Recoveries (collecting on charged-off loans) is an important but consistently overlooked stage of the consumer credit lifecycle. Macro-economic events and the business cycle influence how lenders view Recoveries. During the benign portion of the business cycle, when losses are low and lenders focus on other aspects of credit, like acquisitions, Recoveries attracts little attention or investment. However, when the business cycle turns and deteriorating macro-economic conditions drive a period of elevated losses, lenders are left with little time and few choices to optimize Recoveries to perform well through a downturn. Sub-optimal Recoveries performance during a downturn results in an inability for Recoveries operations to manage higher inventories of losses which ultimately pressures lenders’ loss rates and earnings.
During the pandemic, consumer stimulus led to lower credit losses and therefore less of a strategic focus on Recoveries. As the U.S. enters a more challenging macro-economic environment characterized by inflation, interest rate increases, and resulting pressure on consumers, we are seeing losses increase back to pre-pandemic levels and even worse for some segments. Now is a perfect time to revisit Recoveries and refresh your strategic and operational approach. This paper will explore how the industry has evolved since the last economic downturn, provide an updated view of winning strategies, and highlight what is at stake for your organization. Our recommendations will provide insight that can help ensure your strategy is up to date with the latest advancements in inventory management, digital transformation, operations, and regulations.
