Surprise Bills Test the Value of Subprime Credit

An emergency expense doesn’t need to overwhelm a household budget to create a credit problem. For subprime consumers, a medical bill, car repair or veterinary expense can redirect enough cash to jeopardize a payment, putting hard-won credit progress at risk.

Credit issuers are, in those cases, trying to understand a customer population too often reduced to a credit score or risk category. Jason Tinurelli, chief marketing officer at Concora Credit, told PYMNTS that nonprime status says considerably less about income than many people assume.

“Nonprime has absolutely nothing to do with the amount of money you earn,” Tinurelli said. “The thing that happens with our consumer base is really more around the inability to get money where it belongs when it needs to get there.”

That problem can surface abruptly. Tinurelli cited medical expenses, home and car repairs and veterinary bills as examples. A consumer may have income and may have been making payments, yet an unavoidable expense can consume the cash that had been allocated elsewhere.

The resulting gap helps explain Tinurelli’s assertion that financial flexibility is necessary. For consumers rebuilding their credit, he said, the objective is to “continue to move forward in building credit without completely falling back.” They are looking for credit providers to help “bridge some gaps” created by financial disruptions that haven’t necessarily disappeared simply because the consumer has begun rebuilding.

That places a different demand on consumer credit. Access to a credit line remains important, but the issuer also has to consider what happens when the customer’s ability to make scheduled payments is temporarily disrupted. The gap may last weeks rather than months, but the consequences can extend well beyond the original expense if the account becomes delinquent.

Finding Trouble Before Delinquency

Tinurelli said direct conversations with consumers have exposed another complication: People experiencing payment pressure don’t always behave the way an issuer might infer from account activity.

“What we often hear from consumers is that they’re embarrassed,” he said. “The reason they’re not answering the phone is not because they want to avoid paying the bill. They’re embarrassed by the fact that they don’t have the money to pay the bill.”

Transaction and account information can tell a lender what a customer did. Consumer research can help explain why. Tinurelli said Concora Credit uses focus groups, personas and direct conversations to ask consumers about the daily problems, concerns and fears shaping their financial decisions.

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Getting useful answers can itself be difficult. Consumers sometimes approach financial services research as though they’re being tested, he said, supplying answers they think the company expects. Issuers therefore have to get beyond abstract questions about financial products and ask about everyday financial pressures.

One finding from those conversations was especially direct: “You don’t help me until it’s too late,” Tinurelli said consumers told the company.

The comment points to a practical opening for issuers. Waiting for a missed payment gives a lender a clear signal of distress, but by then the consumer has already suffered the event an intervention might have helped prevent.

Concora Credit’s response has been Breathing Room™, a recently debuted benefit for eligible cardholders that Tinurelli said allows customers to activate three months of reduced payments and interest online. Customers don’t have to provide documentation or explain the circumstances behind the request.

The program is also an example of how Concora Credit has applied its consumer research, rather than proof that the approach has succeeded. Tinurelli was explicit that Breathing Room is new and that the company doesn’t yet know how it will perform. Concora Credit is monitoring enrollment and whether customers emerge from the program and recover afterward.

“You have to put the control back into the consumer’s process,” Tinurelli said. “I trust you to do this on your own because you know your finances better than I will.”

For issuers, the larger issue is how to use information about customers before an account reaches the conventional markers of trouble. Tinurelli said the aim should be to keep a consumer current while acknowledging that lenders can’t simply forgive obligations.

“We have to meet somewhere in the middle,” he said. “I can reduce your payments. I can stretch them out for a period of time. But we’re going to need to do things to help you get back on track.”

Watch the full interview with Jason Tinurelli to learn more about:

• Why income alone is a poor guide to the circumstances that can put consumers into the nonprime category.
• How embarrassment and loss of control can influence the way cardholders respond to financial pressure.
• What issuers can learn by asking consumers about everyday financial problems rather than testing their knowledge of financial products.