Banks crack down on customers

Prepare your clients for new collection tactics

As the credit crisis continues, more and more people are struggling under their credit-card debt. According to a recent article in The Wall Street Journal, some well-known names in banking have revved up their collection engines. Citigroup, Bank of America and American Express have all picked up the pace when dealing with late-paying customers.

Citigroup Inc. has hired more people to handle collections and increased the number of calls to customers considered “delinquent” on their payments. Citigroup has also expanded its programs to let borrowers temporarily postpone payments or settle debt for less than the client may owe.

Bank of America is contacting late-paying clients earlier than in the past, and American Express is trying to help its customers by giving some a break on their interest rates, fees and other monthly payments.

The increased collection tactics come at a time when rising unemployment and a credit crunch are forcing more consumers to default on their credit-card payments. The Federal Reserve reported that revolving debt — primarily reflecting the balances on people’s credit cards — rose in July at a seasonally adjusted annual rate of 4.8 percent to $969.9 billion. That was faster than the 3.5 percent rise in June.

Given the economic environment, companies are paying closer attention to changes in borrowers’ payment and spending patterns. Consumers who previously paid bills on time or usually paid more than the minimum amounts due are more likely to catch their banks’ attention when they start making smaller payments closer to the actual due dates. Consumers who pay late will be notified much earlier, which the banks hope will encourage borrowers to not get behind.

Make sure your clients understand what’s on the collection horizon. The rise in delinquencies will prompt banks to pass overdue accounts to third-party collections, which are often much more aggressive and intimidating than the banks’ collections departments. As these companies attempt to collect debt, those consumers will also see delinquencies quickly appearing on their credit reports and affecting their credit scores. Use the chart below so that your clients can anticipate how their banks will be handling overdue accounts.

Douglas Muir, CEO