The economic crisis of the past few years has created a new breed of debtor. In FICO’s research, these people have sometimes been dubbed “fallen angels” — people who used to pay their bills on time but lost their jobs or had other financial hardship that made them fall behind in their payments.
These debtors behave differently — and they’re challenging collectors to behave differently as well.
For example, one expert has told FICO that before 2008 it took around six years for a seriously overdue consumer to get back to good payment behavior. For our new breed of debtor, that time is more like eight or nine months. Why the difference? Because the new breed don’t accept that financial hardship is their fate. They’re highly motivated to “get good again,” and that starts with getting re-employed.
This affects the hardship procedures employed in collections. Some firms would charge off a debt at six months. With the new breed, writing them off as a bad debtor means you will lose them as a customer, when hanging in there a little longer may pay off when they get a new job and starts paying off their debts.
However, the new breed of debtor can also be more difficult to work with. They don’t know how to be debtors. They don’t know how to pay off a large, overdue debt. Needless to say, they don’t want to get calls or letters from collections agencies — but rather than face the music, they may be even more inclined to ignore collectors out of frustration and embarrassment.
Banks aren’t the only firms that have to find new ways to deal with the new breed of debtor. Insurance firms, telecommunications providers, retailers and even government agencies — to say nothing of the third-party collection agencies servicing these debts — have to communicate effectively with these offspring of adversity. In the troubled Eurozone, we have seen grandmas and granddads fall behind on their grocery cards, having lived their whole life on the right side of payments.
This is why less-intrusive contact methods using mobile communications, as well as self-service online payment plans, are such a good idea. Unlike the past generation of debt-savvy delinquents, the new breed of debtors need a gentle touch.