In 2024, Lenders Need a Better Delinquency Strategy

At some point, nearly every customer experiences a missed payment. Life is hard, something unexpected happens, and people find themselves without the funds to make ends meet. This is especially true today as 49 percent of Americans are currently overextended on their credit cards.

Lenders, already in a position to ask why and to collect the payments, can easily transition their strategy to one of empathy and assistance and in doing so, effectively help individuals find ways to address these shortfalls and increase opportunities for repayment.

When customers don’t pay, it’s often not because they don’t want to. They simply do not have the funds. Yet crucial daily household needs must still be met like spending limited money on food or transportation needs, and so, spending continues where it can and must. This may help shed light on why household debt, including credit card balances, mortgages, auto loans, and student loans totaled $17.29 trillion last year, with balances topping pre-pandemic levels.

Additionally, a new TransUnion report states that almost half of consumers have no excess capacity to make new payments. As pandemic-era financial supports have mostly ended and inflation continues to rise and affect standard cost of living, 40% of families in the U.S report having difficulty paying their bills and other expenses. So the question is, with so many families unable to pay their bills and debt reaching levels that are higher than ever before, why are our strategies for delinquent accounts still so outdated? And if you work at an organization that is doing something different, why are the conversations about what works so far and few between?

The answer lies in shame. As an industry, we have a lot of work to do. We need to reframe our thoughts on late payments and the strategies typically employed to address them. And in doing so, we can change the dynamic we project onto our customers.

This is where empathy needs to come in. Fortunately, financial organizations are perfectly suited to support their customers in times of crisis and to offer financial health solutions, and they can do so rather easily and quickly. Combine this with proper messaging and the will to do things better and differently, and shame can be removed and help can be offered. And when it is, customers will appreciate it and want to talk to their bank. In fact, data shows that people want to do exactly that — with 83% of lower-to-middle-income households stating that they are interested in receiving financial guidance and support from financial institutions.

So, with a record number of Americans facing financial hardship and the fact that at one time or another, every financial institution will have a pool of delinquent customers, why aren’t institutions adopting innovative solutions at a quicker pace to help their customers access assistance?

Perhaps, until now, the industry has chosen the “safe” route by offering budgeting apps or financial education modules to help. While well-intentioned, these tools don’t lead to change at a time when a customer needs it most and doesn’t help them make that next payment.

What does support tangible change is working with consumers by guiding them to resources, including food-saving programs, rental assistance, employment services, affordable childcare, healthcare, mental health, and transportation. All of this must be done with empathy and a desire to understand what is causing the missed payment. When financial institutions do this, they help to destigmatize the financial challenges that many people face every day.

Typically when customers are struggling with repayments, they are experiencing distress and maybe even trauma. It can be difficult for these families to hunt for resources, including payment assistance and social support programs. Financial institutions have the opportunity to become a trusted resource, putting people’s financial health front and center, in good times and in bad. That is a strategy that will truly pay off for all.

  • Rochelle Gorey

    Rochelle Gorey is Founder and CEO of SpringFour, the first-of-its-kind, leading social impact fintech that empowers banks, lenders, credit unions, and more to deliver financial health resources to consumers. In 2023, Gorey was named Finovate 2023 Innovator of the Year, and SpringFour was recognized as a Fast Company 2023 Brands that Matter. A trusted expert, thought leader, and innovator, Gorey is revolutionizing the way the financial industry responds to consumers experiencing hardships, improving customer outcomes while driving impact for organizations and their bottom lines.