Collector - September 2020 - 20

forbearance period, the 90-day timing acting
as a one-size-fits-all measure for relief.
But as payment holidays and other
temporary relief measures expire, lenders
could find themselves without enough staff
to handle the volume of customers seeking
new or additional assistance. The duration
of COVID-19-related shutdowns has turned
into a longer-term proposition than many
lenders anticipated, and the economic
impact of the coronavirus may, in the
estimation of the Federal Reserve, require up
to a decade for full recovery.
When these 90-day forbearance periods
expire, we could see a deluge of financially
challenged consumers, even as they remain
unemployed, furloughed or grappling with
reduced hours and income, and therefore
unable to resume normal payments.
Creditors may not have staff with the
appropriate skill levels to manage so many
complex cases. Many also lack the digital

"Some of the earliest 'click here' solutions failed
to collect data regarding the nature of consumer
distress, so opportunities may have been missed
to identify consumers most likely to need extended
forbearance or loan workouts."
communications infrastructure to offload the
non-essential collections servicing volumes
to concentrate on affected customers.
In the short term, both creditors and
ARM organizations must further invest
in digital communications to manage
increased call loads and build up their
capacity to handle these higher volumes,
with a focus on renegotiations and debt relief
strategies driven by deteriorating customer
circumstances. Under the conditions of the
Coronavirus Aid, Relief, and Economic
Security (CARES) Act, customers who
entered into forbearance while furloughed
could not be reported as delinquent, so

20

credit reports may not immediately reflect
changes in consumer behavior.
In the medium term, the lack of
experienced workout specialists in
collections departments will give rise
to the return of the contract workout
specialist, much like during the savings
and loan crisis in the 1980s and 1990s,
when the Federal Deposit Insurance Corp.
closed many S&Ls and hired people with
specialized loan workout skills to manage
the "bad bank" toxic assets.
There will also be an increased focus
on first-party domestic and offshore
outsourcing to close the resource gap for
non-essential collections servicing, and
training programs to allow organizations to
focus their internal and contract resources
on effective remediation strategies for
impacted consumers.

THE COVID-19 CRISIS REQUIRES
A CHANGE IN RESPONSE
During the Great Recession, which
stretched from December 2007 to June
2009, ARM organizations scaled up their
resource levels and upgraded technical
systems in an attempt to triage adversely
impacted consumers.
In the current situation, the short-term
is already addressed by lenders, and the
CARES Act established payment relief
options while creating loans to provide
support to small businesses and stimulus
payments to individual households. These
payment suspensions provided immediate
relief but may create a more significant and
delayed pipeline of workout and mortgage
forbearance situations in the medium-term.
There are concerns about the impact these
measures will have on the financial health
of consumers working through the crisis
and beyond that will need to be addressed.
Women and nonwhites are seeing more
severe unemployment impacts than white
men, which could result in different payment
priorities and financial behaviors than we
have seen in the extended growth period of
the last nine years.
There will be an increase in collection
servicing volumes now as consumers are

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Collector - September 2020

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