Build Resilience in Your
Consumer Portfoliowith Integrated
Servicing Strategies
Leverage alternative credit insights to recognize
shifting portfolio risk and proactively work withaccounts to help prevent delinquency.

Ebook

1of 2

Rising Delinquencies Can Signal Deteriorating Credit Quality
The U.S. economy faces substantial headwinds. Financial volatility has created an environment of uncertainty,
leaving many banks with substantial credit exposures. The statistics are indeed concerning:
Aggregate household debt balances increased by $148 billion in Q1 2023, a 0.9% rise from Q4 2022. Balances
now stand at $17.05 trillion — a $2.9 trillion increase since the end of 2019, just before the pandemic.1
The share of debt newly transitioning into delinquency increased for most debt types in Q1 2023. Transition rates into
early delinquency for credit cards and auto loans increased by 0.6% and 0.2% respectively. Delinquency transition rates
for mortgages upticked by 0.2%.2 And about 102,000 consumers had a bankruptcy notation added to their credit reports
in Q1 2023, stepping above 100,000 in a quarter for the first time since Q2 2021.3and rising interest rates are creating the potential for a severe economic“ Inflation
downturn and a significant rise in consumer delinquencies across all markets,especially subprime sectors, according to Reuters.
”
4With consumers facing economic turmoil and insecurity, changes in their financial stability can occur at
a faster pace and larger scale. How can you be proactive in identifying, segmenting and prioritizing thoseaccounts that need your help to withstand fiscal challenges and avoid default?

Build Resilience in Your Consumer Portfolio with Integrated Servicing Strategies2

The Degradation of the Traditional Credit File
For decades, lenders and financial institutions have trusted traditional credit data in evaluating a borrower’s ability
and propensity to repay a loan. However, this data may not offer a full picture of a consumer’s financial health.
Multiple factors have contributed to the contracting view of consumers from the traditional credit file.
Reduced medical debt reporting – Medical debt
declined 37% between 2018 and 2022 on consumer
credit reports due to litigation and compliance risks.5
Removal of paid delinquencies from reporting –Some debt-buying companies may no longer bereporting paid delinquencies to consumer reporting
agencies upon payment or settlement.
Regulation F – Changes to Regulation F now limit
when a debt collector may furnish information to a
consumer reporting agency.
Transfer of debt – New prohibitions restrict thetransfer of a debt when a debt collector knows orshould know that the debt has been paid, settled ordischarged in bankruptcy.

Alternative financial products – Newpayment methods such as Buy Now, Pay
Later allow borrowers to take out multipleloans from multiple lenders, which may not
be reported on traditional credit reports.
Tax liens and civil judgments – In 2017 civiljudgments were removed from traditional
credit reports; and by April 2018, all tax liens
were removed from traditional credit reports.6
Student loan forgiveness – In 2022 theU.S. Department of Education announced
it would allow 7.5 million borrowers withdefaulted federal student loans to returnto repayment status.7

The predictive power of traditional credit reports may have become limited, not only at loan origination but
also throughout the customer journey. However, a plethora of untapped, alternative data exists that can add
value to a consumer’s profile. Look to new sources of data to fuel growth along with an effective portfolio
servicing strategy that engages consumers, builds customer loyalty and helps mitigate defaults.

Build Resilience in Your Consumer Portfolio with Integrated Servicing Strategies

3Building Credit Portfolio Resilience
Amid persistent economic uncertainty, alternative credit insights can provide a more holistic and nuanced view of aconsumer’s financial stability and willingness to repay.
Alternative data goes beyond traditional credit datasuch as credit card, mortgage and auto lending records.
It takes into account:
Alternative credit-seeking insights suchas short-term lending activity
Public records insights including lienand judgment records
Asset insights such as property
ownership and personal assets
Stability insights including education
records and professional licenses
Using those insights for a more comprehensive view of theconsumer, you can develop a portfolio servicing strategy
that helps you support consumers adversely affected byeconomic trends.

