Lenders Ramp Up Debt Collection Efforts

Many large financial institutions are stepping up their collection efforts, especially in the areas of credit card debt, according to an industry analyst.

Citigroup told the Wall Street Journal Wednesday that it had hired more collectors and was intensifying collection efforts through increased contacts and expanded debt forgiveness programs. Citi didn’t return calls to insideARM.

Other lenders have accelerated their collection programs by hiring more collectors, using more third party collectors and by contacting debtors far earlier in the process, according to WSJ. Other lenders are following similar tactics to Citi’s.

“We are seeing stepped up efforts around collections,” Gwenn Bezard, research director for Aite Group, told insideARM. “The trick for a number of lenders is that they are all throwing the same thing at the problem, and it’s not super effective.”

One of the challenges lenders are facing is that increasing the number of calls isn’t always the best way to increase collections. For example, many lenders have added collectors and automated processes to make more calls, but what is often more effective is using the same collector to work the same accounts because it enables them to build personal relationships with the debtors.

“If you have different people calling you, you have to explain the situation several different times,” Bezard said. “If the same person is calling all of the time, it is easier for him to elicit a promise to pay. If a stranger (second or third collector) is calling, it is much easier to lie [about intentions to pay].”

“Some of what the lenders are doing is misguided,” Bezard said.