Delinquencies are on the rise and, though they remain at historically low levels, it’s important for collections teams to understand the factors driving this trend and implement systems to minimize and mitigate delinquent payments.
MeridianLink® recently hosted a panel discussion with experts from White Sands Federal Credit Union (WSFCU) and Franklin Mint Federal Credit Union (FMFCU) focused on rising delinquencies, their financial institutions’ responses to this phenomenon, and the technology that has aided their collections strategies. Below are the key takeaways.
Rising Delinquencies: What’s Fueling the Upward Trend?
The rise in delinquencies doesn’t have a single root cause, but stems from several concurrent issues such as inflation, increasing credit card debt, and certain COVID-era collections moratorium rollbacks, among other factors.
While these factors create challenges for all generations, younger generations (millennials and Gen Zers) are especially vulnerable. The numbers tell the story:
- 72% of millennials have non-mortgage debt, most commonly in the form of credit card debt.
- Both Gen Zers and millennials don’t often have significant cash reserves to cover emergency expenses.
- Add the rising gig economy and its potential to foster income-related hardships—along with high interest rates and soaring inflation on everyday necessities—and it’s no surprise these generations are slipping into delinquency at significant rates.
How Are Financial Institutions Responding?
In the webinar panel, both credit unions say they’ve been expecting the current rise in delinquencies and predict this trend will continue in 2023, especially as end-of-year holiday spending picks up alongside inflation and the other factors listed above. They’ve even noticed an uptick in members asking about payment assistance and how staff can help them navigate delinquency.
In response to these issues, WSFCU and FMFCU have developed creative solutions that benefit consumers while maintaining rapidly shifting compliance guidelines. For example, both institutions have been reaching out to accounts in early-stage delinquency (accounts that are no more than one month overdue) to slow overall delinquency rates.
Additionally, FMFCU is holding members responsible for only the unpaid principal balance on charged-off accounts, forgiving any accrued interest, fees, and charges, and now considers third-party debt collector charges as operating expenses. WSFCU is handling the constant regulation changes by keeping in frequent communication with its lawyers and attending professional development events geared toward current compliance standards.
That’s not to say WSFCU and FMFCU haven’t faced challenges along the way. Like many financial institutions, they deal with everything from the typical skip-tracing headaches on contact attempts to siloed data on unresponsive accounts. These issues are made more difficult by staffing shortages, which strain employee resources and detract from efforts to mitigate early-stage delinquencies as short-staffed collections teams are stuck handling skip tracing and other daily tasks.
The good news? Technology solutions can help collections run more smoothly.
Helpful Tech & MeridianLink® Collect
Adopting omnichannel communication methods has been crucial to helping each credit union maintain compliant contact with delinquent accounts. As regulations expand to include additional contact methods, such as SMS texts and private social media forums, collections departments like those at WSFCU and FMFCU are taking advantage of these new avenues to reach younger, digital-native generations in the spaces where they’re most likely to respond. In fact, several integrations—like Solutions by Text™—are now available within collections software to streamline these communication efforts and ensure compliance.
These integrations are just one of several reasons why the collections teams at WSFCU and FMFCU chose MeridianLink Collect to help staff manage accounts. Implementation was relatively simple since the software integrated with their core systems and offered additional integrations with many of the credit unions’ existing programs.
Other efficiencies include workflow automations to reduce manual tasks, as well as customizable queues in which staff can segment cases to identify compliance risks or target those in early-stage delinquency. Plus, MeridianLink Collect helps staff easily manage shifting regulations with built-in practices that comply with guidelines such as those outlined by the FDCPA and SCRA. (Read more about compliance practices here.)
Beyond the quantifiable benefits of MeridianLink Collect is the continuous support that WSFCU, FMFCU, and many other customers have enjoyed since making the switch. As FMFCU’s David Park said, “MeridianLink treats their clients as [collaborative partners], and they’re prepared to engage and listen.” This collaborative spirit enables MeridianLink to forge unique, supportive partnerships with our users to help them get the most out of their experience and ensure that they receive quality products and services that meet their individual needs.