Coronavirus & debt collections. COVID-19 aftermath is deep and uncertain

COVID-19… There are no people who haven’t heard this abbreviation. The world is buzzing like a beehive on this matter. Daily COVID-19 victims report more and more reminders of war casualties accounts. A lot of people died, lots are infected or wait for a COVID-19 test sentence. Death or life, it very much depends. 

Anyway, now governments and people have to deal with the root cause – the pandemic itself. When people’s lives are at stake, there is practically no time to speculate about the economic consequences of coronavirus disease. But the hangover promises to be harsh both for national and global economies. Many countries and businesses have already felt its icy breath behind their backs.


Will debt collections institutions turn their faces to debtors?

As countries close shops, factories, borders and beg their citizens to stay at home, the global economy is looking less healthy day by day. And increasingly, people are finding they have no more job to go to. As a result, breaches in personal and family budgets become yawning, while savings are evaporating.

Saadia Zahidi – a Managing Director at the World Economic Forum – told Euronews that a quick recovery depends on the actions governments and employers take today. And more coordination is needed, more along the lines of what happened following the financial crisis in 2008.

Every country is looking to join the few that have controlled the epidemic for now and are focusing on preventing a resurgence. The next stages in every country are unknowable. But only a few already think about overcoming the economic recession caused by the COVID-19 pandemic. 

Though businesses and national economies suffer coronavirus effects, common people are those who take the heat first. Quarantine measures, self-isolation, and unemployment rate growth severely affect people’s ability to pay off their credits, student loans, mortgage, and utility bills. 

Civil society organizations are calling on companies providing essential services such as energy, water, finance, rental housing, and telecommunications to take additional steps to support their community during the COVID-19 crisis. Banks and debt collections agencies are requested help and assistance as well. 

Many businesses have existing hardship obligations under law or industry codes of conduct, and should now ensure assistance is easily available. There are three things companies should do as a matter of urgency to provide relief for their customers:

  • No disconnections. Companies should continue to offer their services without interruption, including energy, telecommunications, banking, and insurance.
  • Pause debt collections and legal/bankruptcy proceedings. People shouldn’t be evicted or be hassled by debt collectors during this time. Lenders should consider moratoriums on loan repayments.
  • Waive penalty and late fees, including additional interest charges. No one should pay extra if they’re struggling to pay bills on time. Debt collections services should undergo serious changes and be more flexible and humane.

Will governmental and banking institutions respond to society’s emergency request? Will the response be symmetrical to the situation?


Debt collections laws. Do national governments force creditors to look for a compromise with debtors?

Taking into consideration the devastating COVID-19 effect on people, national governments take counter-measures to support those who suffer from quarantine, self-isolation or infection. Sufficient funds and benefits were offered. 

The USA federal government finally flexed its huge financial muscle, throwing a $2.2 trillion stimulus punch at the coronavirus, hoping it will ease some of the pain American consumers are – or will be – suffering in the fight against COVID-19. Many of the major banks and credit card companies are offering small, but welcome debt-relief choices for consumers hit hardest by COVID-19.

The Chinese government announced the document that offers 24 measures from such aspects as providing relief to epidemic-hit enterprises, promoting enterprises to resume production and operation, serving national development strategies, and optimizing tax business climate. During the epidemic period, taxpayers can handle tax affairs like making registrations for tax refund and exemption, issuing tax certificates and making tax refund (exemption) declarations through “non-contact” means. After receiving applications, tax agencies will only examine electronic documents and grant tax refund (exemption) status if there is no suspicion of tax fraud.

The Canadian government claims that collections activities on new debts will be suspended until further notice, and flexible payment arrangements will be available. Objections related to Canadians’ entitlement to benefits and credits have been identified as a critical service and will continue to be delivered during COVID-19. There should not be any delays with the processing of these objections.

The UK government announced an unprecedented package of loans to support businesses, making available an initial £330 billion of guarantees – equivalent to 15% of GDP, and £30 billion of additional support for public services, individuals and businesses experiencing financial difficulties because of COVID-19, including a new £5 billion COVID-19 Response Fund, to provide any extra resources needed by the National Health Service (NHS) and other public services to tackle the virus. 

It is not a surprise that creditors are not over-enthusiastic about the idea of suspended loan payments, or mortgage holidays, or allowing early savings access. But the majority of them have a sober assessment of the situation. They put aside their calculators and start thinking prospectively. Focusing the attention on customers’ harsh financial situation, FIs try to smooth the impact of a pandemic, thus gaining potential payors instead of current bankrupts.


Are debt recovery solutions the panacea?

Debt collections focus has always been on driving the right outcome for the customer at the outset, rather than how soon and how quickly can cash be collected.  With the COVID-19 pandemic, this approach could not come any sooner for credit customers whose ability to pay is at risk.

The past is something we should learn from. And there are more similarities with the 2008 financial crash than it seems at first glance. So, let’s take a look at some of the learnings that will help tackle some of the challenges around debt collections and COVID-19. To do that, it is necessary to identify problems debt collections sphere failed in:

  • Identification of customers who would not have been in collections outside the situation we are in. Today, it means that debt collections agencies should identify the customers entering collections purely because of COVID-19.
  • Understanding how these particular customers would perform compared to steady-state collections customers.

Consequently, it led to failure in:

  • Segmentation
  • Strategy choice
  • Debt treatment paths
  • Customers policy choice
  • Solution range

The financial crisis of 2008 has shown that the customers who rolled into collections were actually good customers, with a short-term payment problem. They have a very different financial morality profile and, when back in employment and earning again, returned to a good status. Treating these customers with the right outcomes now will generate a lifetime of loyalty.

So just what is different with COVID-19? Unfortunately, the scale of vulnerability in both the short and long term appears greater. 

What to do now? 

FICO gives its clients the following advice:

  • Deal with both the immediate and near-term challenges. 
  • Focus on digital customer engagement is the key that ensures scalability and a frictionless, secure experience for the customer; it decreases the pressure on the call center workforce as well.
  • Capture today’s important information, even if it was redundant in the past. When things do start to normalize, those, who have captured the relevant information, can prioritize their actions to reach maximum effect.


Conclusion

The pandemic of COVID-19 has hardly reached its climax. There is still a distance to go both for businesses and their customers. At this point, we all are in the same boat. And its survival wholly depends on, whether we fight coronavirus together, or try to pursue separate goals. 

Governments and businesses, businesses and customers should listen and hear one another. And a small step towards one another now will turn into a breakthrough tomorrow. Are you ready to do it?

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