CFPB Report Spotlights Credit Card Debt Collection

The Consumer Financial Protection Bureau’s fifth biennial report on the consumer credit card market released in September examines a variety of hot topics, including how card issuers collect delinquent debts and the rise of digital engagement in the debt collection process.

From a 2019 peak of $926 billion, credit card debt fell to $811 billion by the second quarter of 2020, the largest six-month decline on record, before reaching $825 billion by the end of the year, according to the report. Credit card delinquency rates also fell throughout 2020, erasing six years of increases.

Notably, the section in the CFPB’s report on credit card debt collection revealed that issuers had policies in place detailing the frequency with which their collectors can call, leave voicemails, email, text, and otherwise contact a consumer regarding a delinquent account. The average number of consumer contacts specified in the policies ranged from three to 11 per day, but in practice issuers reported far fewer overall contact attempts on average per account than allowed by policies: 1.25 to 2.99 per day.

Digital engagement—whether reflected in enrollment in online portals, enrollment in mobile apps, opt-in rates to e-statements over paper equivalents, or electronic payment of credit card bills—is growing consistently across all age groups and nearly every platform type.

The report revealed that since the 2019 report, issuers have lowered the range of their daily limits on debt collection phone calls for delinquent credit card accounts while increasing the use of emails in collection.

The number of card issuers using text messages as part of their credit card collection strategy has also continued to increase since the bureau began tracking it. Less than two-thirds of those surveyed in 2019 said they sent mobile text messages to communicate with delinquent consumers, while almost all respondents said they used text messages during the latest survey period.

Two-thirds of issuers surveyed also reported engaging with delinquent consumers via “web chat,” often allowing consumers to negotiate settlements and make payment arrangements.

The CFPB also touched on how issuers use first-party collectors to support in-house collection activities.

“Most issuers that used first-party collectors noted that they do not place any specific sub-segments of accounts with first-party agencies. However, a minority of respondents allocated higher-risk accounts to first-party collectors,” according to the report.

On average, issuers reported keeping 96% of pre-charge-off debt balances to be worked in-house and by first-party collectors, with the remaining 4% placed with third-party collectors.

Other key takeaways:

  • More than 25 million consumer credit card accounts representing approximately $68 billion in outstanding credit card debt entered relief programs in 2020, figures vastly higher than in prior years;
  • The share of accounts with a revolving balance declined in 2020, more consumers paid down their card debt in 2020, and existing cardholders paid off the highest share of their credit card debt in recent years;
  • Late payment and default rates have fallen to historic lows, most notably for consumers with below-prime scores;
  • Citing IBISWorld data, the report shows that third-party debt collection industry revenue has declined in recent years, decreasing from an estimated $14.1 billion in 2013 to $12.7 billion in 2019; and
  • The industry continues to consolidate, with the number of debt collection enterprises declining by 30% and the number of debt collection establishments declining by 28% from 2011-2019.

Read the full report here.

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