What to Do to Address Rising Consumer Delinquency

The recent release of the Federal Reserve’s fourth quarter 2023 credit card charge-off and delinquency data has shown a disturbing trend. Both metrics have surged to a 12-year high, painting a troubling picture of the financial health of American consumers. Behind these statistics is a complex web of challenges faced by individuals grappling with denied credit, mounting debt and uncertain financial futures.

Faced with the dual task of supporting customers and addressing operational hurdles, banks must explore and implement effective solutions. In this article, we’ll dive deeper into the trends and examine strategies that can effectively navigate these turbulent times, ensuring both customer well-being and institutional resilience.

The Dynamics of Credit Access
The Federal Reserve’s decision to raise interest rates since March 2022 has dramatically altered the dynamics of credit access for Americans. According to a recent Bankrate survey, half of all applicants have been turned down for a loan or financial product since the Fed starting raising its key benchmark rate in March 2022. Credit card applications and requests to raise credit limits bear the brunt of denials, leaving many individuals stranded in a sea of financial uncertainty. For those already navigating precarious financial situations, the tightening credit market adds another layer of complexity.

The repercussions of denied credit extend far beyond mere inconvenience; they strike at the heart of financial stability. More than 8 in 10 denied applicants report a negative impact on their finances, with stress levels soaring and desperation driving some to seek out alternative, less favorable financing options such as cash advances and payday loans.

Anticipated Financial Hurdles and Generational Perspectives
MeridianLink® surveyed more than 1,000 Americans nationwide to uncover consumer expectations, concerns and evolving preferences in financial services. A staggering 40% of respondents anticipate financial hurdles in the year ahead, revealing the looming financial challenges of 2024 and underscoring a pervasive sense of unease and uncertainty. When viewed through the lens of generational perspectives, a notable contrast materializes. An impressive 60% of adults aged 18-24 are bracing for financial hurdles, accentuating a stark generational contrast as only 20% of respondents aged 55 and above reported the same. This difference not only brings to light the diverse financial situations customers navigate but also emphasizes the urgent need for targeted financial solutions that resonate with distinct generational mindsets.

Unsurprisingly, at the forefront of these concerns lies credit card debt, a looming specter that occupies the minds of nearly one-fifth of respondents. A sentiment that resonates with financial institutions themselves, who acknowledge the urgent need to address this escalating issue directly.

Despite these trials, there is room for optimism. Your bank has access to strategies and tools to guide customers through their financial journeys during these challenging times while effectively managing your own hurdles such as increased delinquencies, regulatory pressures, staffing issues and shifts in customer behavior.

Powering Your Operation With the Right Software
In the current economic landscape, banks must adapt to dynamic trends and uphold operational efficiency without depleting their resources. This imperative leaves collections teams overwhelmed with many responsibilities, including constantly communicating with borrowers and managing payment plans. The continual evolution of compliance regulations exacerbates these demands. The utilization of outdated systems creates unnecessary friction in the process, consuming valuable time and risking negative customer experiences.

That’s why selecting the right software is crucial. Effective collections software not only streamlines processes but also provides insight into customer relationships and supports your compliance efforts. Efficient software enables banks to improve customer financial health, meet regulatory standards and drive efficient growth.

Consider these key features when selecting effective collections software:

• Configurable work queues for efficient task prioritization based on urgency and account status.
• Customizable reports for actionable insights into collection performance and compliance.
• Automated workflows to streamline communication and payment processing tasks.
• Seamless integration with existing systems for centralized data management and streamlined processes.
• Cloud-based solutions supporting scalability, flexibility and accessibility.
• Omni-channel communication to reach customers through multiple channels and enhance effectiveness.
• Simplified payment processes directly through the platform.
• Built-in compliance checks supporting regulation adherence.
• Compatibility with core banking systems for comprehensive customer visibility.
• Effective customer tracking for debt recovery purposes.
• Streamlined compliance documentation and audit processes.

By prioritizing efficient operations and adopting innovative solutions, banks can navigate today’s economic challenges and emerge more resilient and poised for growth.

The materials available in this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your own advisors with questions regarding the content herein. The opinions expressed in this article are the opinions of the individual authors and may not reflect the opinions of MeridianLink, Inc.