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How collections tactics affect the payment hierarchy

As I noted in a recent post, there is growing evidence of a shift in the payment hierarchy among European borrowers. This shift moves housing payments down in the hierarchy, and makes credit cards a top priority.

Why is this change happening? Non-payment of a credit card has a more immediate consequence, where you get your card cut off, whereas with non-payment of a mortgage you usually have a little more time to rescue yourself before you wind up in foreclosure. 

As we discussed at a recent meeting of credit risk managers in Europe, hosted by Efma, collections tactics can influence the payment hierarchy. Interviews with consumers who paid their credit card before their auto loan have turned up comments such as, “I paid the credit card because the credit card collections representative was nicer to me. They were more polite. They did not lecture me about contractual obligations — they asked me how they could help me.” This reinforces the idea that even the collections department can be more successful by focusing on the customer experience, improving the lender’s share of payment.

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