Q3 Industry Insights: Navigating a Divided Economy and Building Consumer Trust

By on October 27th, 2025 in Industry Insights
Q3 Insights 1920 × 1080 px 3

As we close the third quarter of 2025, the economic picture is becoming one of sharp contrasts. While some top-line indicators may appear stable, a closer look reveals a widening gap between high- and low-income Americans. The post-pandemic boom that briefly lifted lower-income workers has faded, leaving many families facing stagnant wages and rising costs for essentials. This growing financial strain is reflected in rising delinquencies and increasing consumer anxiety about the future.

For the debt collection industry, this moment demands a nuanced approach. The landscape is being reshaped by a complex interplay of economic pressures, a shifting regulatory environment and evolving consumer expectations around technology and security. As we look toward the final months of this year, understanding these dynamics is crucial for protecting your bottom line while treating consumers with the empathy they need.

Key Economic Indicators

The economic data from Q3 shows the financial hurdles  for many households. While the economy as a whole continues to move forward, the benefits are not being shared equally, creating significant headwinds for a large portion of the population. A prolonged government shutdown at the beginning of October has impacted the release of key economic data, shifting the focus to alternative sources and making it difficult to get an accurate reading of the situation.

The labor market is showing signs of stagnation and growing inequality. Amid the federal data blackout, experts have been watching nongovernment numbers from sources including Bank of America, Goldman Sachs and ADP, which are all telling the same story about fewer companies hiring in a job market that has cooled since the spring. August data revealed that low-income earners experienced their worst month for wage growth since 2016, while high-income earners saw their best since 2021. Meanwhile, jobless claims are ticking up, with estimates showing a rise to 235,000 in the last week of September.

Inflation remains the primary concern for American families, with September showing a 0.3% increase in the CPI, up to 3%. Core CPI, which excludes volatile food and energy, gained 0.2%. The index for gasoline rose 4.1% in September while energy rose 1.5%. Other indexes that increased over the month include food, shelter, airline fares, recreation, household furnishings and operations, and apparel. 

Forty-five percent of U.S. adults cite the rising cost of living as the most important economic issue they face, more than 30 points ahead of any other issue. This is compounded by costs of essentials like electricity, with prices climbing faster than the overall inflation rate. In response to these persistent pressures and concern with the state of the labor market, the Federal Open Market Committee lowered interest rates by .25% at its September meeting, landing at 4-4.25%. Two more rate cuts are widely expected before the end of 2025.

Household balance sheets are also showing significant signs of stress. Credit scores are dropping rapidly for many consumers as they fall behind on payments, with delinquency rates across multiple types of loans reaching heights not seen since the 2009 financial crisis. 

Auto loans are a particular area of concern, as surging car prices have pushed more buyers to take out longer loans, some extending to seven years. This has led to a spike in auto loan delinquencies, especially among lower-income consumers. Beyond auto debt, the number of homeowners facing foreclosure is also rising fast, with August foreclosure filings having risen six straight months year-over-year, up 18% from the same period in 2024.

What’s Impacting Consumer Finances?

Several specific factors are squeezing household budgets and making it harder for consumers to manage their financial obligations. First, the U.S. economy is increasingly divided. Higher earners are benefiting from strong investment portfolios and valuable homes, driving a larger share of consumer spending. At the same time, poorer Americans are dealing with flatlining wages, rising unemployment and punishing housing costs. For those in the middle, Q3 was a turning point in the economic outlook. Wages haven’t kept up with the cost of living and the softening job market has many on edge. Running out of savings to cover lingering high-rate credit card balances and auto loans, combined with renewed student loan payments, this cohort is more at risk than ever of falling behind and becoming more vulnerable to financial shocks.

Second, the resumption of student loan payments continues to ripple through the economy. With interest-free periods over, millions of borrowers are now facing renewed financial pressure, adding another significant monthly payment to budgets already strained by inflation. In what is good news for some, the Trump administration has agreed to resume student loan forgiveness for an estimated 2.5 million borrowers who are enrolled in certain federal repayment plans.

Third, as financial lives move increasingly online, consumers are growing more concerned about the safety of their data. A recent survey from Mastercard found that many people now believe it is harder to secure their digital assets than their physical ones. The report found that 78% of Americans are more concerned about cybersecurity than they were two years ago. This anxiety can create friction and mistrust, impacting how consumers engage with digital financial services, including online payment portals.

What’s Impacting the Debt Collection Industry?

