Category: Industry Insights

Q4 Industry Insights: Cautious Optimism with a Side of Holiday Hangover

By on January 10th, 2024 in Industry Insights

2023 brought a whirlwind of an economy, and we spent most of the year trying to predict when things would finally turn around. The good news is that things are looking up, and so are consumer sentiments on their financial outlook. Despite the optimism, consumers are still battling high prices and interest rates, though the holiday shopping numbers would make you think otherwise. For consumers, the challenge of balancing finances persists and holiday spending hangovers are adding to the swing. If you’re a creditor or collector working with financially distressed borrowers, considering consumer situations against the economic landscape and accommodating their financial needs and preferences when collecting is critical to your success.

Read on for our take on what’s impacting consumer finances and our industry, how consumers are reacting, and why employing digital strategies to boost engagement is more important than ever for debt collection in 2024 and beyond.

What’s Impacting Consumers and the Industry?

After a lengthy struggle against inflation and high interest rates, the economy is showing welcome signs of strength and stability, ending the year in a far better position than most predicted. Headline PCE fell 0.1% in November and was up only 2.6% from last year, unemployment remained flat at 3.7% and the economy grew at an annual rate of 4.9% from July to September. The Federal Reserve has indicated that the rate hikes are finished and it will be looking at cutting rates starting in 2024, an encouraging sign for the economy and consumers.

The fourth quarter marked the resumption of student loan payments for 22 million Americans, but repayment results were low. In October, the first month of resumed payments, 8.8 million borrowers missed their student loan payment—that’s 40% of loan holders. Some of this miss is attributed to an overwhelmed system and people making use of the Education Department’s 12-month “on-ramp” period, which guarantees that missed payments will not be reported to credit agencies until September 2024, protecting borrowers from the harshest consequences of missed payments like delinquency, default and collections. But interest will continue to accrue and only time will tell how much of this miss is actually due to inability to repay and what that will mean for those who can’t.

The Consumer Financial Protection Bureau (CFPB) has had its hands full overseeing actors across sectors–from regional and large banks to auto and online lenders to mortgage and credit agencies–in an ongoing effort to protect consumers in an ever-growing landscape of financial product offerings. And as offerings grow, so do the issues the CFPB must watch. In Q4, the CFPB issued statements and proposed rules relating to accelerating open banking, oversight of big tech companies and other digital financial service providers, and discrimination concerns. Bureau director Rohit Chopra himself has an eye on the future, saying he’s concerned that a handful of firms and individuals could wield “enormous control over decisions made throughout the world” with advances in artificial intelligence.

The CFPB also took a close look at fees and interest rates, issuing guidance to stop large banks from charging illegal fees for basic customer service and finding that many college-sponsored financial products offer students unfavorable terms and unusual fees. And despite recent changes at banks and credit unions that have eliminated billions of dollars in fees charged each year, a December report found that many consumers are still being hit with unexpected overdraft and nonsufficient fund (NSF) fees. A reported 43% were surprised by their most recent account overdraft, while 35% thought it was possible and only 22% expected it.

Key Indicators and Consumer Finances

According to the New York Fed’s Quarterly Report on Household Debt and Credit, total household debt increased by $228 billion (1.3%) in the third quarter of 2023 to $17.29 trillion. Breaking it down, credit card balances increased by $48 billion to $1.08 trillion in Q3 2023, showing a 4.7% quarterly increase while auto loan balances rose by $13 billion and now stand at $1.6 trillion. Student loan balances also increased by $30 billion up to $1.6 trillion. Other balances, which include retail cards and other consumer loans, increased by $2 billion. 

Experian’s Ascend Market Insights for November reports overall delinquency (30+ DPD) rose in November, with a 7.26% increase in delinquent units and an increase of 3.54% in delinquent balances month over month. Serious delinquency (90+ DPD) continued to rise month-over-month for all products except auto loans, which appear to be stabilizing. Credit card delinquency rates, on the other hand, rose sharply in Q3, landing at 5.3% and up more than 2% from the previous year. Notably, according to a Liberty Street Economics blog post examining the composition of newly delinquent credit card borrowers, the rise in credit card delinquency rates is broad across demographics, but is particularly pronounced among millennials and those with auto loans or student loans.

After months of increasing delinquency rates, it’s not surprising that charge-off rates are following. The charge-off rate for all consumer loans was 2.41% at the end of Q3, up from 1.32% a year ago. As for credit card debt, the charge-off rates clocked in at 3.79%, up more than a half point from Q2 2023 and up from 2.1% a year ago.

The savings rate fell to 3.8% in Q3, down from 5.2% in Q2, while consumer spending jumped by 4%. This spending helped drive up the quarter’s GDP growth rate, but less saving could be a sign of financial strain amidst nagging high prices. And the excess savings from the pandemic? Americans outside the wealthiest 20% of the country have run out of extra savings and now have less cash on hand than they did when the pandemic began, which could spell trouble for consumers in the event of an emergency or unexpected life event. About 116,000 consumers had a bankruptcy notation added to their credit reports in Q3, slightly more than in the previous quarter. And currently, approximately 4.7% of consumers have a 3rd party collection account on their credit report.

Consumer Sentiment on Financial Outlook Improves

The economy’s resilience seems to be encouraging for consumers, with Americans’ perceived likelihood of a recession in the next 12 months falling in December to the lowest level seen this year. In fact, the Conference Board Consumer Confidence Index® increased to 110.7, up from a downwardly revised 101.0 in November. The overall increase in December reflected more positive ratings of current business conditions and job availability, combined with less pessimistic views of business, labor market and personal income outlook over the next six months.

The Federal Reserve Bank of New York’s November 2023 Survey of Consumer Expectations supports the optimistic findings. The report found that median one-year ahead inflation expectations declined by 0.2 % in November to 3.4%—the lowest reading since April 2021. Combining economic optimism with a decline in expected spending, the result is a 0.2% decrease in the average perceived probability of missing a minimum debt payment over the next three months, which is good news for lenders.

Similarly, Deloitte’s ConsumerSignals financial well-being index, which captures changes in how consumers are feeling about their present-day financial health and future financial security based on the consumer’s own financial experience, increased to 101.4 in November, up from 99.1 last month and up from 97.6 a year ago. The overall takeaway is that many consumers are feeling better about their financial situations and are more optimistic about the future of the economy.

Preparing for Debt Collection in 2024

Optimism about the economy’s turnaround hasn’t hit wallets just yet—consumers are still feeling the financial pinch of the high costs of rent, groceries and other basics that haven’t started retreating to pre-pandemic levels. But that didn’t stop holiday shopping—U.S. consumers spent a record $9.8 billion in Black Friday online sales, up 7.5% from 2022. Cyber Monday numbers were even stronger—consumers spent $12.4 billion, up 9.6% from the previous year. And those figures don’t include the ​​118.8 million Americans who spent money at brick-and-mortar stores on Black Friday weekend. 

Today’s consumer is using more and different financial products to cover the cost of the holidays, and Buy Now, Pay Later (BNPL) was a big driver of purchasing power this year amidst elevated interest rates. BNPL purchases, which allow shoppers to buy items on short-term credit and frequently with no interest, also reached a record high on Cyber Monday, making up $940 million of the total online spending—an increase of 42.5% over last year. While a helpful product for consumers, BNPL can be tricky as it doesn’t show up on most credit reports and can be an invisible and unaccounted-for debt burden. 

Every year, an estimated one-third of American adults go into debt to pay for holiday expenses. Growing debt balances, stubborn interest rates and elevated prices are still a thorn for consumers, and contribute to their overall financial stability. For lenders, service providers and debt collectors, guaranteeing repayment will still be a challenge as we start into 2024. So what’s the best way forward in engaging customers in debt collection who are balancing expenses and a bit of a holiday shopping hangover? Here are some things to consider:

  1. Prepare for timely factors. Keep in mind post-holiday bills can make January a difficult month to collect from consumers. But tax season is almost here, when consumers’ refunds create a better scenario for repayment of past-due balances. Plan for this time accordingly and ensure your engagement strategy is in place before February. 
  1. Consider email deliverability. Just sending emails doesn’t guarantee your message will reach your customer. With inundated inboxes, your outreach strategy needs to include how to cut through the clutter and ensure successful email delivery of your customer communications. Learn more about deliverability, the most important debt collection metric you probably aren’t measuring, and how it impacts your debt collection efforts.

  1. Options are your way forward. If there’s one thing we’ve learned from our consumer interactions, including the 16.5 million we added in 2023, it’s that no two consumers are the same, and what works for one may not work for the next. That’s why options are so important—in communication channel, customer support method, and perhaps most importantly, in repayment. Give your customers options for engagement and payment (think partial payments, payment plans, etc.) and you’ll likely see better collection results and customer experience.

