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The looming shadow of consumer delinquencies is casting a long, uncertain cloud over not only individual households but also the entire financial industry. As we approach 2024, a pivotal question arises: Will consumers continue to experience financial struggles, flout budgetary constraints, and sink further into debt, or will they be able to regain control over their financial well-being?
We’re looking into the escalating delinquency rates and financial hardships confronting consumers, shedding light on the weight they impose on financial institutions (FIs) like yours, and sharing strategies to effectively address these concerns.
Navigating the Choppy Economic Landscape
As we set sail into the year ahead, the economic forecast remains uncertain. While some experts believe a recession may be on the horizon, others anticipate a gradual improvement over time. This ambiguity adds an additional layer of complexity for both consumers and financial institutions. One thing is undeniably clear, though—U.S. households are experiencing tumultuous waves of financial stress, leaving consumers in desperate need of financial guidance and support.
Each day, a series of concerning trends emerge, forcing consumers and FIs to rethink their financial journey.
Auto Loans: According to CNN, auto loan delinquencies are predicted to reach a peak of around 10%, a significant increase from the 7% pre-COVID levels. While Bloomberg cites that a record number of subprime borrowers are behind on their auto loan payments by 60 days or more. This indicates the strain consumers face in managing their auto loan obligations.
Credit Card Debt: According to the New York Fed’s latest quarterly report on household debt and credit, the nation is grappling with a record-breaking $1 trillion in credit card debt. The outlook on this trend adds additional stress on consumers’ financial health.
Student Loans: The continuance of student loan payments is another cause of financial strain for many consumers who have already curtailed spending because of cost escalations and tight budgets.
Mortgage Rates: Although fewer Americans are falling behind on their mortgage payments, mortgage rates remain at an all-time high, making homeownership a more challenging prospect for many consumers.
Financial institutions are not only contending with the rise in repayments struggles and rate hikes but also finding innovative and tailored solutions to guide consumers through these troubling times.
Captaining Your Consumers’ Financial Journey
Being the captain of your consumers’ financial journey is a responsibility that financial institutions hold dear. As the tides of delinquency surge and costs continue to rise, it’s crucial to steer the ship in the right direction. Here are two essential strategies to help guide consumers through these challenges:
Anchoring Stability With Tailored Payment Plans: Financial conditions and challenges are not one-size-fits all. To truly support consumers on their unique financial journeys, FIs must showcase their adaptability with strategically designed plans that cater to individual circumstances. Tailoring plans to fit the unique situation of each consumer involves a thorough exploration of options. FIs should leverage the wealth of consumer data at their disposal to make well-informed decisions that keep the best interest of their institution and consumers top-of-mind. For example, if you see an account holder has a lot of high-interest debt like credit cards, this could be an opportunity for you to offer a home equity loan to assist them in paying it off quicker and with less financial turmoil. Alternatively, if the individual is drowning in debt, perhaps a goodwill plan that eliminates interest charges and empowers borrowers to make direct principal payments is the best option. By making these strategic decisions based on individual needs and circumstances, FIs can truly provide the tailored support that consumers need during both the ups and downs of their financial journeys.
Powering Your Operation With the Right Software: Between constantly processing new information, reaching out to borrowers, and creating payment plans to keep delinquencies in check, your collections team handles a lot—and that’s before bringing ever-evolving compliance regulations into the picture. These tasks, even under ideal circumstances, are challenging enough, but when you’re managing it with an inefficient collections solution, the daily workload becomes a daunting sea to sail. Not to mention, the more time your team spends on manual workflows the less time there is for relationship building, likely resulting in some negative consumer experiences. Having the right software in place not only streamlines the management of delinquencies but also offers a clear view of the consumer relationship, making it easier to clear delinquencies and remain compliant. This, in turn, saves resources and manpower, while simultaneously enhancing the financial well-being of your consumers.
In these challenging financial times, providing stability and support through custom payment plans and advanced technology is not just about managing finances. it’s about nurturing trust and security. By navigating these waters with innovation and adaptability, financial institutions become not just anchors but beacons of hope for consumers when they need it most.
MeridianLink Collect—Your True North Solution
In your quest to effectively manage delinquencies and support your consumers’ financial well-being with innovative and tailored solutions, MeridianLink® is your North Star.
Our composable, cloud-based technology is designed with an intuitive interface, customizable workflows, and built-in compliance features that can save you both time and money, while helping to preserve your consumer relationships!
With a range of features including omnichannel communication, custom queues, compliance rules, automated workflows, and a robust network of third-party integrations, your case management can be more efficient and effective. Our goal is to help you achieve success in your collections, allowing you to focus on better serving your consumers.
“Since bringing on MeridianLink Collect, we are able to touch and pursue more accounts—more often, more efficiently, and more intentionally.” — David Park, VP & Loan Operations Director, Franklin Mint Federal Credit Union
To learn more about how financial institutions are tackling delinquencies, how MeridianLink Collect is helping them support borrowers, and predictions for the future of collections, watch our on-demand webinar.
