How Lenders Can Prepare for Rising Defaults
The coronavirus pandemic has hit the global economy hard. Millions of Americans are currently unemployed or furloughed and small businesses are taking hits left and right. As a result, more people are turning to loans and credit lines to help them stay afloat. While the $1,200 stimulus check from the U.S. government was able to help in some ways, it only covers a portion of the lost wages of people across the country.
This means that over the course of the next few months, banks and lenders are likely to start seeing rising levels of loan and credit card defaults. Preparing for rising default levels can help your organization minimize risk when these defaults inevitably start to hit.
Provide and Communicate a Variety of Payment Options
The first step in mitigating your organization’s risk is always communication. If you have a variety of payment options (online, over the phone, mail-in), the best thing you can do is let your cardmembers know about them.
Don’t just send one email. Send an email cadence covering each option and how it works. Send a piece of snail mail that covers all the options. Schedule a follow-up phone call with your new cardmembers that helps them understand their options. Overcommunicate as much as possible – people want payment to be easy. They are much more likely to make even a small payment if they know it’s going to be simple for them.
Be sure to offer a helpline or 24/7 chat if they have questions or difficulties, as well.
Be Proactive About Your Default Fears
Don’t wait until the defaults start rolling in. Instead, get out ahead of the situation. Start by offering your cardmembers credit counseling options. Many organizations choose to wait to do this until it becomes a last-ditch effort. At that point, your cardmember may already be underwater with more than one lending organization.
Consider adding a note on your website that lets your cardmembers know that you are available to help them in these difficult times so that they know that you are on their side. Provide a variety of ways to contact your organization and then put them in touch with a reputable credit counselor.
Creating these open lines of communication can help position your organization as a supportive partner rather than “the bad guy” who is ultimately just trying to collect a debt. The more education and help you can provide, the more your cardmembers will trust you and want to work with you.
Surviving the Onslaught
Once you take the steps to prevent as many defaults as possible, you need to begin preparing for what happens when the ones you couldn’t prevent start rolling in. First, you need to find a solution that will help you save money and employee labor.
A fully digitalized debt management plan (DMP) process will help you get and respond to proposals faster, preventing unnecessary back and forth phone calls with credit counseling agencies (CCAs), and reducing consumer discontent and further losses. It also provides both parties with access to all of the pertinent information and can quickly, easily, and safely share data for the life of the DMP.
This will save your organization FTE, cost, and errors down the road. Peregrin’s system not only provides automated DMP services but can also help with the following:
· Portfolio support
· Due diligence and CCA management
· Customer referral management to CCAs