Debt collection goes virtual
More companies going online to get delinquent borrowers to pay up
With easy credit all but extinct these days and loan defaults and late payments on the increase, creditors are on high alert. Some banks and credit card companies are ramping up their collection efforts by sending out letters and calling customers about late payments -- sometimes when payments are only a day or two late. Others are rolling out gentler collection techniques in which customers may resolve debts without ever speaking to a live person.
"In the face of escalating delinquencies and charge-offs, banks and finance companies are attempting to leverage all of the available contact tools to optimize their collection strategies," says Arjun Mitra, vice president of collections at FirstSource, a firm that consults on collections to financial service companies.
Many of these tools have a distinctly 21st-century feel to them. More issuers are using websites, text messaging, and e-mail to help customers get caught up on their overdue accounts and work out payment plans. They're clearly on to something: By a margin of four to one, debtors prefer to resolve their overdue accounts online on their own time instead of by talking with an agent on the phone, according to a survey conducted by FISite Research.
"Some consumers prefer the anonymity of dealing with collections in the online channel, and they're more willing to pursue a settlement," says Ken Paterson, director of the Credit Advisory Service at Mercator Advisory Group, a financial research firm. "In addition, consumers can go online when it's convenient for them, as opposed to the limited daytime hours when collectors are restricted by law to make their calls."
It's also good news for banks and credit card companies, who welcome the possibility of keep an even closer eye on customers. "With the unemployment rate rising, credit card companies are watching consumers closely -- when they're submitting their payments and whether they're only paying the minimum," says Nahim Felczer, president of ImGlobal Solutions, a merchant services provider. "As the economy worsens, banks have to become more vigilant."
Washington Mutual recently instituted a self-service website called WaMuCanHelp.com where customers can make payments on their delinquent accounts or find information on a variety of financial topics. "Customers who are a day or more past due have the option of making a one-time lump sum payment to bring the account current or choosing from various account settlement options for longer-term resolution," says spokeswoman Kate Stouffer. "The site is a great tool for customers who want to privately manage their own debt and would prefer not to speak with collection representatives, as well as those who are unable to do so because of work schedules and other time commitments."
In the wake of WaMu's failure, JPMorgan Chase, the financial behemoth that purchased the bank in September 2008, has no plans to discontinue WaMuCanHelp. "We are evaluating WaMu's self-service site as part of that assessment in order to offer the best support to our customers," says Elaine Franck, spokeswoman at Chase Card Services, which doesn't currently offer a similar service to its delinquent customers.
Saving credit card companies money
Sites like WaMuCanHelp not only allow customers to deal with overdue accounts on their own terms -- they save banks and credit card companies money on collections.
Consumers can go online when it's convenient for them, as opposed to the limited daytime hours when collectors are restricted by law to make their calls
|-- Ken Paterson, director
Mercator Advisory Group
"It's also cheaper for the collection agency, since processing payments online is easier than dealing with checks and money orders," says Bruce McClary of Clearpoint Financial Solutions, a nonprofit credit counseling agency in Richmond, Va. "This reduces costs for the bank and collection agency and helps them run a leaner, more cost-effective shop." Indeed, every payment that comes in online saves money on mailing past-due notices and processing payments, as well as the overhead for office space and payroll or an outsourced company to make all those calls. All that means customers may be able to cut a better deal.
The savings can be significant. According to Robert R. Craig, executive vice president of e-commerce services at Online Resources Corporation, the company's web-based Virtual Collection Agent has helped their credit card clients reduce collection labor costs up to 50 percent.
There's every indication that adding electronic communication to the mix has boosted collection rates. "By utilizing multiple communication channels and adding an automated option for collecting payments, organizations have been able to experience a significant lift in their response rates," says Debbie Braunert of SoundBite Communications, a company that helps banks communicate with their cardholders via text messaging, voice mail and e-mail. She says that clients have doubled their collection rates using just phone and mail.
"Online collection of payment is a way to increase reliability of the transaction and, in situations where recurring payments are arranged, ensure that the arrangements are kept by the customer," adds McClary.
Though some credit experts are concerned that these new tools skirt the Fair Debt Collection Practices Act, Mercator Advisory Group's Paterson says that compliance with federal debt collection practices is a nonissue. "Online collections are fully scripted in order to ensuring full and consistent compliance with legal debt collection practices," he says.
Bringing it all together
While banks and credit card companies are pleased with the increased efficiency of electronic collection practices, in order to really make a difference, they'll need to tie them all together seamlessly.
"They'll need to integrate all channels," says Alan Berrey of SoundBite Communications. "Text messaging rarely stands on its own, and in most cases, it's used to augment other communications."
Mitra agrees. "The future of online collection techniques will involve a synergistic effort to incorporate all available contact tools," he says. "These tools can then be matched to the communication style each customer prefers."
In the long run, however, experts say these tools only go so far. While they may help consumers who are more apt to deal with their debt because the tools let people avoid the stress of talking with a persistent debt collector, they won't prevent people from incurring more debt than they can handle in the first place.
"I don't believe that delinquencies will decrease, since the online tools are not prevention tools," says Felczer. "On the other hand, some banks have taken a more proactive approach and are helping customers set up budget plans or cash-flow plans online so they can manage their finances better in the future."
See related: Struggling debt collectors to debtors: Let's make a deal, Fair Debt Collection Practices Act, 11 tips for dealing with debt collection, collectors, Debt collection sample letters, Ignoring credit card debt can lead to garnishing wages, State by state bankruptcy map, Tips for those considering bankruptcy, Bankruptcies up 38 percent in 2007, What is debt reaffirmation?, 9 questions to ask before reaffirming a debt
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