Despite the economic disruption COVID-19 inflicted, Americans did not fall behind on their bills – at least in the first few months of the pandemic, a study by the Consumer Financial Protection Bureau found.
That August 2020 study looked at trends in delinquencies to determine the early effects of the pandemic on consumer credit and found that delinquency rates declined for auto loans, mortgages, student loans, and credit card accounts between March and June of 2020.
While an encouraging snapshot perhaps, the cushioning effects of stimulus checks and other forms of temporary relief were a contributing factor. “Absent these programs,” the study’s authors wrote, “the trend observed in this report may have differed substantially…”
As those protections phase out, lending institutions will need to address the risks of delinquency and collections within their own customer base.
With a June unemployment rate of 5.9% – 2% higher than its pre-pandemic rate – many consumers are still struggling to adjust to post-pandemic budgeting.
What does this mean for collections? Collections may be a fact of doing business in lending, but that doesn’t mean you should resign yourself to tolerating high volumes in this area. If you aim to meet outstanding debt goals and decrease accounts in collections, your best strategy is to focus on one key thing: improving communication with your customers.
Below are 4 risks of poor communication — and tips on how to avoid them.
Poor Communication Impedes Loan Collection
We all know how loans fall into collections: the consumer doesn’t pay the installment on their loan until the unpaid debts are forwarded to a collections team. There are many reasons why this might occur, most of them likely outside the control of your digital lending technology.
But there is one correctable error you may be overlooking. A misstep in communication could be the reason your customers aren’t submitting payments on time. If you have outdated contact information, your customers may be unaware of changes to their account that impact payment terms. Similarly, if they are not able to inform you about changes in their circumstances, you lose the opportunity to find a solution that works for everyone.
To avoid this, ensure that your loan origination software (LOS) makes it easy for customers to update their contact information. Your lending software should also enable any changes to be automatically synced with the rest of your software, so your whole team has access to the most relevant information. This way, you can stay ahead of any disruptive impacts to payment.
Poor Communication Can Create a Threatening Customer Experience
The Fair Debt Collection Practices Act (FDCPA) exists to protect consumers from threatening or abusive collection practices. Falling behind on debt payments is a stressful circumstance for your customers. Collection actions impact their credit score and make it harder for them to access other loans, so remember that your customer is trying to find a way out of a difficult situation and needs your assistance.
First, make sure your communications are compliant with the latest additions to the FDCPA. The Debt Collection Rule, which takes effect in November, prohibits debt collectors from communicating with customers at inconvenient times, prohibits continued or repeated telephone calls, and requires collectors to provide an opt-out of electronic communication.
Next, look beyond government restrictions. The tone and quality of your communications could critically impact your customer relationship. Are you regularly engaging with your customers and supporting them in their loan payments? Do they feel like they can approach you about payment challenges? A flexible, accessible and proactive communications channel can make a difference. Look into digital lending technology that provides options for off-hours support and facilitates conversation with a human representative as needed, so your customers feel empowered throughout this process.
Poor Communication Creates Inefficiencies
It’s not just your customers who may struggle to stay up to speed if communications are poor. An inefficient communications channel can create more work for your employees, reducing productivity and damaging your bottom line — on top of the hit you’re already taking by not receiving the loan payment.
If your team can’t easily connect with the loan holder and receive up-to-date information about their finances, their repayment plans, and the options for collection, an employee will have to manually fill in these gaps. Your loan officers shouldn’t be wasting hours trying to get in touch with the customer. A centralized database with accurate contact information, as well as relevant data, will reduce silos within your business and minimize delays when working with other departments.
Poor Communication Can Lead to Delays
The goal of your collections team is to ensure that loan payments are received and that your customers can get back on track with their repayment plan. But if you’re not reaching them through their preferred communication channel, how do you expect to achieve this goal?
With so many communication channels, it can be challenging to know which is the best format for each individual. The stakes are high: A consumer survey from strategic communications firm Pinkston found that only 31% of U.S. customers would pay attention to in-person communications from their bank, while 60% would pay attention to email notices and 40% to texts or calls. Despite the growing popularity of digital communications, Pinkston found that only 38% of customers are being contacted by email — and only 3.98% by text.
Make sure you’re asking your customers how they want to be contacted and which contact information to use — and then routinely invite them to update this, in a user-friendly format. That way, you can be sure your messages will arrive promptly and in a medium your customers are willing to engage with, to minimize delays and late payments. This will also ensure you’re staying compliant with FDCPA restrictions.
MeridianLink Collect helps you easily and efficiently manage your delinquencies. This cloud-based debt collection software provides unmatched benefits with a sleek user interface that delivers the ultimate user experience. It's so simple, everyone on your team can be trained to set it up and manage it. MeridianLink Collect not only replaces tedious workflows of the past with increased automation, sophisticated analytics and easy-to-use functionality, it also evolves with your lending institution's operations and goals.
To learn more about how MeridianLink Collect can help streamline your customer communication practices, improve borrower satisfaction, and help you do more to help your customers, contact us today.