leigh prather / AdobeStockAs economic uncertainty grows, consumers will feel increased pressure on their ability to pay and their overall financial outlook. Taking steps now to institute best practices and ensure operations are prepared with the most current consumer information is critical.
In this Executive Q&A, industry expert Carrie Coker-Aivaliotis, Senior Director of Market Planning at LexisNexis Risk Solutions, walks us through how the current economic and regulatory climate is impacting the collections industry and why leveraging the right tools is crucial to staying ahead in this constantly shifting environment. In this discussion, Carrie provides unique insights about:
- The impacts of traditional credit content’s erosion
- The rise in alternative data, and how it can be leveraged
- Today’s biggest operational challenges, and
- Trends that will shape the collections industry over the next 12-18 months
Missy Meggison:
Hi, everyone! I’m here today with an episode of Executive Q&A. I’m Missy Meggison, editor of insideARM, brought to you by Auriemma Roundtables, and I’m joined today by Carrie Coker-Aivaliotis. Carrie, can you give us a quick introduction.
Carrie Coker-Aivaliotis:
Hi, yeah, happy to. Thanks for inviting me and providing this industry forum. For those that don’t know me, my name is Carrie Coker-Aivaliotis, and I’m a Senior Director of Market Planning at LexisNexis Risk Solutions. LexisNexis Risk Solutions is a global data and analytics provider with core solutions in Fraud, Financial Crimes, Credit Risk and Collections marketplaces.
We are the proud providers of long-recognized brands such as Banko, Accurint, Bridger, and RiskView, which have been trusted across markets for over 25 years. My specific role includes the strategy and execution of the post-origination Servicing, Collections and Recovery functions and data solutions within the US financial lifecycle.
I’ve been with Lexis now for just about 6 years. I previously spent time at Midland Credit Management, which is one of the largest debt buyers, and before that First American and CoreLogic Credco. I was there for 17 years, where I managed one of the largest, for that time, credit data reseller functions with all three national credit bureaus. So, I have a long history and experience across credit markets and strategic data providers, originally as a customer, and now I get to be a data provider myself.
[Missy]
Wonderful. Thank you for sharing that with us. Can you briefly describe the current economic and regulatory climate, and how it impacts the collections industry?
[Carrie]
Yeah, let’s jump into it, as they say. So, yes, definitely. So, if we think about things in broad timelines, prior to the pandemic period the US was in a pretty stable economic overall outlook, right? Although on the debt buyer side we could see credit card charge offs were starting to creep up from that post-Great recession low. Then, of course, during the pandemic, in addition to some of those moratorium programs on mortgages, auto repo, evictions, and student loans, we saw consumers were using stimulus programs for voluntary debt payments.
Now, post-pandemic, we’re all very aware of headlines from the Federal Reserve, credit bureau trend reporting, that shows that steady increase in delinquency and defaults across asset types. Even Mortgage, which has been long considered strong credit quality portfolios due to some of those regulatory changes that followed the Mortgage Crisis that led to the Great Recession, even that asset has seen an uptick now in early delinquencies.
Now all of those economic signals are really bearing heavily on the resumption of that involuntary federal student loan collection with that expectation that will significantly impact consumer share of wallet, and as a ripple effect, their assumed payment hierarchies from there.
[Missy]
Thank you. Sounds like there’s a lot influx going on. How are collection teams leveraging digital tools and alternative data to improve collections and consumer engagement?
[Carrie]
A very timely question, Missy. We have a team of Collection consultants who are well known in our industry, and who themselves have decades of experience. Some of them were collectors themselves for years or debt buyers, and we’re always talking to customers, literally on a daily basis, about exactly this.
Over the last several years, starting with our 1st party clients and specifically debt buyers, they started to notice that the traditional credit content, and subsequently, scoring mechanisms that they had used for years and years were resulting in some of the more recent vintages decaying much faster than historic norms.
When we partnered with those customers to really dig into the causes, the findings, honestly, it should have been obvious to everyone in the consumer data ecosystem. There have been several issues over time that have contributed to what’s being known now and talked about as an ongoing erosion in that traditional credit bureau content. For example, a big one in 2017, when the National Consumer Assistance Plan was implemented, or NCAP as we know it, the credit bureaus removed civil judgments and most tax liens. And at the same time, standard FICO scores, using FICO as an example, they did not change, and there was an adverse action code for the presence of a public record. So without judgments and liens in that data that the FICO score was being used to evaluate, that factor was no longer going to be accounted for in scoring, or rather, since it wasn’t there at all, it maybe was looking at it in a more favorably way and then the adverse action to the consumer was no longer going to be generated.
Another example there, is where 3rd party collection agencies over time have adopted policies for deleting their collection trades after they’ve reported it. Particularly if the consumer has settled in full or paid in full. By deleting those tradelines the credit bureaus no longer have permission to use or report those collection tradelines, right, in their data solutions.
So because of these factors, and there’s several others, you could talk about Fresh Start with federal student loans being reset to current, right, several other factors. But in aggregate it’s really led to this expedited adoption of truly alternative FCRA data options like the LexisNexis FCRA RiskView alternative data and our liens and judgment content. So while traditional credit bureau content is really, really great if it’s there, I think the industry at large has really pivoted to the understanding that it’s no longer a solely, completely reliable picture of that consumer’s financial standing.
