And the numbers do indicate consumer debt is rising: the Federal Reserve reported recently that revolving debt (primarily reflecting the balances on credit cards) rose in July 2008 at a seasonally adjusted annual rate of 4.8 percent to $969.9 billion. That is a significant increase over the 3.5 percent rise just a month earlier in June.

Financial institutions are responding by working past-due accounts more aggressively. They are putting their best collectors on their toughest-to-collect accounts (those that are at least 60 or 90 days past due), hiring outsourcing firms to supplement their internal efforts, and putting new hires on accounts that are in the early stages of delinquencies. According to a recent article in the Wall Street Journal by Jane J. Kim, "The moves come at a time when rising unemployment and a credit crunch are forcing more consumers to default on their credit card payments." The article indicates that credit card delinquencies rose to 4.51 percent in the first quarter of 2008 from 4.41 percent in the year-earlier quarter, according to the American Bankers Association. Delinquency rates appear to continue their rise in the second-quarter earnings reports, thus expectations are that the problems will get worse before they get better.

The rise in delinquencies is creating concern in the banking world and one result of this appears to be the development of a more proactive system to deal with potential delinquent customers. On the positive side, some companies are encouraging earlier communication when consumers know they are facing financial trouble, and many banks are providing specific communication methods such as websites and designated departments and programs to deal proactively with these customers. According to the WSJ article, Bank of America indicates that its employees have been working up cash-flow plans with delinquent customers to help them with budgets and predict how certain events -- such as a resetting adjustable-rate mortgage -- will affect their finances. Discover Financial Services has plans to dedicate a portion of their website to customers who require payment assistance, and has increased its staff dedicated to responding to emails from borrowers looking for help.

Another interesting tactic financial institutions are using is attempting to communicate with customers who are delinquent on accounts is using incentives such as gift or phone cards. The idea is to require the targeted customer to call back in order to "activate" the card, hence opening the line of communication and collection efforts. The article is unclear on how successful this practice has proven thus far, but sounds pretty sneaky to me!
Consumers who suddenly modify their payment and spending patterns may be targeted just for the change, even without any late pays. These changes are being viewed as "red flags", such as a borrower who has a history of paying bills early or normally pays more than the minimum amounts due, are now likely to catch the bank's attention if they suddenly start paying their bills exactly on the due dates and make only the minimum payments.

There seems to be a myriad of new and revised methods that the banks have devised to ensure their debt is repaid in a timely fashion. The Table below provides a good summary of the methods that seven of the major financial institutions are utililizing of late.

PAST DUE: Amid rising credit card delinquencies, banks are ramping up their collection efforts

COMPANY                   THEIR RECENT ACTIONS

American Express       Offering customized payment plans to borrowers facing  
                                     temporary financial hardship.
                                     The terms, which vary case by case,offer flexibility around 
                                     the interest rate, fees, plan length and monthly payment

Bank of America          Accelerated efforts to reach customers earlier, expanded     
                                     staff working with delinquent customers. Where appropriate, 
                                     the company will waive fees, reduce interest or workout 
                                     monthly payment plans. 

Capital One                  Has implemented "more agressive collections" such as calling 
Financial                      customers sooner and finding tailored solutions.

CitiGroup                      Added new collectors, increased calling frequency to   
                                     delinquent customers, expanded its forebearance programs to
                                     early stage delinquent customers and is offering targeted  
                                     settlement programs to those in late-stage delinquency.

Discover Financial       Plans to re-launch a portion of it's website dedicated to card 
                                     members requiring payment assistance and has increased 
                                     the amount of staff dedicated to responding to emails from 
                                     borrowers looking for help.

JP Morgan Chase         Has been contacting customers who have been late in
                                     making their payments or gone over their credit limits and is 
                                     setting up hardship programs.

Washington Mutual      Will work with customers to temporarily lower their payments
                                     or reduce overall payments. Will direct customers whose 
                                     payments have gone into collections to a website 
                                     (wamucanhelp.com) where they can pay and set up payment 
                                     plans.

*Table reprinted from Wall Street Journal article, "Banks Push Harder on Credit Card Debt", Sept. 10, 2008".

In summary, it seems as though the banks will be "calling the dogs out" earlier if they sense potential trouble with the payment schedule on a consumer's account. Late paying customers can expect communication from the bank as early as with one missed payment, and you can forget all those nice balance transfer and zero interest offers once you slip into the late club. On the flip side, banks are becoming proactive at working with customers earlier in the process to develop a payment plan that is reasonable for both parties. But if you join the ranks of excessive delinquency, over 60 days, get ready to deal with a big dog collector with snarling teeth!