New Yorkers Should Receive the Same Digital Communications Benefits All Non-New Yorkers Receive: Part Two

By on November 20th, 2023 in Industry Insights

In our first blog post on the New York and New York City’s proposed amendments to their debt collection laws, we explored the proposed amendments and the alternative opt-out laws in the federal Fair Debt Collection Practices Act (FDCPA) and the Washington, DC debt collection amendment that achieve the same objectives without the unintended consequences. In this part two, we explore the benefits of digital communications for consumers in all other states and jurisdictions—except New York—as well as these unintended consequences New Yorkers face from these potential amendments.

Since the New York Department of Financial Services (NYDFS) is still considering the comments received to their proposed changes and the New York City Department of Consumer and Worker Protection comment period is open until November 29, 2023, there is still time for these Departments to revise their proposals to match the federal law or Washington DC’s law. Both the federal and DC laws permit debt collectors to communicate digitally about a consumer’s account as long as the digital communications contain clear and conspicuous opt-out language with strict penalties for failing to abide by the opt-out provisions. Washington, DC goes a step further and restricts digital communications to one per week unless a consumer opts in to more digital communications in a seven day period.

Both NYDFS and NY should allow their consumers to have the same experience as the consumers in the rest of the country.

Digital Communication Benefits Consumers, Creditors, and Collectors

TrueAccord knows digital communication benefits consumers, as evidenced by countless consumers who have provided feedback (either directly or online) throughout our years in business, like this consumer who wrote in July 2023:

Digital Communications are a Step Forward in Consumer Protection
Digital communications are easily controlled by consumers and tightly managed by service providers with built in mechanisms to prevent harassment. These methods already provide superior consumer protections than phone calls and letters for several reasons:

  1. All digital communications are written, documented, and can be searched, automatically creating a paper trail of communication between the consumer and the collector.
  2. Electronic communications offer significantly better protection from unwanted or harassing communication compared to phone calls and letters. Consumers hold the power and can easily opt out of electronic communication by clicking “unsubscribe,” marking emails as spam, replying STOP to a SMS, or blocking a number entirely from their device.
  3. Service providers closely monitor inbound communications and those senders who appear to be mass marketing are often blocked from delivery altogether in the spam filters for both email and SMS. Unfortunately for licensed businesses, like law abiding debt collectors who have a legitimate reason for these digital communications, their digital communications may never reach a consumer’s phone or inbox without a very sophisticated delivery strategy that takes into account frequency.

Additionally, email is designed to travel with a consumer forever, whereas addresses and oftentimes phone numbers can change. Email addresses are not ever reassigned by service providers. If consumers frequently change addresses, like military families, email may be the best channel to use to communicate as it lowers the risk of missed communication when consumers forget to update their account information with their new physical address.

Consumers Prefer Digital Debt Collection
By and large, consumers prefer to communicate with their collection agencies digitally—they already predominantly communicate with their banks, creditors, and lenders digitally, so digital collection is a smooth transition when an account moves to collection. As this consumer reported just this past August 2023:

Almost all TrueAccord communications with consumers (96%) happen electronically with no agent interaction. This is possible because our electronic communications contain links to online pages where consumers can take action on their accounts. In fact, more than 21% of consumers resolve their accounts outside of typical business hours—before 8AM and after 9PM—when call centers are closed and it is presumed inconvenient to contact consumers under the FDCPA.

Consumers Should Not Have to Opt-In to Electronic Communications Twice
Consumers already opt in and communicate through primarily digital channels with their creditors. Requiring consumers who have already opted in to have to again opt in to digital communications in order to discuss the same account with a collection agency adds burden to consumers. When a consumer provides their electronic contact information (email address or cell phone number) to the creditor, there should be little doubt that the consumer desires to communicate electronically. If the consumer does not, they can unsubscribe or opt out from continuing to receive messages through these channels.

Consumers are familiar with opt-out methods such as the standard unsubscribe hyperlink in emails and the phrase “Reply STOP to opt-out” in text messages, as they do from all other unwanted communications in other industries. Not only can consumers opt-out from digital communications by simply replying stop to a text or clicking twice to unsubscribe, at TrueAccord consumers can also reply to any digital communication, phone into the office or send us a letter. Even with the multiple options and ease of opt out, few consumers unsubscribe. Of the millions of email communications TrueAccord sends, only 0.04% of consumers unsubscribe, most using the unsubscribe link provided in the email. And out of the millions of text messages we send, all text messages contain the phrase “Reply STOP to opt-out,” and on average only 1.13% of consumers reply stop.

It is a requirement of the FDCPA to include a clear and conspicuous method to opt out of digital communication. Additionally, failure to honor a request to stop communicating in a particular channel is a violation of the law subject to fines that include attorney’s fees. In addition, consumers expect an easy way to opt out, if that option is not available in digital communications (not only is it a violation of the law) but consumers can just as easily report the communication as spam which will result in the inability of the debt collector to send digital messages. All of these protections, along with the clear consumer preference for digital (in part demonstrated by their low opt out rate), negates the need to change the experience to one where the consumer has to take steps to phone in to consent before any digital communications can be sent notifying the consumer of their account in collections as will be the case if the NY and NYC amendments take effect.

Unintended Harms to Consumers if Digital Communications are Restricted

Limiting Digital Communication Use Hurts All Consumers
Requiring special consent for email, text messaging, or other digital channels, when no such consent is required for calls and letters, hurts consumers by increasing unwanted calls and litigation risk. The proposed changes will require debt collectors to capture consent from consumers directly, even when consumers already opted in to text and emails about their account with their creditors. This means that a debt collector cannot text or email to inform the consumer about their account being in collection, provide them with a notice of their rights, and detail possible next steps (the fastest, least bothersome methods of communication).

Instead, debt collectors must mail consumers letters and consumers must affirmatively respond to those letters by calling into the office (something that must be completed during working hours as opposed to electronic communications that can be explored at any convenient time for consumers). This stifles the flow of information that helps consumers make informed decisions about their finances and simultaneously helps creditors make informed choices about recovery options and future lending strategies. After all, we know busy consumers often do not respond to outbound letters.

If consumers don’t respond, then debt collectors place outbound calls—which we also know is no longer consumers’ most preferred method of communication—until they get the consumer on the phone to discuss their account and capture the direct consent that will be required if the NYC proposal takes effect.

When a debt collector cannot reach a consumer to communicate about their debt the creditor is forced to make difficult decisions about how to recover, absent an understanding of why a consumer is not reaching out. This includes a decision about whether or not to file a lawsuit to recover the debt (which, if successful, results in garnishment of a consumer’s paycheck or a lien against a consumer’s property).

In some instances where a consumer might not own property or be employed, a creditor may not file a lawsuit but simply accept the loss. This decision can have negative impacts on all consumers: in the future it will be more difficult or impossible to receive access to credit, not only for the individual consumer who was unable to repay the debt but for others consumers that have poor credit history or no credit history, as lenders become less likely to take risks when there is a lower chance of recovery. Additionally, and depending on the extent of their loss, lenders may choose to raise interest rates and APRs impacting all consumers to ultimately cover these losses.

Non-Digital Communications Can Be Disruptive to Consumers
Consumers use the internet, mobile devices, and their emails for communication, shopping, and financial transactions. When a customer defaults on their account, it is a disruption to their lives to suddenly receive phone calls and letters regarding an account for which they previously only communicated via digital channels. Many of TrueAccord’s creditor-clients, concerned about their consumer experience and their brand image, prefer a seamless transition to debt collection communications and prohibit TrueAccord from making any outbound calls or sending letters on their accounts because their customers have only ever interacted digitally.

This approach has proven to benefit the consumers that need help the most, as one customer explained to us in February, 2023:

New Yorkers Should Receive the Same Digital Communications Benefits All Non-New Yorkers Receive: Part One

By on November 13th, 2023 in Compliance, Industry Insights

The New York City Department of Consumer and Worker Protection (NYC DCWP) just released an updated proposed amendment to its rules relating to debt collection. This updated amendment changes significantly more than the first proposed amendment released by NYC DCWP last year. Interestingly, this update contains revisions that are similar to the New York Department of Financial Services (NYDFS) proposed amendments to New York’s debt collection law, 23 NYCRR 1, that NYDFS released last year. After receiving a number of comments to the proposal, including a comment from TrueAccord, NYDFS paused the rulemaking and has not yet released any revised proposal. Both of these departments, NYDFS and NYC DCWP should change their proposed amendments to give New Yorkers the same digital communication benefits all non-New Yorkers receive.

