Before the pandemic, delinquencies were at an all-time low. But now with inflation and an increase in rates, financial institutions are seeing an increase in delinquencies. The problem is that most financial institutions don't have collections strategies in place to deal with them.
Over the past several years, delinquency rates have remained low due to several factors, including government stimulus, emergency bans and restrictions on rental evictions, forbearance on student loans and mortgages, and help from lenders who worked with borrowers to modify their loans.
But delinquency rates for all debt types are beginning to edge up. In particular, credit card and auto loan delinquencies are increasing among lower-income borrowers. This recent upsurge in delinquencies may indicate that many individuals or communities are struggling in the current economy.
Although delinquencies for all debt types are increasing, the strong job market likely means delinquency rates won’t climb to extreme levels. Still, to deal with this situation, financial institutions would be wise to implement tools so they can easily and efficiently manage the delinquencies coming in.
What Delinquency Rates Look Like Today
Credit Cards
The delinquency rate on credit cards for all commercial banks climbed to 1.81% in Q2 2022, up from 1.66% in Q1 2022 and 1.57% in Q2 2021. Although credit card delinquency rates are still low, the bad news is they’re increasing.
It's also important to note that the delinquency rate for smaller financial institutions is higher than for the top 100 financial institutions. In Q2 2022, the credit card delinquency rate for the top 100 banks was only 1.59%, while the delinquency rate for smaller banks was 5.52%.
Auto Loans
Auto loan delinquencies increased in Q2 2022, climbing to 1.63% for loans 60 days or more past due, up from 1.52% in Q2 2021, 1.51% in Q2 2020, and 1.23% in Q2 2019 (pre-pandemic).
Personal Loans
Because more subprime borrowers are taking out personal loans, serious borrower delinquency rates are increasing for loans 60 days or more past due. The delinquency rate for Q2 2022 is 3.37%, up from 2.28% in Q2 2021, although it’s still near pre-pandemic levels (3.17% in Q1 2019).
Mortgage Loans
In Q1 2022, lenders originated approximately 2.2 million total mortgages, down 45% from Q1 2021. The good news for financial institutions is that serious mortgage loan delinquencies (90 days or more past due) remain near record lows (0.58%) in Q2 2022 and have remained flat since Q2 2021 (0.60%).
How MeridianLink Collect Can Help With Delinquencies
If you want to keep delinquencies from overwhelming your financial institution, your team must continuously process new information, reach out to customers, and work with them to develop payment plans. That also requires keeping up with ever-changing state and federal regulations.
Handling all that is challenging enough, but it's even more difficult if you're using an out-of-date solution. By putting the right collection software in place, your collections department can easily and effectively manage delinquencies, access collection cases from anywhere, and deliver the ultimate user experience.
That's where MeridianLink Collect comes in. It was created specifically to save collectors time by enhancing the overall efficiency of the collections process. A secure, cloud-based platform, MeridianLink Collect helps financial institutions:
- Streamline processes. Replace monotonous legacy workflows with enhanced automation, cutting-edge analytics, and easy-to-use functionality.
- Prevent delinquencies. Get notified when a potential increase in collections effort is imminent, so you have time to develop a game plan, engage with customers, and allocate the right resources ahead of time.
- Avoid risks. Stay current on all the latest federal regulations and policies, including the new restrictions to collection compliance laws that took effect in November.
While the software can't take the place of your compliance officer, it can help your compliance officer evaluate potential risks with its compliance functionality.
Also, because MeridianLink Collect is cloud based and simple to use, you don't have to install any complicated software or worry about updating to the latest version. And you don't need costly technology equipment or specialized staff to manage it. MeridianLink Collect easily automates manual processes so you can spend your time recovering more money and retaining a positive relationship with your customers.
Check Out Our Ebook
Download our ebook—Maximize Your Collections Process for Consumers and Financial Institutions—to learn how your collection department can easily and efficiently manage delinquencies, access collection cases from anywhere, and deliver the ultimate user experience with cloud-based collection software.
