Lending money comes with the risk of consumer lossing the willingness or ability to pay the debt. Where willingness can be resolved through FICO score hit, compliance and debt collection, demand letter, filing suit and so on, the ability is often miunderstood.
Lets define ability to 4 different groups:
a) intermediate ability to pay, if it is from deposits, employment income, quick loan to get funds or any other way of getting consumer to tranfer liquidity from what he has towards lenders
b) ability in time, if is from future employment, future extra work done by borrower, future release of savings or any other liquid help consumer might get
c) turning assets to liquidity, as consumer might have cars, houses, other assets
d) speculation on future income stream or asset stream from consumer
Basically ability to pay debt is not current amount of money the consumer has to pay towards the debt. It is a sum of current and future Assets turning to liquidity. And if the consumer is an owner of the house it is a future ability of anyone interested in getting the house post life of the consumer.
This is, why bothering if the consumer and pushing does not bring a tons of value. Portfolio manager needs to support the consumer, wish him well and make sure the consumer keeps motivated to get more assets or income stream.
The question stays how far shall/may the debt collector help the consumer to get back on his/her feet?
Offering a settlement might help, the price is paid on the side of depositors, that out money in the bank. Considering the settlement campaings to cover at least the loan installments wo interest covers deposits, but no the costs of the lender (like wages, return to investors, rent, compliance costs, marketing costs and so on)
Working with consumer and effectively sending consuner varios non-profit or non-government offers (like food coupons, housing help, re-education resources, help with taxes, disaster help) supports the consumer and esrns his trust. Is the consumer willing to take this road and meet the loan portoflio manager in the middle is the question.
In the end, charged-off portfolio management is an extreme opportunity for the lending business to keep stability of the economy and its growth. Seeing the potential of the consumer as holistic, as economically viable in current and future value in both perfectly liquid, quazi-liquid and back-on-the feed liquid assets represents the additional opportunities to grow. On all three sides. On the side on the borrower, on the side of the lender and on the side of the portoflio manager.
