MeridianLink: How can lenders increase their collection efforts as consumer debt increases?
Mortgage balances, the main component of household debt, increased by $230 billion to $10.67 trillion in the third quarter of 2021, according to the Center for Microeconomic Data at the Federal Reserve Bank of New York.
According to their recent report, although default rates for all debt products have continued to decline since the start of the pandemic, in part due to CARES Act support and lender concessions, 2.7% of outstanding debt was overdue from the end of September.
Moreover, the share of mortgages that have become delinquent rose slightly to 0.5% from a record low of 0.4% in the second quarter as forbearance options were no longer widely available. And $302 billion of the $412 billion in outstanding debt is seriously delinquent (at least 90 days overdue), which includes certain debts that lenders have taken off their books but are still trying to collect.
Signs of trouble on the horizon for consumer debt
Various factors could contribute to an increase in consumer collection activity in 2022, including supply chain induced price increases for a wide range of consumer goods. The rising cost of essential goods can make consumers less able to manage their debts to their lenders.
The end of pandemic-related forbearance and deferral agreements is also likely to drive up defaults, according to Trans Union.
Ihe last few months, arecord number of people quitting their jobs– 4.3 million in August and 4.4 million in September– and many did not immediately start new jobs, which reduced their income and hampered their ability to pay off their debts. Moreover, polls show one in four consumers have reduced their standard of living because of expected priceto augments, while half of all families in the United States expect a drop in real income next year due toinflation.
Stay competitive with the right debt collection software solution
The end result: A perfect storm for rising defaults is brewing. To stay competitive, lenders need an effective debt collection system.
As lenders have adapted to changing consumer needs withdata, technology and automation to improve the loan application process, they haven’t done the same when it comes to debt collection.
To plan for a potential collection spike and prevent chargebacks from overwhelming your collections department, your team needs improved processes to track new information, communicate with debtors, and create payment plans for them.
Cloud-based recovery software saves you time and improves recovery
Enter MeridianLink Collection, which enables banks and credit unions to efficiently manage delinquencies. Since this debt collection software is cloud-based, you don’t have to install complicated software or worry about upgrading to the latest version. Collect is so easy to use that everyone on your team can be trained to set it up and manage it.
Collect is built around user experience, so your team spends less time training and more time contacting customers, saving resources and getting more money back.
MeridianLink Collect debt collection software not only replaces the cumbersome workflows of the past with increased automation, sophisticated analytics, and easy-to-use features, it also evolves with your financial institution’s operations and goals.
For more information on how Collect can help your collections department easily and efficiently manage chargebacks, access collections cases from anywhere, and deliver the ultimate user experience, contact one of our debt collection experts today.
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