Debt Collection Horror Stories

Last week, CNNMoney published the attention-grabbing “Debt collection horror stories.” While these stories are the extreme and not the norm, it's nevertheless clear that past C&R strategies may no longer work. Brute force and hard negotiation skills are outdated, and your institution’s image is at risk. Increasingly, customers use social networks to air complaints when dissatisfied or feeling harassed by collectors. Word spreads, and the shared experiences and opinions exert growing influence on others.

Getting collections behavior and communications right is now more important than ever before.

Fortunately, social media also points the way to better collections, by demonstrating the power of relationships. The lesson? The best tool in collections is the relationship. Banks that cultivate relationships with customers when they aren’t delinquent are in a better position to collect if they become delinquent.

There are opportunities to stay in touch and be helpful in ways that encourage dialogue—while leveraging these interactions to keep contact records up-to-date. There’s also more opportunity to prevent serious delinquencies. When analytics spot behavior patterns in payments and other transactions indicative of increasing financial stress or impending strategic default, collections organizations can intervene with predelinquent treatments. Customers already engaged in dialogue are more likely to be receptive to educational information and offers of assistance.

FICO clients are seeing the efficacy of this approach. Take a multinational retail banking group with whom we’re working on efforts for stronger customer engagement. Preemptive communications reach out to returned-mail customers through other channels so contact information stays up-to-date. The number of “lost” customers found has risen from 10% to 25%. Another initiative will proactively contact customers with interest-only mortgages to encourage them to consider options for repayment earlier, and thereby reduce the number reaching loan maturity in a negative equity position.