The NYC DCWP and NYDFS proposed amendments are designed in part to align with the federal Consumer Financial Protection Bureaus’s Debt Collection Rule, Regulation F, that took effect in November 2021. Even though consumers often prefer to communicate digitally, the NYDFS and NYC DCWP updated proposals are more strict than Regulation F, particularly as it relates to the proposed restrictions on digital communications. While attempting to provide additional protections for consumers when debt collectors reach out using digital channels, these NYDFS and NYC DCWP restrictions create unintended consequences that raise barriers for NY consumers to correspond with collection agencies in their channel of preference and hinder communication efforts. The effect will raise the number of lawsuits brought against NYC consumers and ultimately increase the cost of credit for all consumers across the US to offset New York losses.

As a company that predominantly leverages digital communications for virtually all aspects of our customer interactions, TrueAccord has unique experience and information from serving over 20 million consumers, which showcases the benefits of digital communication in collections. Small edits to these proposed amendments can have the same desired impact (protecting consumers from a barrage of digital debt collection messages) without limiting the ability of debt collectors to proactively reach out—in fact, both the federal debt collection rule, Regulation F, and Washington, DC’s recent debt collection law amendments restrict the frequency of outbound digital communications and include specific requirements for opt-outs on all communications with severe penalties for failing to honor a consumer’s request.

In this two part blog series, we explore the provisions in these proposed amendments that focus on restrictions on digital communications, the unintended consequences to consumers when laws require opt-in instead of opt-out rules for debt collectors, and how the proposals could be changed to accomplish the same result without placing barriers on consumers ability to communicate in their channels of preference—read part two here. This first installment focuses on the provisions of the law, consumers preference for digital communications, and the small changes that could be implemented before these amendments are final. The second installment seeks to provide information about the benefits of digital communications for consumers in all other states and jurisdictions—except New York. If you are impacted by the current NYC proposal, consider speaking at the upcoming hearing (virtually or in person). Information on how to register is below.

Proposed New York State and New York City Amendments

Three proposed amendments, two different departments, two different jurisdictions, and potential unintended consequences that can harm consumers. Let’s start by evaluating the different proposals by jurisdiction.

New York’s Approach to Digital Communications
The New York debt collection law, 23 NYCRR 1, which took effect in 2019, already restricted the ability of a debt collector to reach out proactively to consumers via email without first having direct express consent from the consumer. This means that a debt collector must first call a consumer to obtain consent before the collector could send an email message about the account. While a debt collector can send proactive emails in an effort to obtain consent, to comply with the law these emails cannot reference the reason why a consumer would want to opt-in to communicate by email with the company, (i.e. about a past due account) and cannot even reference information about the account. So, they ultimately sound like spam.

For example, if a consumer received a message from a company they do not know, without any information about why the company is reaching out and asking for consent to email, why would a consumer opt-in?

The result, not surprisingly, is that New York consumers who had already opted in to communicate via email about the account with the creditor would, after falling behind on payments and being referred to a debt collector, only receive phone calls and letters from debt collectors.

New York’s First Proposed Amendment
December 2022 NYDFS released its first proposed amendment to its debt collection rules. Comments were due February 13, 2023. The first New York proposed amendment also never became final. The amendment included the following:

  • Revised definitions of communication, creditor and debt and a new definition of electronic communication
  • Revised requirements for the validation notice, including that the initial communication must be made in writing to avoid having to send another written communication within 5 days of the initial communication
  • Revised requirement that the validation notice cannot be made by electronic communication but may be made in the form requested by a consumer to section 601-b of the General Business Law
  • Revising the disclosure requirements for debts that have passed the statute of limitations for the purpose of filing a lawsuit
  • Revisions to the substantiation requirements, including a 7 year retention period and requirement to provide full chain of title
  • Revisions to the requirement for a debt collector to obtain consent from a consumer before emailing, including, extending the consent requirement to text messages, requiring the consent to be given in writing and retained for 7 years, requiring electronic communications to include clear and conspicuous opt-outs, requiring collectors to honor such opt-outs, and explaining opt-outs are effective upon receipt
  • New provisions covering the relationship with other laws, clarifying, for example, that local laws are not inconsistent with this law if they afford greater protections
  • New section on severability making clear that if any court rules one section of the law to be invalid, it does not invalidate the other sections of the law

The proposed changes to Section 1.6(b) seek to extend the prohibition on a debt collector to reach out proactively to consumers via email without first having direct express consent from the consumer to text messages. This limits the only digital channel currently available for proactive outbound debt collection communications with consumers in New York.

New York City’s Approach to Digital Communications
New York City’s debt collection laws did not contain any restrictions on digital communications. But, after the New York law restricting proactive emails took effect in 2019, New York City consumers who had already opted in to communicate via email about the account with the creditor would, after falling behind on payments and being referred to a debt collector, only receive phone calls and letters from debt collectors.

New York City’s First Proposed Amendment
November 2022 NYC DCWP released its first proposed amendment to its debt collection rules, comments were due December 5, 2022. These first NYC proposed amendments contained changes to align their laws with those of New York, however, the proposals never became final. The amendments included the following:

  • Revised the out of statute disclosure agencies must provide on communications with consumers whose accounts have passed the statute of limitations for the filing of a lawsuit to recover the debt
  • Revised requirements for debt collectors to maintain records of attempted communications, complaints, disputes, cease and desist requests, calls, including what calls are recorded and not recorded, credit reporting, unverified debt notices, and communication preferences (if known) as well as unsubscribes or opt-outs from particular channels
  • New definitions for attempted communication, electronic record, electronic communication, clear and conspicuous, language access services and limited content message
  • New prohibition on electronic communications unless the debt collector sent the initial communication with the validation notice by mail and the consumer opted in to electronic communications with the debt collector directly and clear and conspicuous opt-outs without penalty or charge on all electronic communications
  • Revised unconscionable and deceptive practices to include: adding attempted communications anywhere communications appeared, such as adding attempted communications to the excessive frequency prohibition
  • New prohibition on social media platform communications unless the debt collector obtains consent and communicates privately with the consumer
  • New rules on requirements prior to furnishing information to credit reporting agencies
  • Revised validation notice disclosures and obligations for translating, if notices are offered in different languages

New York City’s Revised Amendment
November 2023 NYC DCWP released an updated NYC proposed amendment. Comments can be submitted through November 29, 2023. A hearing will be held that same day at 11AM. The updated version contains all of the changes suggested in the first proposal as well as:

  • Additional revisions to what information is required to be maintained in debt collection logs that would require major changes to all collection software systems
  • Additional new definitions for covered medical entity, financial assistance policy, itemization reference date, original creditor and originating creditor
  • Clarifies that any communications required by the rules of civil procedure in a debt collection lawsuit do not count toward frequency restrictions
  • New disclosures for medical debts as well as specific treatment of medical accounts, such as validation procedures and verification of covered medical entity obligations prior to collections

These amendments align the New York City law to that of New York. If these amendments become final, New York will be an opt-in jurisdiction instead of an opt-out jurisdiction, meaning debt collectors must communicate by telephone or letter to obtain consent to text or email, even when a consumer already opted into digital communications about their account. This puts New Yorkers at a disadvantage from consumers in all other states who are able to communicate electronically under the provisions of the federal Fair Debt Collection Practices Act (FDCPA) and Regulation F.

Opt-Out Jurisdictions Offer Consumers the Same Protections

The rest of the United States have approached debt collection attempts via digital communications very differently from New York. For all consumers outside of New York, debt collectors may send proactive debt collection communications via email or text messages. The laws require all digital communications contain clear and conspicuous opt-out methods (unsubscribe flows in emails and “reply STOP to opt-out” in text messages) with strict penalties for debt collectors who do not honor a consumer’s request to opt-out of digital communication channels. Digital communications also fall under the frequency limitations of the FDCPA and Regulation F.

Only one other jurisdiction to date has created additional restrictions related to digital communications that exceed the protections in the FDCPA and Regulation F. Washington, DC amended their debt collection law Protecting Consumers from Unjust Debt Collection Practices Amendment Act of 2022, and the changes that took effect in January 2023. DC remains an opt-out jurisdiction with specific requirements for opt-outs on all email and text communications with severe penalties for failing to honor a consumer’s request, but also added a specific frequency limitation on digital communications. Debt collectors are only permitted to send a consumer one digital communication per week—one email or one text message (one time in a seven day period). A debt collector may only communicate digitally more than one time per week after a consumer opts-in to additional digital communications.

As a result in these opt-out jurisdictions, consumers can still receive the digital communications they prefer without having to have phone calls attempting to get them to opt-in to digital communications, like the consumers in New York. Additionally, with these opt-out jurisdictions consumers learn about their account faster, can explore options on their own time, and receive the additional benefits that come with early communication about their debts—such as setting up a payment plan, having a credit reporting tradeline updated or deleted, providing evidence of fraud or identity theft, and disputing all or portions of the balance. New York consumers who do not answer their phones are less likely to receive these benefits that come with knowing there is a debt in collection and the options to resolve.

