Consumer Spending and Debt Raises Demand for Collections

Two recent reports may drive institutions servicing consumer finances — especially those involved with loans, credit and debt collections — to step up their operations. The American Bankers Association’s Consumer Credit Delinquency Bulletin stated on July 6 that “consumer delinquencies rose in 7 of the 11 individual consumer categories” that it tracks. Just days later, the Federal Reserve’s G.19 Consumer Credit report (July 10) documented a spike in credit card balances, student loans and auto loans.

The combined impetus of the data indicates that consumers are assuming more debt while paying less on the debt they already owe. If consumers do not catch up, then lenders could be left holding the proverbial bag and will need to bolster their debt collections programs.

Delinquencies per the ABA

“Eight years into the economic recovery, it was inevitable that we’d start to see delinquencies edge up from their extremely low levels,” said James Chessen, ABA’s chief economist. “Even in a strong economy with good job growth, there are always people living paycheck to paycheck. Any small bump in the road can be enough to cause them to miss a payment or two on their loan.”

According to the ABA, a delinquency is a “late payment that is 30 days or more overdue.” The group’s Composite Ratio — an analysis of delinquencies in eight closed-end installment loan categories — rose five base points to 1.56 percent, but “well below the 15-year average of 2.17 percent.”

Closed-End Loans Used to Determine the Composite Ratio

1. Home equity loan delinquencies fell from 2.61 percent to 2.59 percent.
2. Personal loan delinquencies fell from 1.56 to 1.54 percent.
3. RV loan delinquencies fell from 1.03 percent to 1.02 percent.
4. Property improvement loan delinquencies remained at 0.98 percent.
5. Direct auto loan delinquencies rose from 0.94 percent to 1.03 percent.
6. Indirect auto loan delinquencies rose from 1.75 percent to 1.83 percent.
7. Marine loan delinquencies rose from 0.99 percent to 1.02 percent.
8. Mobile home delinquencies rose from 4.07 percent to 4.86 percent.

The ABA also tracks three open-end loan categories:

1. Home equity lines of credit delinquencies rose from 1.06 percent to 1.11 percent.
2. Bank card delinquencies rose from 2.69 percent to 2.74 percent.
3. Non-card revolving loan delinquencies rose from 1.57 percent to 1.64 percent.

The ABA recommends that consumers take immediate action to address their debt problems. Their list of suggestions includes contacting creditors and credit counseling services, ceasing credit purchases until resolution is obtained, and avoiding bankruptcy.

Consumer Credit per the Federal Reserve

In an opening statement, the Federal Reserve’s G.19 Consumer Credit report states: “In May, consumer credit increased at a seasonally adjusted annual rate of 5-3/4 percent. Revolving credit increased at an annual rate of 8-3/4 percent, while non-revolving credit increased at an annual rate of 4-3/4 percent.”

The revolving credit figures only represent credit card charges while the non-revolving totals include secured or unsecured “motor vehicle loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations.”

The report also said consumer borrowing increased by $18.4 billion in May (the highest increase in several months). This figure is 36 percent higher than the $13.5 billion in total consumer credit that was predicted by economists at MarketWatch reports.

The Impact on Debt Collections

The inevitable delinquencies noted above by the ABA economist are mirrored by the “buy now, pay later” consciousness of Americans who continue to spend more than they take in.

Consumer product companies as well as lenders would be well-served by accounts receivable campaigns targeted at recovering the debt created by the gap between spending more and paying less. The unfortunate reality is that many consumers will ignore their debt until contacted by best-in-class debt collections agencies.

Optio Solutions stands behind its clients in a variety of industry verticals including auto loans, education and student loans, and retail accounts. The 10-year-old agency provides exceptional ROI and brand protection for clients in all 50 states using a solid foundation of compliance, certification, data security and state-of-the-art collections technology. Contact us today to learn about individualized first- and third-party debt collections programs.