The debt collection industry is adapting to a regulatory environment that is becoming more localized and a technological landscape that demands greater attention to security.

Despite the CFPB recently releasing a semi-annual rulemaking agenda, Russel Vought, the Director of Office Management & Budget and the acting director of the CFPB announced that the bureau is going to close in two to three months. However, such a closure would require an act of Congress, as the CFPB was established by statute under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Without congressional action, the agency cannot simply be dissolved by executive order or administrative decision. Vought’s statement therefore appears to reflect a political stance or intention to restructure or defund the agency, rather than an imminent legal reality. Nonetheless, the comment has sparked concern within financial sectors—including debt collection—about potential regulatory upheaval and uncertainty in the months ahead.

Meanwhile, a notable trend is emerging at the state level. As the CFPB pulls back, several states are stepping in with their own regulations and educational initiatives to govern collections and protect consumers. This is creating a more complex, state-by-state compliance map that requires diligent attention from the industry.

Despite the slowdown of CFPB oversight, the Federal Trade Commission (FTC) remains focused on consumer harm and continues its crackdown on illegal collection practices, serving as a reminder that deceptive or harassing methods carry severe consequences. Adherence to both the letter and spirit of the law is paramount.

The push toward AI and digital communication continues to accelerate, especially in financial services. However, with rising consumer anxiety around cybersecurity, the implementation of these tools must be paired with a clear commitment to data protection. Building and maintaining digital trust is no longer just a best practice, it’s a business imperative. Navigating the emerging state-level laws and regulations around AI will become more important than ever.

How Are Consumers Feeling About Their Financial Outlook?

Consumer sentiment reflects the deep anxieties revealed in the economic data. Confidence is low, and worries about jobs and inflation are persistent. The Federal Reserve Bank of New York’s Center for Microeconomic Data’s September Survey of Consumer Expectations, showed that households’ inflation expectations increased at the short- and longer-term horizons. Labor market expectations continued to deteriorate, with consumers reporting lower expected earnings growth, greater likelihoods of losing jobs and a higher likelihood of a rise in overall unemployment. 

The Conference Board’s Consumer Confidence Index declined by 3.6 points in September to 94.2. The Expectations Index, which is based on consumers’ short-term outlook for income, business and labor market conditions, decreased by 1.3 points to 73.4. The present situation component, based on consumers’ assessment of current business and labor market conditions, registered its largest drop in a year, falling by 7 points to 125.4. Consumers’ assessment of business conditions was much less positive than in recent months, while their appraisal of current job availability fell for the ninth straight month to reach a new multiyear low.

The University of Michigan’s consumer sentiment index showed little change in October, down only 1.5 points from September. Decreases in sentiment among older consumers were offset by increases among younger ones. Overall, consumers don’t see much change in economic circumstances and inflation and high prices remain at the forefront of consumers’ concerns.

Other polls confirm this widespread unease, with pessimism about income prospects, combined with high inflation, that has left consumers feeling financially insecure. An Associated Press poll found that high prices for groceries, housing and health care persist as a fear for many households, while rising electricity bills and the cost of gas at the pump are also sources of anxiety. Additionally, 47% of Americans believe they would not be able to find a good job in the current market.

What Does This Mean for Debt Collection?

Navigating this challenging environment requires a strategy centered on empathy, awareness and trust. The economic pressures on consumers are real and significant, and successful engagement in debt collection depends on acknowledging their reality. Here are some tactics to consider:

  • Lead with Flexible Solutions: With so many households struggling, a one-size-fits-all approach is doomed to fail. Consumers need options, understanding and convenience. Offering self-service portals and flexible payment arrangements is critical. This empowers consumers to manage their debt on their own terms and demonstrates that you understand their financial situation.
  • Navigate the New Regulatory Patchwork: Compliance is no longer just about following federal rules. With states becoming more active, it’s essential to stay informed about local laws and regulations. Investing in compliance resources that track state-by-state changes will protect your business and ensure you are treating all consumers according to the specific laws that protect them.
  • Build Digital Trust: As you adopt AI and digital tools to improve efficiency, make security a cornerstone of your strategy. Clearly communicate your commitment to protecting consumer data and using safeguards. A secure and user-friendly digital experience not only meets consumer expectations for convenience but also addresses their growing fears about cybersecurity, building the trust necessary for productive engagement. Another way to build trust with consumers in debt collection? Social proof.

Sources: