It’s been over 23 years since we all breathed a sigh of relief on the first day of the new millennia. The power grid didn’t stop working. The nukes didn’t launch themselves. The internet did not crash and we all got on with our lives.
Since then, the collections & recovery industry has been operating in long stretches of prosperity with a few disruptions along the way. The economic aftermath of 9/11 was sudden, but it didn’t last long or create many long-term economic issues for creditors or debt collectors. In fact, the economy was in a slight recession at the time of the attacks, bounced back very quickly in 2002, and was roaring along until the summer of 2007, when we first became aware of a subprime crisis that rapidly became a global economic disaster.
The Major Bust
In early 2008, the global economy was in complete meltdown and it felt like the collections & recovery industry was in the epicenter. There was a record amount of charged-off volume, and consumers wanted to pay, but couldn’t. Call after call after call, collections & recovery departments talked to people who had never been in collections previously, and didn’t want to be, but they simply didn’t have the ability to deal with their suddenly massive debt. It took over two years for the economy to recover, thanks to generous stimulus from the Federal Reserve, whose quantitative easing policy made them the biggest bonds and securities buyer of all time.
Road to Recovery
In 2010, the stock market was hitting record highs year after year, rates were low, and peace returned to our economic kingdom. Collection agencies had record-breaking years and the country enjoyed a decade of unprecedented lows in unemployment.
And then…
Spring of Uncertainty
A once-in-a-century global pandemic swept the planet and we found ourselves back in a time of uncertainty, unease, and potential financial disaster as the western world shut down in March of 2020. But, the stock market and the economy recovered in about six months, and while there were some unsettling unemployment trends, it wasn’t the same as 2008.
The Differences between 2008 & Today
In the subprime crisis, we had no idea whether the global economy could sustain itself. There were days that seemed cataclysmic. The pandemic felt like a sudden attack that was manageable, albeit scary and disconcerting on a personal and business level.
In the earliest days of the COVID-19 pandemic, Congress made it very clear that stimulus money and rate cuts were coming to American consumers to help stave off economic disaster. Many people simply moved their workspace from an office to their homes with little to no economic impact to their life. Relentless boredom was a bigger threat to our lives than economic instability.
In fact, this period of economic disruption was remarkably different from the last one. In 2008, many people lost their jobs, and in some cases, their homes, and were on the verge of poverty. The COVID-19 bust was different. Millions of Americans were sitting in their homes, collecting their paychecks AND government stimulus money, but were very limited in how they could spend it. Vacation options were limited, retail and restaurants were closed, and good luck finding a new car to buy! It is likely that Americans were sitting on more “dry powder” in late 2020 through 2021 than any other time in US history!
In 2008, the collections & recovery industry didn’t know how to deal with the crisis. We had never seen anything like it, and many organizations were slow to respond, waiting too long to cut their staff and reduce expenses and strategize differently because collection industry lore told us that “we’ve seen recessions before and people still pay their bills. It’ll be fine in a few months.”
Except, it wasn’t fine. Autos were repossessed, cards were maxed out, lines of credit were shut off, and many consumers had no way to begin tackling myriad debts that were due at the same time.
That was then, this is now. This bust cycle was different than the last. People were paying their bills – sometimes directly to a payment portal! Customers were responding to collection letters and making inbound calls to pay! On some days, it felt like money was raining from the sky! Even so, the scars from 2008 were still visible and smart organizations avoided the mistakes of just a decade earlier. Many reduced their staff through downsizing or furloughs, and implemented expense management processes that made the uncertainty more tolerable.
2020 was a record year for many collection agencies as a statistically significant number of American consumers used their stimulus to ameliorate debt.
Finally, a happy ending for the collection industry, right?
Not so fast. This is a business that is driven by volume and as it turns out, people paying their bills in droves takes quite a bite out of the sheer number of accounts that sustains the industry. While 2020 and the first half of 2021 were prosperous, many collection organizations have had a rougher go during the past 18 months based on the volume reduction we’re experiencing.
Lessons Learned
I believe the Collections & Recovery industry learned many lessons from the subprime crisis, especially to plan for the worse and hope for the best. The majority of companies in this industry were very successful in pivoting in reaction to the pandemic, managing through the rough seas of uncertainty, and continuing on. The overall reduction in volume is an externality of the pandemic, and one the industry cannot control. We can only react to it. Unlike in 2008, our industry reacted quickly, analyzed data, and made hard decisions that helped us get through a period of uncertainty. We utilized technology more effectively, drove more self-service options, created emailing and texting platforms, and generally made it easier for consumers to do business with us. Those developments were not short-term fixes, they are strategic enhancements that have made us more agile and better prepared to operate in challenging times.
The boom and bust cycle is a function of a capitalist economy and will always be something of which we have to be aware. Now that much of the pandemic is in the rearview mirror, it appears that we handled this bust better than the last one. The next bust is inevitable, but there is no guarantee that it will look like 2008 or 2020. It’s up to us to use the data we now have to be ready for it when it comes.
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