Ultimately, New York still has time to amend their proposals to ensure their consumers receive the same treatment as all other consumers in the US.

Consumers Prefer Digital Communication

By and large, consumers prefer to communicate with their collection agencies digitally—they already predominantly communicate with their banks, creditors, and lenders digitally, so digital collection is a smooth transition. For example, almost all TrueAccord communications with consumers (93%) happen digitally with no agent interaction because the digital communications contain links to online pages where consumers can take action on their accounts. In fact, more than 21% of consumers resolve their accounts outside of typical business hours—before 8AM and after 9PM—when it is presumed inconvenient to contact consumers under the FDCPA. In fact, consumers often post publicly about their positive experience with digital collections:

We believe restricting digital methods to reach and serve consumers will disadvantage vulnerable populations of consumers who primarily conduct most of their affairs digitally. According to the Pew Research Center, “reliance on smartphones for online access is especially common among younger adults, lower-income Americans and those with a high school education or less.” As the consumer described above, TrueAccord’s approach of sending digital communications helps consumers easily navigate to our website and perform actions at their convenience online.

We will continue to explore the impact of these proposed amendments in the second blog post of this series, including how:

  • Limiting digital communication use hurts all consumers
  • Multiple opt-in requirements burden consumers
  • Non-digital communications can be disruptive to consumers
  • Email and text messages are a step forward in consumer protection

Register to Speak at the Upcoming Hearing

Sign up to speak for up to three minutes at the hearing by emailing Rulecomments@dcwp.nyc.gov. You do not have to be present at the hearing to speak if you join the video conference using this link, https://tinyurl.com/z3svub58, meeting ID: 255 089 803 499 and passcode: 8HGNSw.

Read Part Two of Our Series: New Yorkers Should Receive the Same Digital Communications Benefits All Non-New Yorkers Receive

Discover the unintended harms New Yorkers face if digital communications are restricted by proposed amendments to New York and New York City’s debt collection laws and the digital communication benefits consumers get in all other states here»»

Why Q4 is the Time to Evaluate Your Collection Partners

By on November 1st, 2023 in Customer Experience, Industry Insights, User Experience

It’s hard to believe that the year is already winding down, but consumer debt certainly isn’t. And not having the right collection partner today can equate to missed recovery opportunities tomorrow.

So what makes the end of the year such an important time to evaluate your current collections partner? Let’s take a look at some of the timely factors.

Why Evaluate Your Collection Partner in Q4? To be Better Prepared for 2024

Be Ready for the Aftermath of Holiday Spending

It should come as no surprise that consumer spending typically increases in the last few months of the year—Black Friday, Cyber Monday, Super Saturday, Boxing Day, not to mention the expenses around holiday travel too.

But last year marked a particular surge in consumers putting a lot of that spending on credit, with 41% of Americans putting more than 90% of their holiday expenses on their credit cards, and one-third using credit cards for all their holiday expenses.

With this heavy reliance on credit, nearly 42% anticipate going into debt to pay for the holidays—especially when considering that US shoppers took on over $1,500 in holiday debt in 2022.

It feels almost inevitable that by the end of Q1 in 2024 some consumers will already be rolling over past the 90-day delinquency mark. To be ready, your debt collection should be preparing for Q1 late-stage collections now.

Get a Jump on Engagement Before Tax Season

Even though tax season may feel far off today, now is the time to start preparing engagement strategies to reach and remind consumers to prioritize repayments when tax refunds come around.

And this shouldn’t be a novel concept to customers already dealing with debt: surveys find one in five respondents intend to pay off their holiday spending bills with federal tax refunds. In 2023, 44% of Americans reported earmarking their refunds to pay off their debt overall, according to the CNBC Your Money Financial Confidence Survey.

Although paying off debt is a priority, 34% of those surveyed said they were worried their refunds wouldn’t make as big of an impact due to inflation/rising costs while still reporting that their tax refund would be critical to their household finances—don’t let your collection partner show up late to the competition when consumers are allocating those tax refund dollars.

Bottom line: many consumers will likely fall into debt in Q4 due to holiday expenses, but being prepared to engage them come tax season can help influence opportunities to secure repayment as we roll into 2024.

Why Opt for Digital Outreach? To Meet Consumers Where They Already Are

Your collection partner needs to be prepared for when and where your customers are ready to engage. And after the holidays and gearing up for tax season, many consumers are already active online—so don’t miss the chance to engage them through digital outreach.

By the numbers, consumers are primed for digital communications in Q4 and Q1 considering:

  • In 2022 online holiday sales rose 3.5% year over year, marking the largest ever online holiday season
  • 68% of Americans report they pay more attention to emails from companies during the holidays
  • 93.8% of individual tax returns were filed electronically
  • Convenience was one of the top six reasons Americans prefer filing taxes online

Given that consumers will be spending a lot of time online through Q4 and into Q1, digital communications is crucial to stay top of mind as holiday spending rolls into delinquency and competition for tax refund dollars ramps up. Your collection strategy should not only include email but also be ready with the right message at the right time to secure repayment—it takes more than just generic mass blast emails to get consumers to engage.

Does your collection partner have a plan to capture delinquent customers’ attention at just the right time with the right message? And not just looking ahead for Q1 engagement, but all year round.

Consumers Prefer Digital for Financial Services—Any Time of Year

While we see spikes in online shopping during the holiday season and more consumers choose to file taxes electronically, these aren’t the only times of year that financial transactions happen digitally.

During any given month, surveys find that 73% of people worldwide turn to online banking at least once a month, with 59% specifically using mobile banking apps. This marks an increasing adoption rate of digital channels by customers to get their banking done, jumping to 83% in 2023 up from 77% in 2020.

Globally, the number of online banking users is expected to reach 3.6 billion by 2024.

Overall, consumers are opting for a digital experience when it comes to their finances, so using digital channels needs to be an integral part of your collection strategy year-round when you consider:

  • 59.5% of consumers prefer email as their first choice for communication
  • Contacting first through a customer’s preferred channel can lead to a more than 10% increase in payments
  • 14% of bill-payers prioritize payments to billers that offer lower-friction payment experiences

Is your collection partner set to deliver personalized digital communications at scale any time of year?

How to Evaluate a Debt Collection Partner

Selecting a debt collection partner makes an impact regardless of season, but Q4 offers businesses the opportunity to set their recovery efforts up for better success leading into tax season.

But what are the questions to ask and qualities to look for in a partner? Whether your business is looking to work with a collection agency for the first time or want to reassess how effective your current provider may actually be, our latest eBook provides the Top 10 Questions to Ask along with explanations of why each specific question matters and what to look for when evaluating—available for download here»»

Ready to get a jump on your debt collection strategy for 2024? Schedule a consultation with TrueAccord’s experts to get started»»

Email Deliverability: Six Key Questions to Ask Your Debt Collection Provider (and How TrueAccord Measures Up)

By on October 23rd, 2023 in Customer Experience, Industry Insights, Product and Technology, User Experience

Did you know one of the most common reasons for missing a payment is because delinquent customers simply forget to pay their bill?

But staying top of mind for consumers is harder than ever using traditional call-and-collect methods considering stricter compliance regulations and the fact that 94% of unidentified calls go unanswered. Plus, surveys have found that when it comes to debt collection, 40% of consumers state email as their first preference of communication, and contacting through a customer’s preferred channel first can lead to a more than 10% increase in payments.

But, even if your collections partner claims to use digital engagement, are you actually getting better recovery rates?

Simply adding email into the communication mix isn’t enough—there’s a lot that goes on between hitting “send” and reaching the inbox. Understanding the core components of a successful email program is helpful, but are your collection emails actually making it to your delinquent accounts? Unopened emails or messages trapped in spam won’t help those liquidation rates.

In today’s digital world, businesses can’t afford to work with collection partners who claim to engage consumers via email but can’t back it up with the metrics to prove that their messages actually reach their intended recipients.

Let’s look at six key questions to ask your collections partners, why each question is important, and how TrueAccord measures up. Want to learn more about email deliverability? Click here»»

1) What is their primary method of consumer engagement in debt collection?

Why It Matters
The success of traditional call-and-collect methods are waning compared to modern digital engagement due to more consumers preferring digital communications, declining right-party contact rates, and increasing compliance restrictions.

How TrueAccord Measures Up
TrueAccord is a digital first, omnichannel debt collection agency—and has been a leader in digital consumer engagement.

2) How long have they used email as a form of consumer engagement in debt collection?

