Managing disputes in a post-pandemic world | Debt Collection 2020
The best time to have prepared for a pandemic was in 2019.
The second-best time is now.
Despite being called ‘the new normal’, there’s nothing normal about the current state of collections. The situation is unprecedented and requires every industry to adapt to new ways of working. So what about Collections?
Earlier this year, the Wall Street Journal predicted a spike in credit disputes and delinquencies due to the economic impact of COVID-19. While an estimated 25 million transactions are disputed each year - by 2022, this number is expected to rise to 33 million (Mercator Advisory Group Report), and probably higher, depending on the impact of the ongoing pandemic.
So what’s going on with data furnishers?
The pandemic has disrupted businesses and resulted in an adverse impact on Data Furnishers’ workforce across the globe. That, in turn, has diminished their ability to respond to indirect consumer disputes (ACDVs) within the required due dates, resulting in disputes marked as “Did Not Respond (DNR)”.
Despite this, The CFPB has asked all the Data Furnishers to comply with the CARES’ act and continue reporting despite the current crisis.
Is there any respite for data furnishers?
As per CFPB guidelines released on April 1, the CFPB does not intend to cite in an examination if a Data Furnisher exhibits good faith efforts to investigate disputes even if takes longer than the statutory timeline.
What that means is dispute resolution will need to find ways to adjust during the new normal - and the best way to do that is through the right technology matched with a team that’s proficient at it. Since resolving disputes can prove to be costly and time-consuming, it is essential that the dispute resolution process be efficient and effective.
But before that, let’s go through the Reasons why credit dispute is set to rise:
More Access to Credit Reports
Consumers can easily check their credit reports for free from each of the CRAs annually on AnnualCreditReports.com. Now, the consumers involved in disputes can access their reports free for a second time in that period to confirm whether the disputed account has been addressed or not.
Therefore, if consumers are accessing their reports more often, the chances of raising disputes increase significantly. This is another good reason for increase in the number of disputes.
Increase in card usage drives dispute volume
With an estimated five transaction disputes per 10,000 purchases, disputes only comprise a sliver of total transaction volumes. However, the colossal number of transactions can make it a formidable issue. According to Mercator Advisory Group, in 2019, the credit card industry processed 49.9 billion transactions totaling $4.18 trillion. And the problem is getting worse. It is projected that credit card transactions will rise to 66.8 billion by the end of 2020, resulting in over 33.4 million disputes. A part of this rise can be attributed to increasing digital payments.
Since cash is being used less, even for sub $25 transactions, more low-dollar transactions are ending up on cards. This makes it even more important that companies adopt efficient dispute management procedures - as resolving a $10 dispute can be just as time-consuming as resolving a $10,000 one.
More time to tackle Medical Debts
Some 43 million Americans have past-due medical debt on their credit reports, according to the CFPB. About 52% of all debt on credit reports is from medical expenses. Rising corona-virus cases will also lead to a rise in medical debts. The medical debts end up on consumers’ reports if the consumer is unable to pay medical bills. This hampers the consumers’ credit - which is why they generally try resolving it quickly. With a high unemployment rate, people have more time in hand, as well as will be required to deal with their debts quicker leading to an increase in the number of credit disputes.
How do I solve this challenge?
The solution for this ‘new normal’ - a post-pandemic era in a debt-heavy economy - has to account for efficiency, scale, and paradoxically, a human touch. This is why, in a regulated industry like credit and collections, our managed-SaaS technologies can give your compliance processes, especially dispute investigation and resolution, a significant boost in performance.
With our Direct and e-OSCAR dispute and complaint management, you get:
- Disputes across channels managed on a single platform
- Automated workflows ensuring nothing falls through the cracks
- Powerful Reporting to get insights on trends and root causes
- Fully managed solution saving up to 60% cost