Consider these five strategies for building
a portfolio servicing approach that relies
on perspectives gained from alternative
data including:
1. Data hygiene
2. Compliance (bankruptcy, deceased,SCRA, etc.)
3. Monitoring and contact strategies
4. Segmentation and prioritization(outreach, pre-default options,collection optimization)
5. Legal or litigation strategies

Build Resilience in Your Consumer Portfolio with Integrated Servicing Strategies

4		Five Strategies for Building a Portfolio Servicing Approach Based on Alternative Data

1 Assess Current Data HygieneAn initial review of your portfolio begins with data
hygiene. Contact data decays quickly; annually 8:25-33% of email addresses become outdated
20% of all postal addresses change
18% of all telephone numbers change
Incorrect data hinders your ability to connect withcustomers and can contribute to erroneous decisions.
Recent Gartner research found that organizations believe
poor data quality is responsible for an average of$15 million per year in losses.9 In addition to financial
costs, businesses can also experience lossof reputation and miss opportunities.
You need to establish a foundation of data
quality that includes robust contact
information on a consumer tooptimize contactability. Your
data should be refreshed on aregular basis or on amonitoring cadence.

Good data quality increases efficiency and productivity.
Perhaps most important, it creates a better customer
experience as the right message is delivered to theright people.
An effective data hygiene strategy should:Cleanse✓ Conduct regular data quality checks✓ Validate and standardize data

Enrich✓ Enhance incomplete customer records✓ Combine duplicate records to create
one robust versionRefresh✓ Remove outdated information✓ Update current consumer
contact information

Build Resilience in Your Consumer Portfolio with Integrated Servicing Strategies

5		Five Strategies for Building a Portfolio Servicing Approach Based on Alternative Data

2 Compliance with Regulatory Requirements
The implementation of a successful data quality strategy must take into consideration the parameters outlined
in applicable federal laws and regulations. Following the rules can be the difference between compliance andmillions of dollars in fines.
Bankruptcy
Once identified, you should consider monitoring theaccount to identify any changes in the dispositionof the bankruptcy. If the debt is discharged, you
may be prohibited from further pursuing collection
including taking legal action and communicatingwith the customer.

The Fair Debt Collection Practices Act (FDCPA)
The FDCPA is a federal law that enforces
limitations on what debt collectors can say or
do when collecting certain debt. The FDCPA
prohibits debt collection agencies from using
abusive, unfair or deceptive practices to collectdebts from a customer.

The Servicemembers Civil Relief Act (SCRA)The SCRA provides protections for servicemembers inthe event their military service impedes their ability tomeet financial obligations incurred before entry into
active military service.

Deceased Consumers
If a consumer you’re pursuing has passed away,
you must provide information about the debt
to the person who is authorized to act onbehalf of the deceased consumer’s estate.10

Traditional credit data alone may not tell you if any of your consumer accounts fall into categories coveredby regulatory requirements. Incorporating robust alternative data into your strategies can provide
additional insight.

Build Resilience in Your Consumer Portfolio with Integrated Servicing Strategies

6		Five Strategies for Building a Portfolio Servicing Approach Based on Alternative Data

3 Monitor Evolving Portfolio Credit Risk
Although your customer may have qualified
for credit at account origination, you can’t be
sure their financial situation won’t change.
Economic conditions and life events canaffect a customer’s repayment ability. You
need insights to evaluate shifting portfolio
risk and to contact your customers.
Monitoring your portfolio can help you identify
accounts that are at increased risk or alreadyshowing signs of delinquency. Reassessing risk
can potentially limit further exposure andenable a more proactive approach in reachingout to those customers and helping themprioritize your repayment.

Be aware that bankruptcy filings are expected
to increase11
Implement proactive contact strategies today
as consumers can become more transitory
during times of economic stress
Understand consumer preference in collection
communication strategies to help ensure positive
connection for payment plans and resolution
Maintain active contact with consumers to offer loan
modification or hardship programs to help cure more
early delinquency or defaults
Ensure collection operations are in place should
consumers increase in portfolio defaults
Supplement consumer data hygiene andcompliance functions, such as phone, address,
email monitoring, bankruptcy, deceased and military
with strong scoring and segmentation processes

Build Resilience in Your Consumer Portfolio with Integrated Servicing Strategies

7		Five Strategies for Building a Portfolio Servicing Approach Based on Alternative Data

4 Segment and Prioritize Accounts
for Servicing and Recovery

The customer experience has never been more important incultivating loyalty and increasing retention rates. Financial
institutions shouldn’t treat all consumers with the same
strategies, especially in times of economic stress. Consumers
who may be at risk differ from those in strong credit health.
Be proactive in developing customized approaches to better
engage customers who are struggling.