Why It Matters
Many debt collection providers have been slow to adopt digital communication as part of their consumer outreach, and even those who have integrated digital are still refining strategies for optimal outcomes.

How TrueAccord Measures Up
From the very start back in 2013, TrueAccord’s approach to consumer engagement has been digital-first and continues to grow into a robust omnichannel operation through machine learning driven by data from 20 million customer engagements and counting.

3) What is their email delivery rate?

Why It Matters
Email Delivery Rate refers to the successful transmission of an email from the sender to the recipient’s mail server, measured by emails delivered divided by the number of emails sent.

How TrueAccord Measures Up
TrueAccord has a 99% email delivery rate, compared to the average email delivery rate of approximately 90%.

4) What is their deliverability rate?

Why It Matters
Successful email delivery doesn’t mean that it actually makes it into the recipient’s inbox. Deliverability divides how many emails reach the recipient’s inbox, as opposed to their spam folder, by the total number of emails sent.

How TrueAccord Measures Up
TrueAccord has a 95% deliverability rate, compared to the worldwide average of 84.8%

5) Do they measure open rates and/or click rates?

Why It Matters
Measuring open rates (percentage of recipients who opened your email) and click-through rates (percentage of those who clicked on a link in the email) play a dominant role to understand which communications are resonating with recipients and which are not.

How TrueAccord Measures Up
TrueAccord has a total open rate 52% and total click rate 1.77%, compared to the 2023 average industry total open rate of 27.76% and click rate of 1.3%.

6) How do they make adjustments when delivery and/or deliverability rates fluctuate?

Why It Matters
Email delivery and deliverability rates will fluctuate, but how a provider responds and adjusts to these changes is crucial to keeping the rates as high as possible. 

How TrueAccord Measures Up
TrueAccord’s dedicated Email Operations and Deliverability Team proactively monitor and make adjustments, along with using our patented machine learning engine, HeartBeat.

Ready to Reach Optimal Consumer Engagement in Your Debt Collection Operations?

Start by scheduling a consultation to learn more about what influences email delivery and deliverability rates and how TrueAccord consistently performs above the rest. 

Get Start Now»»

Q3 Industry Insights: Preparing for Credit Card Bills, Student Loans and Holiday Spending

By on October 10th, 2023 in Industry Insights

We’re approaching the end of the year and fall is in the air – along with consumer financial uncertainty. Economic stressors persist and are likely contributing to many consumers relying on credit to cover expenses, while the resumption of student loan payments adds another financial obligation to the mix. For consumers, the conundrum of balancing finances continues as the holiday spending season sneaks up. If you’re a creditor or collector working with financially distressed borrowers, considering consumer situations and preferences when collecting is critical to your success.

Read on for our take on what’s impacting consumer finances and our industry, how consumers are reacting, and why employing digital strategies to boost engagement is more important than ever for debt collection in 2023 and beyond.

What’s Impacting Consumers and the Industry?

People are watching inflation and interest rates like hawks as effects from previous rate hikes slowly set in. The PCE price index excluding food and energy increased 0.1% in August, lower than the expected 0.2% gain. On a 12-month basis, the annual increase for core PCE was 3.9%, matching the forecast and coming in as the smallest monthly increase since November 2020.

While recent indicators suggest that economic activity has been expanding and the U.S. banking system seems sound, inflation remains elevated. Tighter credit conditions will likely impact economic activity, hiring and inflation, but the extent of these effects is unpredictable. While the Fed’s latest move in September was to maintain the existing rate of 5.25-5.5%, the end goal is maximum employment and inflation at the rate of 2% and they are closely watching indicators to determine future rate changes.

Since April 1, more than 7 million Americans have lost Medicaid coverage since the forced hiatus of cancellations during the pandemic ended. Many people lost their coverage because their income is now too high to qualify for Medicaid, but a larger share have been terminated for procedural reasons and states are now seeing increased appeals and complicated legal processes.

After three years of relief from payments on $1.6 trillion in student debt under the CARES Act,  student loan payments resume this month. 40+ million borrowers who paid $200 to $299 on average each month in 2019 will soon face the resumption of a bill that is often one of the largest line items in their household budgets. For a deeper, data-driven analysis of how student loans impact consumers with debt in collections, read our report, “Consumer Finances, Student Loans and Debt Repayment in 2023”. 

Meanwhile, the Consumer Financial Protection Bureau (CFPB) has been looking at lending practices, advanced technology considerations and credit reporting that impact consumers. Of note for lenders, it issued guidance about certain legal requirements for specific and accurate reasons when taking adverse actions against consumers that lenders must adhere to when using artificial intelligence and other complex models. Bottom line: “the algorithm said so” doesn’t qualify as a reason.

The CFPB also started the process of issuing a rule barring reporting medical debt collections through the credit reporting system. The CFPB’s rulemaking would block credit reporting agencies from including medical debts on consumer reports that are used in making underwriting decisions. The proposal would not stop creditors from medical bill information for other purposes such as verifying the need for loan forbearance or evaluating loan applications for medical services.

Key Indicators and Consumer Spending

According to the New York Fed’s Quarterly Report on Household Debt and Credit, total household debt increased in the second quarter of 2023 by $16 billion (0.1%) to $17.06 trillion. Credit card balances increased by $45 billion from Q1 2023 to a series high of $1.03 trillion in Q2, a 4.6% quarterly increase. Other balances, including retail credit cards and other consumer loans, and auto loans also increased by $15 billion and $20 billion, respectively. 

With increased balances, delinquency remains a concern as it simultaneously continues to rise regardless of product type. Experian’s Ascend Market Insights for August reports overall delinquency (30+ DPD) rose in August, with a 2.81% increase in delinquent units and an increase of 3.11% in delinquent balances month over month. Serious delinquency (90+ DPD), which has been rising for all products, now exceeds pre-pandemic levels for auto loans and unsecured personal loans and is approaching pre-pandemic rates for bankcards, retail cards and secured personal loans. 

In August, the Fed reported that at the 100 largest banks, charge-off rates have been rising, most notably with credit cards. The charge-off rate for all consumer loans was 2% at the end of the second quarter, up from 1.1% a year ago. As for credit card debt, the charge-off rates stood at 3% in the second quarter, up from 2.75% in the first quarter, and up from 1.7% a year ago. Putting this in perspective, amid the Great Recession the overall charge-off rate hovered near 8% while the rate for credit cards hit 9%. While comparatively the situation may not seem as dire, the increasing trend on charge-offs is worth watching.

After bottoming out in September 2021, analysts at Goldman Sachs report that since Q1 2022, credit card companies are seeing an increasing rate of losses at the fastest pace in almost 30 years, on par with the 2008 recession. Losses currently stand at 3.63%, up 1.5% from the bottom, and Goldman sees them rising up to 4.93%.

Also in August, Americans’ $2 trillion in pandemic savings was nearly exhausted, with the current remainder of $190 billion projected to be spent down by the end of the third quarter. This has started showing up as roughly 114,000 consumers had a bankruptcy notation added to their credit reports in Q2, slightly more than in the previous quarter. And approximately 4.6% of consumers had a 3rd party collection account on their credit report, with an average balance of $1,555, up from $1,316 in Q1.

Elevated inflation continues to strain budgets – the level of inflation in July meant families spent $709 more per month than two years ago. Battling the current economic challenges, consumers still have to make essential purchases and pay bills. According to PYMNTS, 43% of Gen Z consumers have been using their credit cards more often, and 66% of this segment lives paycheck to paycheck, up from 57% last year. Upon the resumption of student loan repayments in October, this group could lose as much as 4.3% of discretionary spending power, leaving less money on hand to pay back debt. 

Gen Z isn’t alone – Gen X borrowers with federal student loans on the books could see their discretionary income decrease by as much as 8.8%. With a similar proportion of this cohort living paycheck to paycheck, 71% of Gen Xers reported actively using credit, with 26% reportedly using credit more often than normal for everyday purchases. And according to a recent report from PYMNTS, this group has started embracing Buy Now, Pay Later (BNPL) as a strategic tool to manage spending and cashflow. 14% of Gen Xers said they had used BNPL – that’s more than the amount of Baby Boomers, less than millennials (20%), and roughly the same as Gen Z.

Consumer Sentiment on Financial Outlook Deteriorates

As more consumers are turned down for much-needed loans due to financial tightening and using more credit options for everyday expenses, the general sentiments around financial wellbeing aren’t very positive. According to Deloitte’s State of the Consumer Tracker, 38% of Americans feel their financial situation worsened over the last year and less than half feel they can afford spending on things that bring them joy. A similar 48% are concerned about their level of savings and only 44% feel they can afford a large, unexpected expense.

