Education and Hardship Solutions for Customers in Financial Distress

Banking customers in financial distress need special care to avoid growing past-due balances and chronic delinquency. Lenders should provide robust hardship solutions and education to customers who lack a core understanding of the consumer banking financial system. Here are our proven approaches for supporting customers in financial distress.

9 in 10 consumers will experience financial distress during their lifetime with nearly 28% of US consumers currently in that situation. Solutions for consumers in financial distress should include both hardship programs and financial education.  Proactively offering education can help customers avoid poor financial decisions during major life events. And, given all the other macroeconomic triggers being tripped, solutions for consumers in financial distress must be in your lineup to help consumers in hardship cases.

Battle Tested Solutions to Offer Customers to Prevent and Manage Financial Distress

• Income-Driven Repayment Plans: Design/Offer flexible repayment plans based on the borrower’s income, such as Income-Based Repayment (IBR) or Pay As You Earn (PAYE).
• Temporary Payment Suspensions: Allow borrowers to temporarily suspend payments (deferment or forbearance) during times of financial hardship.
• Extended Repayment Terms: Extend the loan term to reduce monthly payments while increasing the overall interest paid over time.
• Interest Rate Reduction: Consider reducing the interest rate on the loan to make payments more affordable for struggling borrowers.
• Loan Rehabilitation Programs: Establish rehabilitation programs that help borrowers get their loans back in good standing after a period of delinquency or default.
• Flexible Communication Options: Allow borrowers to communicate and negotiate repayment terms through all available channels, including online portals, email, phone, and mail.
• Debt Settlement Programs: Explore options for settling the debt for a reduced amount in cases of extreme financial hardship.

Educational Resources and Counseling Should Also be Available

• Financial Education: Provide online education and resources before they experience financial stress as part of your onboarding journey, to help customers avoid future financial hardship.
• Financial Counseling: Provide access to counseling to help borrowers manage their finances more effectively and determine the best path to improved financial health based on their specific circumstances.

It’s crucial for collections operations to adopt policies that prioritize helping customers navigate financial difficulties while ensuring compliance with relevant regulations and guidelines. Additionally, transparent and empathetic communication will help establish trust and find mutually beneficial solutions. By proactively helping and rehabilitating your customers, you’ll create more loyal advocates, resulting in increased lending and wallet share.

What Does Financial Education Look Like?

There are many free resources available openly on the internet for consumers, however the financial literacy challenge remains: only 57% of adults in the United States are financially literate, according to MarketWatch.

We recommend a tutorial, sent to customers as part of onboarding, that provides information on credit health, how life events can impact your finances and how best to prepare. Ideally these tutorials should be interactive, no more than 15 minutes long, and provide an assessment with certificate of completion to support a feeling of customer achievement.

Click here to find out about the customer-facing financial education options available.

Start Your Hardship Policy Readiness Check Today

Bridgeforce shows you where your contact strategies and treatment optimizations may fall short and gives you a compliant roadmap for improvement. Our team of former VPs in charge of call centers, back- and front-office operations, and large-scale digital collections solutions can quickly see the gaps and opportunities in your offerings and get you on track to increasing dollars collected. Additionally, by working with CBS Academy, we provide financial literacy education programs for call center agents and consumers, addressing the current gap in financial education and helping mitigate the financial literacy crisis. Get started today to enhance both your operations and your customers’ financial knowledge.