The Covid-19 pandemic may have stalled debt collection efforts for two years, but a partial economic recovery — paired with a looming recession — could soon send unprepared borrowers and their loans to collections.
Missed payments on certain loans are already on the rise. The Wall Street Journal reported that borrowers with credit scores below 620 — also known as subprime — with car loans, personal loans or credit cards that are over 60 days late are “rising faster than normal.” Eleven percent of general purpose credit cards were late, as compared to 9.8% in March 2021. Personal loan delinquencies have hit 11.3% versus 10.4% last year, and delinquent auto loans hit a record high of 8.8% in February.
As a result, banks may be seeing an influx in their collections and recoveries activity. It may be an opportune time to enhance and better your bank’s collections practices — doing so could help at-risk borrowers avoid collections altogether, and give your institution the chance to show customers that they are more than the debt they owe.
Debt collections practices and agencies generally don’t have a good reputation among consumers: A quick Google search will uncover countless 2-star reviews and repulsive anecdotes. And while the Fair Debt Collections Practices Act (FDCPA) protects consumers from harsh, unfair and threatening collections tactics, a good experience with a collection agency is far from guaranteed.
Banks exacerbate the issue by not conducting proper and continual due diligence on the third-party agencies they work with. With over 7,000 to choose from, this can be difficult to execute, but is a necessary task that could be the difference between retaining a customer and losing one.
A technology company may be able to provide your bank with the high-touch element with consumers during the collections process.
Fintechs have a few things banks might not offer (or have upgraded versions of): Predictive analytics software, APIs, rules-based platforms, self-upgrading machine learning, among others. These technologies can and should be harnessed to find problem loans before they become delinquent and reach consumers within their preferred method of communication. Traditional collection agencies can have difficulties navigating within FDCPA protections — fintechs can use their enhanced technologies to thrive within the compliance.
Some fintechs even offer their products and services underneath the bank’s brand, which could be a strategic move if providing educational services and resources could get a customer back on track with payments.
Here are three fintechs that can help banks with their collections and recovery efforts.
TrueAccord has two products of interest to banks: Retain and Recover. Retain is a proactive solution for delinquent accounts that works with borrowers to keep the account from moving to collections. Retain primarily uses text, email and voicemail and communication methods, as preferred to cold calling.
When Retain fails to resolve the payment with a customer, banks can turn to TrueAccord’s Recover solution. Recover is primarily a self-servicing software, meaning that customers engage with Recover, and not the bank, to find a solution. Again, communication is through SMS, Facebook messaging, emails or text.
In addition, TrueAccord is a licensed collections agency.
Birmingham-based FIntegrate offers a software-as-a-service (SaaS) solution — Fusion CRS — for delinquency collections through charge-off recoveries and delinquency management. The software tracks and manages any type of account in any status, including but not limited to: commercial real estate loans, Small Business Administration loans, Paycheck Protection Program loans, deposit and share drafts, and consumer loans that are in repossession, bankruptcy, foreclosure, or have negative balances or become real estate owned.
Fusion CRS also assigns tasks, creates rules-based sequences and monitors special collection cases and statuses. It automatically generates letters, emails, texts, phone calls or other means of communication to account holders and other involved entities (such as a repossession or insurance company).
Collections technology can’t operate without customer information, which is where a company like Intellaegis can help. Its masterQueue product harnesses big data to gather, organize and track available data on a borrower. MasterQueue collects public record data and open source information from the web to track the borrower’s digital footprint and pinpoint a borrower’s whereabouts, online activity and associates.
The software then scores the data that represents the likelihood of locating the borrower based on its quantity and quality — users can then go down the list and attempt contact.
Consumers are spending more than during the pandemic, and debt levels are increasing in tandem even as rates rise and a potential recession looms. Technology can not only help banks handle the influx of overdue and delinquent accounts, but can aid in preserving and enhancing vulnerable relationships with customers as well.
Erika Bailey is a FinXTech research analyst at Bank Director. She manages Bank Director’s FinXTech Connect platform, where she collects data, vets, interviews and drafts profiles for selected technology companies that work with U.S. financial institutions. Erika graduated from the University of Northern Iowa with a bachelor’s degree in criminology and theatre.