Consumer outreach, loan modification, hardship accommodations or early-out
provisions can help prevent default. Segmentation fueled by alternative data insights
can help you strengthen customer relationships and minimize loss. Proactive outreachand early-stage mitigation activities can be an essential step in rehabilitating andassisting many consumers.

Build Resilience in Your Consumer Portfolio with Integrated Servicing Strategies

8		Five Strategies for Building a Portfolio Servicing Approach Based on Alternative Data

5 Explore Litigation Strategies
Not every case is worth the cost associated with litigation. Determining which accounts
to pursue through the legal channel requires a focused strategy, taking into accountnumerous factors. Those factors include:

State laws that impact your ability to effectively
collect during the legal process
The presence of previous liens and judgments
A serviceable address
The indication of a place of employment
The indication of property ownership
The presence of a current bank account
The likelihood that the consumer has theability to repay their debt

Financial volatility has created anenvironment of uncertainty, leaving
many banks with substantial
credit exposures.

Build Resilience in Your Consumer Portfolio with Integrated Servicing Strategies

9Revisit Your Approach to Consumer Risk Management
Is alternative data the future or a necessary element to incorporate into workflows as a best practice? When traditional
credit data doesn’t provide a complete perspective, alternative data can fill the gaps and empower more insightfuldecisioning. It provides a more complete picture of consumers and their financial standing not only at the application
stage but also in portfolio management, account servicing, collections and recovery.
Alternative data insights can inform your collections and litigation strategies by providing a more complete view of
the consumer including more current and robust contact information to improve right-party contact, offering theopportunity to build a strong relationship. You can assess shifting risk in your portfolio, segment your accounts andbe proactive in limiting or avoiding defaults.

Are you ready to tap into next-generation, predictive, alternative data insights from LexisNexis® Risk Solutions?
Transform your customer servicing strategies and drive profitable portfolio growth. Learn more today.

Contact us at 866.528.0780
or visit risk.lexisnexis.com/collections
1-3 Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, 2023: Q1

4 https://www.reuters.com/legal/transactional/reg-f-finally-bright-line-rules-come-debt-collection-2022-04-27/

5 https://www.consumerfinance.gov/about-us/blog/debt-collectors-re-evaluate-medical-debt-furnishing-in-light-of-data-integrity-issues/
6 https://www.experian.com/blogs/ask-experian/tax-liens-are-no-longer-a-part-of-credit-reports/#

7 https://www.ed.gov/news/press-releases/biden-harris-administration-extends-student-loan-pause-through-august-31
8 https://sidecarglobal.com/strategy/6-qualities-of-good-data/

9 https://www.gartner.com/smarterwithgartner/how-to-create-a-business-case-for-data-quality-improvement

10 https://consumer.ftc.gov/consumer-alerts/2020/06/dealing-deceased-relatives-debt#

11 https://www.reuters.com/legal/transactional/bankruptcy-filings-are-creeping-back-up-early-2022-2022-04-05/

About LexisNexis Risk Solutions

LexisNexis® Risk Solutions includes seven brands that span multiple industries and sectors. We harness the power of data, sophisticated analytics platforms and technology solutions to provide insights that
help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part ofRELX (LSE: REL/NYSE: RELX), a global provider of information-based analytics and decision tools for professional and business customers. For more information, please visit risk.lexisnexis.com and www.relx.com.
This document is for informational purposes only and is not intended to and shall not be used as legal advice. LexisNexis Risk Solutions does not warrant that this document is complete or error free.
LexisNexis Risk Solutions does not guarantee the functionality or features of any LexisNexis Risk Solutions products identified herein. LexisNexis and the Knowledge Burst logo are registered trademarks ofRELX Inc. Copyright © 2023 LexisNexis Risk Solutions. NXR16107-00-0723-EN-US