Preparing Your Institution for Post-Holiday Defaults
The holiday season is busy for everyone, from retailers to restaurants and families. Lenders and banks are certainly not excluded from this group. In fact, the average American household spends nearly $1,500 on Christmas gifts, meals, and activities each year. Of these families, 22% believe that the holidays will leave them in debt – meaning that many are using newly approved credit cards to pay for holiday gifts.
This season, with unemployment spiking to an all-time high and nearly 1 in 10 businesses planning to lay off employees through the end of the year, more families than ever are going to be surviving the holidays on credit.
What a Credit-Heavy Holiday Season Could Mean
People are working hard to spread joy this year since it has been so challenging for so many. In one survey, 81% of shoppers said they still planned to spend the same amount or more than they spent last year, despite the unstable economic climate.
More companies intend to continue layoffs into early next year, which means that people who planned to pay off credit card debt after the holidays may suddenly find themselves without their usual income. Additionally, normal holiday bonuses are unlikely to come through after Christmas, making paying that debt back harder.
As we saw at the beginning of October, defaults are already starting to spike and will likely only get worse into early next year. With that said, lenders need to be prepared to set themselves up for success in handling these defaults over the course of the next year.
Credit Default Preparedness
There are a few things you can do to prepare your cardmembers and your institution for potential defaults.
For your consumers:
· Start communicating with them early in the holiday season with tips for paying off debt
· Provide resources for paying down debt or finding credit counseling as the holidays end
· Give your cardmembers the tools they need to easily access their debt and payment information
For your institution:
· Automate as many processes as you can now to take some pressure off later
· Consider changing your standards for credit thresholds
· Outsource processes that do not need to be in-house
Streamlining Your DMP (Debt Management Plan) Process
Working with credit counseling agencies (CCAs) can be time-consuming and difficult for lending institutions, but it is a necessary part of handling overdue accounts. Moreover, it can actually save your institution money in the long run by preventing charge-offs and bankruptcy filings.
If you haven’t visited your DMP process in a while (or if you don’t have one at all), now is an important time to review and streamline it. When your cardmembers work with CCAs, being able to easily get information about their accounts and provide them with what they need can make the process smoother for everyone, including the cardmember.
Happy cardmembers are more likely to recommend your institution to others or come back when they’re in a better place financially.
While streamlining this process is important, it can also be tedious, requiring you to try a variety of iterations to get it right. Peregrin’s proprietary DMP management software can help your institution save time and money while leaning on a tried and true DMP process. Let us do the process work so you can focus on bringing in revenue.