Key takeaways from Better Debt: Supporting borrowers through a shifting economy

Josh Foreman, CEO & Founder of InDebted sat down with industry experts:

• Dan Simmons: Senior Director of Consulting, Financial Services - TransUnion 
• Tim Collins: General Counsel - InDebted
• Laura White: Chief Compliance & Risk Officer, InDebted

Here’s a summary of what we learnt about supporting borrowers through the shifting economy.

1. There’s strong economic growth, but volatility is on the horizon

The United States economy has shown resilience within the rising rate environment. This positive trend has largely been fueled by consumer spending and a strong labor market. However, there are signs of possible changes, with some economists predicting a slow-down due to continually rising interest rates.

2. We’ve seen a rise in consumer debt

Since Q3 2021, the data shows that more consumers are falling into below-prime tiers. At the start of the pandemic, lenders initially responded by tightening underwriting standards, then started to expand again in 2021 as uncertainty in the market improved. This period of expanded lending to below-prime tiers sparked higher delinquency rates. 

As a result, we’ve started to see lenders tightening their belts once again, and this conservative approach has reduced origination growth across all products.  Despite this origination slowdown, high inflation means that all products have seen record balance levels. The consumer impact? Higher monthly payments, particularly for people who fall into the subprime bucket.

3. Consumer savings are dwindling

Pre-2020, consumer savings were relatively stable and peaked significantly during the pandemic. Accumulated excess savings in this period were $2.1 trillion, but in mid-2021 there was a sharp decline. From this point to now, increased cost-of-living and reduced financial support has led to significant drawdowns in personal savings rates to the value of $1.6 trillion. Consumers are undoubtedly under greater financial pressure. 

4. Expected elevated placements in collections

Higher cost of living and an increased pressure on consumers suggests that placements in the debt collection industry may remain elevated. However, if the economy continues to tighten, totals may start trending lower. For businesses, this further drives home the need for intuitive and empathetic collection strategies.

5. Look for scalability and adaptability in collections agencies

It’s crucial to demonstrate an ability to scale and adapt to changing economic conditions. Emphasis should be on efficiency around engaging customers, offering robust hardship policies, and leveraging technological advances that support those objectives. Alongside this, the customer experience should remain a critical consideration, to not only attain debt resolution but also foster trust and loyalty with consumers.

6. Expect increased regulatory scrutiny

There’s likely to be a heightened focus from regulators on collections practices, particularly given the growing pressure on households. As the number of financially vulnerable consumers grow, collections should focus on ensuring they’ve got the right support measures in place. This means proactively updating your hardship policies, reviewing agent training, and ensuring that customers are being listened to at every opportunity. More than ever, collections departments & third party agencies need to balance their activities with an empathetic approach that respects and understands each customers’ financial situation.

7. Embrace innovation and enhance customer experience

The overwhelming consensus? Traditional debt collection must evolve. To be truly future-proof, the industry has to do more than adapt to macroeconomic shifts as they happen - it needs to innovate first in order to meet them head on. With rising delinquency rates, the focus should be on prioritizing convenience and self-serve offerings, while ensuring the right leaders, capabilities and values are embedded. Not only is this best for consumers, but best for collections to survive in the long term - with increased market consolidation also unanimously predicted.

Don’t miss out the next webinar on December 6th at 8.30am CET featuring Klarna, focusing on scaling a global collections function.