The Federal Reserve Bank of New York concurs – in its August 2023 Survey of Consumer Expectations, income growth perceptions declined that month, and job loss expectations rose sharply to its highest level since April 2021. Sentiments are down across the board: Perceptions about current credit conditions and expectations about future conditions both deteriorated, and households’ perceptions about their current financial situations and expectations for the future both also deteriorated.

The key takeaway: many consumers are feeling stressed about finances and are uncertain about their financial future, which will impact their payment decisions and willingness or ability to engage with debt collectors.

Preparing for Debt Collection in Q4 and Beyond

As we approach the end of the year and enter the holiday spending season, businesses should prepare for the possibility of increased delinquencies as consumers reach a tipping point in savings and expenses. Last year marked a particular surge in consumers putting seasonal spending on credit, with 41% of Americans putting more than 90% of their holiday expenses on their credit cards, and nearly 42% anticipated going into debt—understandable as the average US shopper took on more than $1,500 in holiday debt in 2022. 

Compound the holiday expenses with resumed student loan payments, persistent inflation and high interest rates and the consumer financial outlook appears fragile. So what’s the best way forward in engaging customers in debt collection who are balancing a delicate financial situation? Any or all of these best practices can help:

  1. Go digital with communications. The numbers speak for themselves: 59.5% of consumers prefer email as their first choice for financial communication compared to only 14.2% who prefer to receive a phone call. Factor in working hour considerations and it becomes even more difficult to engage consumers via phone. Further, contacting first through a consumer’s preferred channel can lead to a more than 10% increase in payments.
  2. And digitize payments, too. Consumers have long been transacting online for purchases, and now three in five Americans expect all payments to be digital. The benefits of online payment options range from customer ease-of-use and adoption to operational cost reduction while offering increased payment volume to boot – 14% of bill-payers prioritize payments to billers that offer lower-friction payment experiences.
  1. Stay top of mind, respectfully. There’s a lot on consumers’ minds in today’s economy, and your bill may not be at the top of their priority list. When engaging delinquent customers, there are strategies to getting your message across that are better for maintaining customer relationships while effectively collecting debt. It’s important for both your customer relationships and compliance considerations to keep in mind the tone and content of your messages along with the cadence of your communications.

Top KPIs for Your Recovery Operations

By on September 27th, 2023 in Customer Experience, Industry Insights

The goal of a recovery operation is to maximize profitability by efficiently recovering money lent to consumers—while maintaining consumer loyalty. This means that measuring the success of a recovery strategy goes beyond just dollars and cents and into consumer-centric metrics as well.

But how do teams measure overall portfolio performance, and what are the most important portfolio-level key performance metrics (KPIs)? Let’s take a look at a few of the top KPIs and how they can be categorized.

Key Collections Metrics

Key performance indicators for debt collection and recovery efforts:

  • Accounts per Employee (APE) or Accounts to Creditor Ratio (ACR): the number of delinquent accounts that can be serviced by an individual recovery agent
  • Net Loss Rate or Net Charge Off Rate: measures the total percent of dollars loaned that ended up getting written off as a loss
  • Delinquency Rate: total dollars that are in delinquency (starting as soon as a borrower misses a payment on a loan) as a percentage of total outstanding loans – often an early warning sign on the total volume of delinquent debt
  • Promise to Pay Rate: the percentage of delinquent accounts that make a verbal or digital commitment to pay
  • Promise to Pay Kept Rate: the percentage of delinquent accounts that maintain a stated commitment to pay
  • Roll Rate: the percentage of delinquent dollars that “roll” from one delinquency bucket to the next over a given period of time – provides visibility into the velocity with which debts are heading into charge off

Metrics like net loss rate are the north star of a recovery program, while metrics like delinquency rate and roll rate are leading indicators of future portfolio performance. But just as critical as these traditional KPIs, today’s collection operations need to focus on implementing and measuring digital engagement.

Digital Engagement Metrics

A range of KPIs that capture how effectively digital channels are reaching and engaging consumers:

  • Coverage: the percentage of users for whom we have digital contact information
  • Deliverability: the percentage of digital messages that are actually reaching consumers
  • Digital Opt-In: the percentage of users who have consented to receive digital communications in a particular channel
  • Open Rate, Clickthrough Rate: the percentage of users who are actually opening and clicking digital communications

Following key collection and digital engagement metrics are all well and good, but how do recovery teams move the needle on those critical KPIs?

Operational metrics are the KPIs that collectively drive overall portfolio-level performance. They represent the “levers” available to change the economics of a recovery model.

Operational Metrics 

Metrics that create simple framework to explain the profitability of a recovery operation: 

  • Profitability of a Collections Operation Formula: R x ResF x E
  • R [Reach]: percentage of consumers in delinquency can you actually reach
  • ResF [Resolution Funnel]: how effectively you can convert initial contact with a consumer into a commitment to pay – and ultimately, a payment promise kept (see Promise to Pay Rate and Promise to Pay Kept Rate)
  • E [Efficiency]: calculation of what the “unit economics” of your collection are and how much it costs, on average, for every account that you rehabilitate

In the hyper-competitive financial services space, consumer experience is a source of competitive advantage. That’s why it stands to reason that alongside the “traditional” metrics of recovery economics, forward-looking businesses have pioneered a new set of KPIs that measure the value of consumer experience.

Consumer-Centric Metrics 

A new set of KPIs that measure the value of consumer experience:

  • Net Promoter Score (NPS): how likely a consumer is to recommend a given brand after an experience with a brand’s collection organization
  • Customer Retention Rate: how likely a consumer is to be reacquired by a given brand after his or her delinquent account is rehabilitated

Keep a Close Watch on These KPIs for Collection

As payment-driven organizations across verticals focus further into the world of recovery, it is safe to anticipate that digital engagement and consumer-centric KPIs like the ones we covered above will become even more deeply woven into the fabric of the organization.

Ready to evaluate your debt recovery operations using more sophisticated KPIs? Schedule a consultation to get started today»»

Q2 Industry Insights: Higher Monthly Expenses for Consumers, Regulatory Guidance for Financial Institutions

By on July 13th, 2023 in Industry Insights

With tumult in the banking industry in Q2 and inflation and economic stressors persisting, the financial outlook for American consumers remains uncertain. The ending of various pandemic-era benefits including the pause on student loan payments will impact consumers in the coming months. Student loan holders hoping for financial relief were disappointed in a Supreme Court decision that rejected President Biden’s plan to cancel more than $400 billion in student loan debt for millions of borrowers. Lawmakers are looking for other relief options, but in the meantime, many consumers will face higher monthly scheduled payments than they can cover, leading to delinquencies across credit types. If you’re a creditor or collector working with financially distressed borrowers, considering consumer situations and preferences when attempting to collect and employing digital strategies to boost engagement are more important than ever. 

Read on for our take on what’s impacting consumer finances and our industry, how consumers are reacting, and what else you should be considering as it relates to debt collection in 2023.

What’s Impacting Consumers and the Industry?

High inflation and interest rates hung around in the second quarter of 2023. Inflation continued to ease month over month in May, landing at 4%, which is still double the Federal Reserve’s target of 2%. The CPI rose 0.2% in June on a seasonally adjusted basis, after increasing 0.1% in May, according to the U.S. Bureau of Labor Statistics. The index for shelter accounted for more than 70% of the increase, with the index for motor vehicle insurance also contributing. 

In June, after 10 straight rate hikes, the Federal Reserve left the policy rate unchanged at the 5%-5.25% range, to allow time to see impacts from previous rate hikes. But “a strong majority” of Fed policymakers expect they will need to raise interest rates at least two more times by the end of 2023. Showing unexpected resilience despite higher interest rates, a late-June Commerce Department report showed the U.S. economy grew at a 2% annual pace from January through March as consumers spent at the fastest pace in nearly two years despite ever-rising borrowing costs.

In Q2, the pandemic-era benefit around Medicaid came to an end and has impacted more than 1.5 million Americans who lost health insurance coverage in April, May and June. Because only 26 states and the District of Columbia had publicly reported this data as of June 27, the actual number of people who lost coverage through the government’s main health insurance program for low-income people and people with certain disabilities, is undoubtedly much higher. The federal government has projected that about 15 million people will lose coverage, including nearly seven million people who are expected to be dropped despite still being eligible.

On the regulatory front, data protection is making headlines. Updates to the Gramm-Leach-Bliley Act (GLBA), the Safeguards Rule, provide financial institutions, including those in the accounts receivable management industry, with requirements on how to safeguard customer information, went into effect on June 9. The amendments lay out a more prescriptive recipe for the safeguards financial institutions must have in place around collecting, storing and transmitting consumer information. Several states have actively been considering and passing new legislation requiring additional policies, controls, and practices not only in the data security space but also for data privacy and data breaches.

