By Selina Stoller, Vice President, Business Development, Concord Servicing
Companies that pivoted during the pandemic to make customer collections a caring communications process will profit now in the midst of inflation, and possibly stagflation—inflation with no Gross Domestic Product (GDP) growth—as the year progresses.
In the world of customer collections, Concord fine-tuned its proprietary Blackwell Recovery® late-stage collections systems as well as early-stage processes during the pandemic. Given conditions where borrowers were experiencing extreme financial distress, Concord made sure that efforts aligned with compliance, caring, and client portfolio management circumstances.
Concord President and CRO Shaun O’Neill addressed this very topic more than a year ago in an April 2021 Fintech Nexus News article. He noted, “A combination of economic woes triggered by the pandemic, and exacerbated by weather-related catastrophes, makes kinder, gentler, more understanding collection policies good for portfolio performance. They’re likely to generate more revenue than a hardline approach, plus there’s the benefit of building longevity and loyalty with customers who like, trust and respect their ‘bill collectors’ instead of abhorring them.”
In the article, O’Neill details how the basics of these “new” policies are actually rooted in decades-old enlightened thinking. He cites a customer collections policy advocated by Peter Renton, co-founder of Fintech Nexus (formerly called LendIt), two decades ago: “A recommendation that collections and customer service ‘should be two sides of the same coin’ is currently gaining momentum in the pandemic era. But this approach was advocated fully two decades ago by none other than LendIt’s own Peter Renton…In a previous life he owned a printing company that sold products to credit departments and he had long advocated the need for consummate customer service. His key recommendations tied to bill-collection policies appeared in a January 2001 article in the prestigious Editor & Publisher magazine…In part, his bylined article states: ‘In this dark morass actually lies a wonderful opportunity to turn debt collection into a customer-relationship-building program…this opens up the potential to generate some unexpected goodwill.’”
That’s the playbook that Concord utilizes with loan servicing clients on behalf of clients and clients’ customers now—in areas ranging from loan onboarding and initial servicing to collections. Further driving the importance of this policy is ever-stricter regulatory compliance mandated by the Consumer Financial Protection Bureau (CFPB) along with various state and local agencies.
In the realm of continuous improvement, Concord is further enhancing project management to ensure covering all bases with new clients (and their customers). Implementation, customer service, and project management converge to make sure customer service is as dialed-in as possible. New products are being developed to support such efforts as omni-channel communications platforms. Ranging from responsive live customer support to texting, new systems truly will enable customers to communicate via their preferred channels.
To sum up, caring customer collections and loan servicing are important because they’re the right thing to do, as well as being good for portfolio performance and compliant with regulatory requirements.
Layoffs by several major corporations in recent weeks imply rising consumer borrowing delinquencies may be forthcoming. If this continues, consumers may experience less discretionary income, possible unemployment fears, and may be concerned over rising prices. If this convergence occurs, loan servicers should be especially watchful for early signs of borrower distress in meeting loan obligations. As problems arise, caring customer collections and loan servicing policies will give obligors a sense of collaboration that will make them much more likely to do everything they can to continue paying.
This will be especially important with unsecured obligations, as many people may prioritize paying their mortgages over anything else—and minimize making what they feel are discretionary purchases.
In the home improvement and solar sectors, interest rates and state energy programs may heavily influence what are perceived to be discretionary purchases. People are less likely to put new solar on their roofs if interest rates are too high or there are no state energy-program driven incentives. That said, right now we’re seeing more solar installs among people who are passionate about it (and therefore view it as high priority)—or are utilizing the state programs with attractive terms. However, with rising energy costs this may be an area that benefits.
Home improvement in general may decrease if there is an increase in interest rates and unemployment. People will put in new furnaces, fix roof leaks, and handle other necessity-based projects. But, the decision to remodel a kitchen or bathroom may be postponed for those hit by the economic headwinds.
Portfolio performance bears close monitoring
As a result of all this, the quality of portfolio loan assets may change, depending on the asset class and portfolio composition. Low-quality portfolios may experience higher delinquencies and defaults if there is economic turbulence.
The upside is that there are always opportunities. In the loan servicing and collection world, many of those opportunities tie to working with and encouraging obligors to pay what they can when they can, instead of abandoning obligations altogether. The customer support and care of collectors is crucial in times of obligor distress.
This is where Blackwell Recovery® and other collections processes can be invaluable. Using the pandemic as a previous example, portfolio performance did much better with collaborative approaches where borrowers not only did their utmost to pay, but respected and admired the company because of the opportunity.
In addition to direct portfolio improvement, collaboration helped ensure staying compliant in the watchful eyes of regulatory agencies. Lack of consumer complaints, and even positive social media reports, have proven to be business generators in their own right—all of which helps enhance portfolio performance.
What’s going on with consumer delinquency? Depends on who you ask, and where you look…