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COVID-19 Checklist for Banks: Managing Vulnerable Customers

Against a backdrop of uncertainty and financial instability, the importance of banks and the role they play at both a local and global economic level has never been higher. Retail consumers, small and medium enterprises, and commercial entities are looking to banks for increasing levels of support and assistance, especially as government-introduced stimulus programs start to mature and expire around the globe, leaving more vulnerable customers wondering where to turn. Many banks have made great efforts to support customers who have fallen into involuntary delinquency but remain overwhelmed with existing and new cases.

The FICO Advisors team of consultants has just published our third COVID-19 bulletin to help banks adapt and thrive in these unprecedented conditions. Here are two recommendations for debt collection.

Expand the use of digital collections tools to external service providers

In a tightly controlled collection environment, the use of two-way automated customer communication tools, such as robotic process automation (RPA), proved to be invaluable. Now it is time to move the needle to debt collection agencies (DCA), some of them already prepared to provide similar services.

It is important to test strategies in a champion/challenger system, and to create new segmentations, payment plans, and scripts. Operational costs soon will be under scrutiny (if they aren’t already) and DCAs are the best way to swap operational to opportunity costs.

Assess your customers’ specific vulnerabilities.

It is vital to properly assess the nature of each customer’s specific vulnerability and to ensure that whatever plan is offered properly meets the needs of that individual customer. Some customers have even been rescued twice in a row but are still experiencing difficulties. A proper customer assessment, understanding the nature of any income reduction, the time to recompose it and other payments/debts is paramount.

It is not a question of promoting a full affordability process (as the ones performed at the onboarding origination moment) but rather a genuine credit advisory service. Provide your customer with the opportunity to be supported, not rescued. A long-term solution should be to develop a more transparent relationship that accommodates unforeseen macroeconomic consequences.

The bank may have already provided emergency solutions that are not working. Now it is time to move to more perennial negotiations / payment solutions. Forbearance is a good option, but also consider debt consolidation.

For more information on debt collection in the pandemic, I recommend these posts from FICO’s collections experts:

Debt Collection in the Pandemic: UK Lenders Face Big Challenges

Debt Collection Communications: Are You Doing It Right?

How Can We Reduce the Impact of The Debt Tsunami?

Four Key Changes in Collections Since Covid-19 Struck

Debt Collection and Covid-19: A Phased Approach

Want to learn more about responding to the pandemic challenge? Read our full bulletin: Coping with the COVID-19 Crisis: Adapting to the New Reality.

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