Meanwhile, the Consumer Financial Protection Bureau (CFPB) published a Small Entity Compliance Guide covering the amendments to the Equal Credit Opportunity Act and Regulation B, requiring that financial institutions compile and report certain data regarding certain business credit applications, including examples that explain how the requirements should be applied. 

There were also a couple of notable court decisions impacting debt collectors last quarter. First, the 6th circuit court of appeals determined that one phone call under the Telephone Consumer Protection Act (TCPA) is enough to establish standing, meaning the suit is based on an actual or imminent alleged injury that is concrete and particularized and, for the plaintiff in Ward v. NPAS, Inc., to establish a concrete injury. 

Second, and in a victory for TrueAccord, the Northern District of Illinois showcased the benefits of digital collection as the court found that receiving an email about a debt is less intrusive to consumers than receiving a phone call. In the Branham v. TrueAccord opinion, the court found that unlike telephone calls, two unwanted emails are insufficient to confer standing and wouldn’t be “highly offensive” to the reasonable person.

Key Indicators and the Student Loan Predicament

According to the New York Fed’s Quarterly Report on Household Debt and Credit, total household debt increased in the first quarter of 2023 by $148 billion (.9%) to $17.05 trillion. Debt increases showed up across almost all categories, with larger balances for mortgages, home equity lines of credit, auto loans, student loans, retail cards and other consumer loans. Looking like an outlier, credit card balances were flat at $986 billion during Q1, but reading between the lines, this is the first time in more than 20 years that there hasn’t been a seasonal outright decline in that category.

And demand for more credit continues, which will drive household debt balances up farther. According to Experian’s June Ascend Market Insights report, new account originations were up 3.5% month over month with related balances up 7.7%. Breaking this down, auto loan account originations were up 0.7%, first mortgages were up 18.2%, while personal loans, HELOCs and second mortgages all grew significantly as well.

Indicators show that delinquency is here to stay. Experian reports that overall 30+ days past due (DPD) accounts showed a 0.4% increase month over month in May. While unsecured personal loan delinquency, which grew quickly in 2021 and 2022, has fallen for the fourth month in a row, this may be due to accounts progressing through delinquency – collections and charge-off rates for unsecured personal loans have grown to nearly 8% of balances. Auto loans, and particularly those in the subprime category, are seeing delinquency rates surpassing levels last seen during the Great Recession, coming in at 1.69% for 60+ DPD in Q1 2023.

Experian also reports that 1% of all consumer accounts rolled into higher stages of delinquency in April, which is in line with pre-pandemic norms and significantly higher than it was during the pandemic. Notably, 0.29% of accounts rolled into a lower delinquency status during May, a sign of collection effectiveness and of the relative financial health of delinquent consumers. This metric is still far below its historic norms and will be an important metric to watch as millions of consumers face higher monthly scheduled payments later this year tied to student loans.

After three years of relief from payments on $1.6 trillion in student debt under the CARES Act,  student loan debt is scheduled to begin accruing interest in September 2023, with payments due starting in October. 40+ million borrowers who paid $200 to $299 on average each month in 2019 will soon face the resumption of a bill that is often one of the largest line items in their household budgets. 

What’s more, research shows that student loan borrowers used extra space in their budgets during the pause to increase their leverage. Rather than paying down other debts, those eligible for the pause increased their leverage by 3% on average, or $1,200, compared with ineligible borrowers. According to the CFPB, as of September 2022, 46% of student loan borrowers had scheduled monthly payments for all credit products (excluding student loans and mortgages) that increased 10% or more relative to the start of the pandemic. 

The CFPB also reports that approximately 2.5 million student loan borrowers already had a delinquency on a non-student loan as of March 2023. That’s an increase of around 200,000 borrowers since September 2022, and that’s still without a monthly student loan payment obligation. This signals that many borrowers aren’t or won’t be in a financial position to repay or will face delinquencies on other loans in order to do so. For a data-driven look into this topic, read our report, “Consumer Finances, Student Loans and Debt Repayment in 2023”. 

Consumers Feel a Pinch but Remain Optimistic

As daily life continues to be more expensive for everyone, PYMNTS’ research finds that 61% of consumers lived paycheck to paycheck in April 2023, similar to the year prior. And the data shows that consumers in urban centers are especially feeling the financial crunch, likely due to a connection to cost of living, with 7 in 10 living paycheck to paycheck. Wealthier consumers comprise a growing portion of the paycheck-to-paycheck cohort, with the share of consumers annually earning more than $100,000 who live paycheck to paycheck increasing 7% from April 2022.

The US personal savings rate hovered at 4.6% in May, which is double last year’s record lows but still down significantly from pre-pandemic averages. Easing inflation seems to be improving consumers’ financial outlook, with fewer respondents citing concerns around savings levels, delaying large purchases, and worsening personal financial situations. However, the number of consumers feeling anxious about their job or employment situation steadily increased to 25% in May, up from 18% in February. 

According to the Federal Reserve Bank of New York’s May 2023 Survey of Consumer Expectations, the average perceived probability of missing a minimum debt payment over the next three months increased by 0.7% to 11.3% in May. The increase was largest for respondents below the age of 40 with no more than a high school education, and those with a household income below $50k. Additionally, households’ perceptions and expectations for credit conditions and their own financial situations all deteriorated slightly.

For Debt Collection, Digital is Now a Must-Have

While consumers balance budgets amid high costs of living, more and more are using streamlined, digital payment methods. New studies show consumers are embracing the convenience of digital payments via payment portals even for healthcare bills, noting how it can minimize pain points in the payments process. Today, 9 out of 10 customers want an omnichannel experience with seamless service between communication methods, and transacting where it’s convenient for them, on mobile devices, is even better.

According to the Pew Research Center, reliance on smartphones for online access is especially common among younger adults, lower-income Americans and those with a high school education or less. In fact, 87% of TrueAccord consumers visit our web portal from their mobile devices and tablets, not their desktop computers. Choosing not to engage via digital methods can hurt vulnerable populations of consumers who primarily conduct most of their affairs digitally. 

If your business has been relying on calling alone for customer communications, it’s time to shift gears to a more effective way of maximizing repayment and conversion rates in a challenging financial environment. For lenders or collectors engaging with distressed borrowers, here are ways digital can boost your efforts:

1. Cost-effective customer communications at scale. When almost all communications with consumers can happen electronically via email and SMS with no human interaction, the cost of agents, who now only manage inbound emails or calls from already engaged customers, is reduced. Lenders that have implemented digital-first solutions have seen their cost of collections fall by at least 15%.

2. Online payment portals. When consumers can make payments online when it’s convenient for them, they’re more likely to repay. Add options like payment plans and flexible payment days to appeal to distressed borrowers and see repayment and liquidation rates improve.

3. Code-based compliance. When compliance is coded into an algorithm that helps make decisions on customer engagement in debt collection, you can ensure that all digital communications fall within federal and state laws and regulations. Compliance built into the code can help prevent costly mistakes especially with the complex patchwork of regulations.

Data Protection is Critical in Debt Collection: GLBA, Consumer Trust, and Best Practices to Protect Your Business

By on June 29th, 2023 in Compliance, Industry Insights

In today’s financial landscape, regulators at both the federal and state level are driving accountability for companies when it comes to data protection and security. We see that with the express requirement in the Gramm-Leach-Bliley Act, or GLBA, Safeguards Rule—which went into effect on June 9, 2023—that organizations have one qualified individual to oversee the information security program, and that the qualified individual provides regular reports to the highest governing body of an organization.
This underscores the importance of protecting customer information in a digital age where information has its own intrinsic value.

Let’s take a look at how the new updates to GLBA Safeguards Rule, how these security policies are important specifically for debt collection, and what best practices your business should follow to protect consumers’ data.

 The GLBA Data Protection Law

The Gramm-Leach-Bliley Act, or GLBA, is a federal regulation to control how financial institutions collect, store, and transmit consumer information. GLBA was enacted by the Federal Trade Commission (FTC) in 1999 and recently rolled out new amendments to the Standards for Safeguarding Customer Information, known as the “Safeguards Rule,” that went into effect on June 9, 2023, in effort to continue protecting consumer data in an ever-evolving digital environment. 

A few of the updates to GLBA’s Safeguards Rule include:

  • Provides covered financial institutions with more guidance on how to develop and implement specific aspects of an overall information security program
  • Improves the accountability of these security programs, such as requiring financial institutions to designate a qualified individual responsible for overseeing, implementing and enforcing the program

Data Protection is Critical in Debt Collection

To attract clients today a debt collector must demonstrate the implementation of a full suite of information security practices covering physical, technical, and administrative safeguards, including a comprehensive employee information security training. Failure to implement these best practices can result in a security incident or worse, a data breach. Not only are data breaches costly because of the notification provisions, including providing credit bureau monitoring, it can be difficult for a company to survive after a breach. It is not unusual for a company to file bankruptcy after a data breach.

