of Quanta Credit Services, noted in our webinar, Is The Economic Alarm Bell Ringing? Technology and near-constant use of social media means that information about investment risk travels at lightning speed. Many banks aren’t prepared.
Consumer trust is critical to getting payments, and while the collapse of SVB didn’t erode consumer trust in banks the same way the collapses in 2008-2009 did, it’s clear that banks need to take steps to ensure their risk is mitigated and that they are prepared to handle communication at social media speed.
2 - Consumers are paying a lot for their cars, for much longer terms.
Three out of four new, and almost half of used, vehicle loans now have monthly payments over $500. Compare this to 53% for new car loans and 18% in used car loans in 2019 and it’s pretty alarming. Unsurprisingly, given the rising interest rates, the number of car loan originations with an APR over 6% is 53% for new cars and a whopping 87% for used cars, compared to 16% for new cars and 52% for used cars in 2019. Refinances of car loans are down, but when consumers are refinancing their car loans, they’re trading shorter loan terms for lower monthly payments. (TransUnion Auto Credit Industry Insights Report)
If car payments and delinquency rates on car loans continue to rise, it puts many consumers in a difficult position: pay your car loan, or lose your car. This is a critical consumer trend for collections execs, even if the lender doesn’t finance car loans. In terms of a payment hierarchy, consumers rank cars second only to their housing payments. If they’re not paying their car payment, they’re probably not paying other unsecured loans. Bonus reading: 3 Serious Challenges with Collecting Past-Due Debt and How to Solve Them
3 - The CFPB seems poised to provide federal guidance on collections litigation.
Just as lenders wade back into the waters of collections lawsuits, the CFPB seems poised to issue guidance that will hamper collections litigation. In an April 2023 blog post, economists the CFPB cited a Working Paper released earlier this year that “addresses the racial distribution of collection judgments and the effect judgments have on consumers.”
The CFPB seemingly has a goal of reducing consumer stress, a worthy endeavor. However, the paper and blog post are “deeply flawed,” according to Missy Meggison, Editor & General Counsel at insideARM.com.
This latest move from the CFPB is indicative of other regulatory trends that collections execs must be aware of as they build their strategy in an uncertain economic time. Read Meggison’s full article here.
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