An Uncertain Future for the Credit Market

TransUnion released an annual report on credit insights for 2021, largely highlighting the positive prediction of a lending rebound. Due to the pandemic, the amount of loans approved in the third and fourth quarters in 2020 was much less than originally expected in a pre-COVID forecast. Still though, in the second half of 2020, the Federal Reserve noted that credit card debt declined by 11%. This can be explained by the stimulus package and the decrease in people going out during the pandemic. In the Q3 of 2020, payments on deficient credit card accounts increased, marking the first time in 30 years that those months saw a drop in debt.  

What does this all mean for the debt collection industry? As noted above, many people are putting their money towards debts and banks and credit lenders are beginning to increase the number of loans that they grant. 

Image of hand holding a few credit cards

“What we saw last year, when the stimulus got passed, was that the additional 600 dollars a week put a lot of extra disposable cash in people’s pockets. And paired with the fact that they couldn’t go anywhere and spend it, a number of consumers in the debt cycle took advantage of that and paid down debt. There was a real increase in liquidity over the summer. That started to drop off in July when the checks ended, and the payments did begin to taper off at the end of the year in 2020,” said Chris Repholz, MRS’s Chief Customer Officer. 

Now, with the next stimulus package that was passed by Congress, 2021 is expected to be a strong year for the debt collections industry.

Repholz said, “We anticipate a really similar effect from the 2021 stimulus package. There’s going to be weekly unemployment payments plus an additional 1,400 dollars sent to everybody who qualifies for it. What we believe is going to happen in the remainder of 2021 is that a lot of people are going to use that stimulus money to pay down some debts. So 2021 looks like a really good year from a collection agency standpoint.”

But as payments and lending is favorable for the immediate future, there are undeniable implications in the payoff cycle. There will always be debt to collect, however the volume will decrease dramatically from 2021 to 2022.

“In 2022, many people predict that there will likely be a constriction in inventory that gets placed in the debt market. Usually, debt goes through a normal aging cycle and continues to get placed before it is paid. But because a lot of debt will be paid off this year, in 2022 there will be a definite decrease in the amount of overall placement value in the marketplace. This means there will be less debt for sale and less debt for placement for agencies.”

While it is expected that the debt and payment cycle will return to normal in 2023, the 2022 year will be integral for agencies. In this scenario, with less debt to place, bottom performing agencies are at risk to be cut by their creditors or consolidated. 2022 will be a year that ‘thins the herd,’ so to speak.

But there’s another side to the story. Some creditors predict exactly the opposite: Post charge off placements will be pushed back to later in the year and into 2022. “Banking clients will eventually cease COVID extensions and deferrals on consumer loan payments which will result in a large number of delinquent accounts rolling into charged off debt,” said Misty Carson, Executive Vice President of Sales and Marketing.

This other perspective asserts that due to credit companies’ understanding during tough pandemic times, the postponing of placing debt will actually increase the volume in 2022. Carson said, “Utilities and telecommunications clients are predicting similar trends for later in the year as they have also offered customers extended payment terms and suspensions of disconnects due to the pandemic.”

Each outlook may mean different things for the collections industry, but regardless, MRS is determined to keep expanding and helping customers and clients alike. “Our focus on innovative technology and quality to ensure that we have best in class results will enable us to safely grow our business in 2022 regardless of whether others are struggling or succeeding,” Repholz said.

With the predictions for the upcoming years, it is important to act now. Repholz said, “2021 is the right time to invest in technology and compliance systems that will enable a company to be first-rate for whatever comes in 2022.”

So, whether a bountiful harvest is in store, or the proverbial “winter is coming,” MRS is confident that our 2022 will remain strong, innovative, and successful.