Reputation and Customer Retention

Although complying with federal and state regulations helps companies avoid costly—even criminal—penalties, consumer trust that their financial data is being protected is critical to maintaining a positive reputation and retaining customers (even if they fall into delinquency).

Data protection policies can often be treated as a set-it-and-forget-it, or even treated as a luxury of lower priority due to limited resources, expertise, or familiarity. But for today’s consumers, data security is a top priority.

A recent study by MAGNA Media Trials and Ketch, showed across every age group74% of people rank data privacy as one of their top values—consistently rank data privacy as their top concern. And on the flip-side, the study showed nearly 9 out of 10 consumers report strong data privacy practices positively impact their relationship with a company.

Keeping Up With Compliance

Along with federal regulations, individual states are also issuing new laws focused on consumer data protection. California, Utah, Colorado, Connecticut and Virginia all passed data privacy laws over the past several years that take effect in 2023. This past March, Iowa passed a Data Privacy Law that takes effect on January 1, 2025 that is very similar to both Virginia and Colorado’s laws affording consumers a right to know and right to request deletion. Pennsylvania amended its Breach of Personal Information Notification Act, by among other things, expanding the definition of “personal information” to include medical and health information, and a username or e-mail address in combination login credentials. Several more states have draft privacy and security laws in draft.

Although GLBA and other data protection and privacy laws are the hot topic when it comes to compliance today, it isn’t the only federal privacy regulations lenders and debt collectors need to follow and monitor for changes—or face the consequences of non-compliance. Here are some recent laws and amendments impacting the industry:

  • The Fair Credit Reporting Act: Credit reporting companies and users of credit reports have specific obligations to protect the public’s data privacy, with potential criminal liability for certain misconduct.
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act: Established a new Consumer Financial Protection Bureau with the authority to supervise and regulate entities that offer or provide consumer financial products or services.
  • Health Insurance Portability and Accountability Act (HIPAA): Two part rule for privacy and security of personal health information that applies to covered entities (doctors, hospitals, pharmacies, insurers, and their vendors). PHI – is defined broadly to include any information provided to the covered entity by the patient.

Consumer Data Protection is Not a Luxury

Having good security practices in place is not only beneficial for both consumers and businesses, but also critical to stay compliant with all the new laws and amendments being introduced. Here are some of the best privacy and security practices to implement to protect customers, companies, and stay compliant:

  • Practice data minimization.
  • Know where personal information lives at all times by creating a data map of where the data goes and is stored throughout your systems, which includes knowing your vendor’s data security and privacy practices and controls.
  • Know who has access to personal information and routinely examine if that access is necessary to complete that job function.
  • Be intentional with how data is organized and stored so it can be easily segmented and treated differently if need be (think network segmentation).
  • Have a public facing Privacy Notice–and make sure it accurately reflects your practices for use, collection, deletion and correction.
  • Conduct an annual data security risk assessment to continually reassess areas for improvement and where you may need additional controls.
  • Ensure contracts with parties whom you receive and/or give personal information to specifically address each parties’ obligations and restrictions for how personal information is used, shared, disclosed, stored, and sold (if permitted).

The TrueAccord Approach

At TrueAccord, empathy towards the consumer is a core part of our company mission: we enable businesses to collect more, faster, and from happier customers.

Ready to collect more, faster from happier customers? Learn how TrueAccord weaves compliance and data security into debt recovery by scheduling a consultation today»»

A Closer Look at the Gramm-Leach-Bliley Act (GLBA): Updates to the Safeguards Rule

By on June 6th, 2023 in Compliance, Industry Insights

Protecting personal and financial information is critical in today’s digital age. Where data has its own intrinsic value and where data breaches and cyberattacks are a risk for every business, the Safeguards Rule under the Gramm-Leach-Bliley Act (GLBA) provides financial institutions, including those in the accounts receivable management industry, with guidance on how to safeguard customer information.

The existing Safeguards Rule provided financial institutions with much flexibility and discretion when determining what kinds of safeguards were best for their organizations and risks. With the amendments which go into effect on June 9, 2023 financial institutions now have a more prescriptive recipe for what those safeguards need to be.

What is the Gramm-Leach-Bliley Act (GLBA)?

The Gramm-Leach-Bliley Act, or GLBA, is a federal regulation to control how financial institutions collect, store, and transmit consumer information. Although GLBA was enacted by the Federal Trade Commission (FTC) in 1999, changes have been anticipated for the last few years.

In October 2021, the FTC announced new amendments coming to the Standards for Safeguarding Customer Information, known as the “Safeguards Rule,” and an issuance of a final rule, referred to simply as the “Final Rule.” Originally set to go into effect in 2022, financial institutions—a designation that has also been updated—now need to prepare for the changes or risk non-compliance and its consequences before they go into effect on June 9, 2023.

What is the Safeguards Rule?

The Safeguards Rule took effect January 10, 2021, and its requirements were first set to go into effect beginning December 9, 2022, but the FTC announced it would extend the deadline for financial institutions to develop, implement, and maintain a comprehensive information security program by June 9, 2023.

There are five overarching modifications to the existing Safeguards Rule:

  • Provides covered financial institutions with more guidance on how to develop and implement specific aspects of an overall information security program
  • Improves the accountability of these security programs, such as requiring financial institutions to designate a qualified individual responsible for overseeing, implementing and enforcing the program
  • Exempts financial institutions that collect information on fewer than 5,000 consumers from the requirements of a written risk assessment, incident response plan, and annual reporting to the board of directors
  • Expands the definition of “financial institution” within the scope of the Safeguards Rule – see the expanded definition in the next section below
  • Includes several other definitions and related examples in the amended Safeguards Rule itself in an effort to make it more self-contained and to enable readers to understand its requirements without referencing the FTC’s Privacy of Consumer Financial Information Rule

Along with these updates to the Safeguards Rule, let’s examine a few other specifications of the updates.

What are other updates to the Safeguards Rule?

The expanded scope of financial institutions that are subject to the Safeguards Rule is significant. Under the new Final Rule, “financial institutions” now include entities engaged in activities that the Federal Reserve Board determines to be incidental to financial activities, such as:

It is important to note that the Final Rule does not apply to national banks, savings and loan institutions, and federal credit unions, as these institutions are not subject to the FTC’s jurisdiction.

The Final Rule requires these covered financial institutions to comply with specific new requirements, such as:

  • Encrypt all customer information held or transmitted in transit over external networks and at rest
  • Multi-factor authentication for any individual accessing any information system, unless the use of reasonably equivalent or more secure access controls has been approved in writing by a qualified individual at the financial institution
  • Conduct periodic written risk assessments, and the results of such risk assessments should drive the information security program
  • Create procedures for evaluating, assessing or testing the security of externally developed applications used to transmit, access or store customer information
  • Set procedures for secure disposal of customer information no later than two years after the last date the information is used
  • Implement policies, procedures, and controls designed to monitor and log the activity of authorized users and detect unauthorized access or use of, or tampering with, customer information by such users
  • Provide personnel with security awareness training, and provide information security personnel with training to address relevant security risks; and that key information security personnel take steps to maintain knowledge of changing information security threats and countermeasures
  • Written incident response plan designed to promptly respond and recover from any security event affecting the confidentiality, integrity, or availability of customer information
  • Qualified individual to regularly, and at least annually, report in writing to an organization’s governing body (e.g., board of directors) regarding the status and material matters of the information security program
  • Regularly test or otherwise monitor the effectiveness of the safeguards’ key controls, and conduct required penetration testing annually and vulnerability assessments at least every six months and whenever there are material operational or business changes

Given the expanded definition of “financial institutions,” some of these organizations may be unfamiliar with the extent of these requirements, and even those familiar with GLBA previously must be ready to comply or face the consequences.

What are the penalties for non-compliance with GLBA?

Whether it’s GLBA, Regulation F, or any of the numerous state laws, companies can face serious penalties for compliance failures—monetary, reputational, and even criminal. When it comes to GLBA, non-compliance penalties include:

Section 5 of GLBA grants the FTC the authority to audit policies to ensure they are developed and applied fairly—all the more reason to follow the Safeguards Rule’s provisions of self-audits and testing. 

Learn More About Compliance and Collections

Now that you have the breakdown of the Gramm-Leach-Bliley Act updates to the Safeguards Rule, are you familiar with the other laws and regulations governing debt collection? Check out our Collections & Compliance resources to see what other regulatory guidelines may impact your business or schedule a consultation to get started»»