Robert Fite

There has been much debate about the role consumers have played in the decline in outstanding credit card debt.  While the conventional wisdom of the past few years has said that extraordinarily high levels of bank charge-offs drove the decrease, some have persisted in noting that consumers are paying off their fair share of the debt.

So what’s the decline we’re talking about? Simply: total credit card debt outstanding fell more than $180 billion from mid-2008 to May of this year. Charge-offs certainly had a huge impact on this decline, as average writedown rates at all banks topped 10 percent for four straight quarters from Q3 2009 through Q2 2010. But I also think that those consumers who can pay down debt have been attempting to do so.

These individuals – we’ll call them “payers” – are who all collectors look for when placing calls: those willing and able to make debt payments. Recently, many have been forced into this behavior due to the nature of the card market (lower credit limits, attractive consolidation options, etc.). But these people are still payers.

It’s the non-payers that ARM companies worry about.

I’ve identified four primary debtor categories that collectors (from both a first and third party environment) encounter in their recovery efforts, and ways to deal with each:

Slow Payers – Traditionally speaking, slow payers are habitually behind on primary payments and arranged payments. There are many historical reasons for slow payers (young people tend to pay slowly early in their credit lives, for example), but since the onset of the recession, this group has expanded. Normally-prudent debtors have been turned into slow payers by loss of income, or extraordinary debts – like a large medical bill – exacerbated by economic stagnation. Since slow payers are still payers, gentle, frequent reminders to pay often work best.

Debtors with Willingness but no Ability to Pay
– Probably the group that has expanded the most since 2008, these are people who really to want to honor their obligations but honestly do not have the resources to do so. Unemployment is the main driver here.  Legitimate members of this group naturally engender empathy from collectors, and as a strategy, recovery efforts should focus on an empathetic approach. More long-term payment plans, post-dated checks, and patience will do the trick.

Debtors with Ability but no Willingness to Pay – These are people who are trying to “work the angles” to avoid debt payments, despite full employment and minimal deterioration of assets. These debtors are very savvy when it comes to credit use and collections practices.  As such, they may use phrases like, “Where’s my bailout,” threaten bankruptcy action, or launch into lengthy prosecutions of the legality of debt itself. Regardless, they are putting up verbal roadblocks to paying. Firm reminders that their debt is legal and that they do owe it tend to work here. If not, there’s always the legal channel.

Credit Criminals – This group includes fraudsters, habitual offenders, and professional litigants. If you identify members of this group – which is rapidly growing thanks to the Internet – avoid them at all costs. They will not pay…ever. Even with a judgment. For credit criminals, effective account scrubbing tools that search for lawsuits and incarceration can help.

There is no silver bullet for every type of debtor out there. However, by gaining more insight about which of the above categories a debtor most likely falls into will help collection strategists chart a course for their frontline workers.  With that said, many firms are employing “listening and learning” techniques and are leveraging  multiple external data sources (public records, demographic / lifestyle data, and credit data) to help them better segment their debtors into these primary debtor types.   Once the accounts are segmented into the four debtor types, the key is continuous champion / challenger testing of different collection approaches for each debtor segment, in a never-ending effort to optimize collections results.

Rob Fite is the Vice President of Collection Solutions for LexisNexis® Risk Solutions, and brings with him nearly 20 years of experience in the fields of collections, credit, and risk management. At LexisNexis, Rob is responsible for leading LexisNexis collections market strategies, product development, business direction and revenue growth.

EDITOR’S NOTE: This article originally appeared in Know Your Debtor, a FREE quarterly email newsletter published by insideARM and LexisNexis that focuses on understanding trends impacting consumers.  To view the most recent issue of Know Your Debtor, please visit To receive the newsletter, please sign up at For more insights on trends that impact consumer payments, please visit