So between all that economic volatility, and then the customer concerns around being able to fully assess a consumer’s financial standing, we worked with Celent, who is a research firm, to survey both 1st and 3rd party collectors. So with some of those points in mind, we asked them what they consider within their current capabilities and then what they plan to deliver in the future – the 1st and 3rd party companies. And interestingly, 38% of both the 1st party and 3rd party collection teams said they’re already using that non-traditional alternative FCRA data to supplement traditional scoring strategies. And, on top of that, 36% plan to implement this year. And we are seeing that in our exact conversations with our customers.
And then keep in mind, too, that that immediate leap on that topic is to focus on credit or alternative FCRA solutions but in our experience and in our daily conversations, it’s leading to more of our customers really being cognizant of where their non-FCRA data is coming from. So their skip tracing data – addresses, phones, emails – and what is the differentiated lift available amongst those strategic data providers? So more of our customers, we’re seeing them lean into preferred data providers with unique, truly unique and differentiated content. Especially where, obviously, not especially, and also where the lift and accuracy can be demonstrated.
[Missy]
Wonderful. That was a lot in there. And so, for those of you who are listening, we’re going to be putting a chart up in the transcript that you can take a look at to see some of the breakdown of what Carrie just mentioned.
So what are the biggest operational challenges teams are facing today?
[Carrie]
Yeah, also part of the questions that we asked in our study, so in our state of collection study, we talked with those customers around the economy generally starting to bear down on the consumer’s ability to pay, and subsequently their share of wallet that’s available for paying debts. We talked about the consumer data ecosystem shift to alternative, differentiated data solutions. But another big challenge that we hear emerging is that shifting operational collection practice to the younger demographics that are now emerging into the financial markets and ecosystem.
And a great example is my son, and he would kill me if I used him as an example here, so don’t tell him, but he’s almost 21, and he never answers a phone call that he doesn’t already have in his contacts. He assumes every commercial text or email from an unknown entity is a scam. But, if he receives a paper letter in the mail from his bank, from the speeding ticket he got, whatever, he gets immediate attention and it’s very serious. He will call, he will make sure it’s legit, and he will take action from that letter. And I think this is a real trend that we’re starting to hear more and more from our clients, now that the dust of Reg F has settled and the industry has become much more comfortable adopting the guidelines for email and text as additional channel communication, we hear currently from clients, we just had a conversation last week, actually, where they’re beginning to see signs of saturation, or what that particular customer called digital burnout, in some sense – it happened to be a 1st party as well. So we’re seeing customers really lean back and refresh on those traditional letter strategies alongside recent digital communication channels.
We’re also seeing some real success with our clients in instituting, or in some cases just refreshing, those operational best practices, those traditional back-to-basic collection executions. Whether that’s in portfolio monitoring for bankruptcy filings – especially since bankruptcy trends are closely tied to a down economy right, and the penalties for attempting to collect after a consumer files bankruptcy are pretty severe – or just monitoring for those consumer contact changes. We know historically, consumers facing debt become more transient and purposely transient in some cases, and of course, then as defaults continue to rise, legal and litigation strategies become much more aggressive. Monitoring and incorporating lien and judgment information into scoring and segmentation strategies really becomes extremely critical for those Collection operations.
[Missy]
And speaking of trends, what trends do you see shaping the collections industry over the next 12 to 18 months?
[Carrie]
There’s a lot going on. But obviously, we really need to watch for the impending impact of that resumption of those involuntary student loan collection, and the corresponding impact overall to the consumer share of wallet and payment hierarchies. If consumer’s immediate ability to pay becomes severely impacted, longer tail legal strategies will continue to become more prevalent. We’re seeing more 1st parties working to design in-house legal strategies, and they’re seeking scoring and segmentation methods to optimize those costs.
Our Paymetrix legal solutions, they include pre-litigation scoring and verified asset solutions, that can really help provide significant lift in those recovery strategies. And again, as civil judgments increase, since they’re not on traditional credit reports, the drive to alternative data in order to obtain that full picture of a consumer’s obligations, that’s just going to increase.
[Missy]
Wow! That definitely sounds like things are going to keep on changing as we go along here. So, what other closing and final thoughts do you have for anyone who’s reading or listening?
[Carrie]
Yeah. So, I mean, we are facing uncertain economic conditions, and it seems very likely that consumers are really going to start feeling that increased pressure on their ability to pay, and that overall financial outlook. All of that said, instituting collection best practices, ensuring operations are prepared and refreshed with the most current consumer information – be that bankruptcy filings or contact information, or outstanding judgments – it is beyond critical now.
Our LexisNexis industry consultants, they are ready to assist. It’s a free service. We also offer free testing to help our customers align to the solutions that best fit their unique portfolios and their asset needs. Our content – I’m really proud of this one – our content leverages proprietary and unique data assets through our Risk Intelligence Network and our patented linking technology called LexID, that’s used across the globe. So to anyone listening to this, or reading this later, feel free to contact me directly anytime. Happy to talk to you about how our solutions can help you meet and refine your collection goals.
[Missy]
Wonderful. Well, thank you so much for joining me today, Carrie, and thank you for everyone who is reading or listening, and we will see you the next time that we do an Executive Q&A. Hope everyone has a great day. Thanks.
Download the “2025 State of Collections Study” from LexisNexis Risk Solutions.
