Collection Non-Starters
Non-starters are cardholders who have never made a payment to their credit cards. In some cases, these are clients who may have missed their first due dates for various reasons. However, it is in this non-starter group that you will find the high-risk accounts owned by type 3 and type 4 clients. To learn about the different client types, please click on this link – Classifying Clients in Collections.
Several indicators will tell you whether you should consider a non-starter account as high risk. First, you should check the balance against the credit limit. If the limit has been fully utilized, you’re one step closer to confirming that it is a high-risk account. Next, check its utilization rate, or how fast the limit was used up. If it was utilized in less than a month, you only need one more thing before you can say that the card likely belongs to a type 3 or 4 client. If your agents cannot establish contact even after several days of trying, consider that confirmation that it is a high-risk account.
All the information you can gather about these non-starters should be forwarded to your credit risk management and fraud teams for further analysis and investigation. This can help improve your company’s credit policies and prevent granting credit cards to people who may share the same profile in the future. For example, one of the old tactics used by fraudsters is to rent office space and declare it as their company’s office address. These fraudsters will then apply for credit cards from different card companies and have people waiting for the verification process that will surely follow. It can be through phone or site visits usually conducted by third-party agents. These individuals will confirm that the credit card applicants are employees of their company and that all information provided in their application is correct.
While the likelihood of collecting from this kind of high-risk account is low, the information you gather can help prevent future losses from fraud. As such, it is vital that working on non-starter accounts be prioritized to identify these accounts earlier. Earlier identification can also trigger the acceleration of your collection timetable and allow you to use strategies available to more delinquent accounts only. If necessary, this can involve endorsement to an external skip tracing agency or a third-party collection agency.
Conclusion
In my experience, new players in the credit card and lending industries are usually the ones targeted by fraudsters. It is a well-planned and coordinated attack given that these companies are usually at their weakest point when it comes to fraud prevention. This is why early detection is critical in delinquency management.
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