First Payment Defaulters

In this tip, we will examine special considerations when collecting on First Payment Defaults, (FPD’s).

As FPD’s represent customers who have failed to make their very first payment, they can be considered to be a high credit risk. This will be true for the majority of FPD’s, however it is also important not to overlook fraud exception-accounts when designing strategies for FPD collections.

First Indication of Fraud
An FPD is often the first indication that an organisation has of a fraudulent account. The types of fraud most commonly associated with FPD’s are non-receipt of initial card (i.e. the customer did apply for the card, however the card was subsequently intercepted and fraudulently used), and fraudulent application, (whereby the customer whose name is on the credit agreement, did not actually apply for the credit).
When dealing with FPD’s as a result of fraud, the collections department needs to liase closely with the fraud department and policies need to be established, in order that the customer can be effectively dealt with and the balance transferred to the appropriate department.

In the case of non-receipts, inappropriate treatment at this early stage of the customer life cycle can lead to poor customer service and negative perceptions.

In the case of fraudulent applications, the ‘customer’ is often not even a customer of the card-issuing bank and so specific measures need to be implemented to process these accounts and avoid negative publicity.
Overlimit FPD’s
An account that is not only an FPD, but also overlimit, represents a much higher probability of being fraudulent. In fact, an overlimit status is a strong scoring characteristic for predicting fraud. With this in mind, a number of organisations segment their FPD accounts into delinquent-only and delinquent and overlimit, with the latter group receiving a more focused possible-fraud approach.
Confirmation of Direct Debit Details
The establishment of a direct debit on an account is typically viewed as positive risk by credit grantors and can even increase the application score that is generated. It is highly recommended that organisations verify the direct debit with the customer’s bank at the time of application rather than when the funds have been spent and the account is in the collections department. This is an effective anti-fraud measure and also reduces administration overhead for collectors, who can then focus on collecting on accounts rather than confirming fraudulent cases after the fact.

Stephen J. Leonard is Managing Director of PIC Solutions, the largest customer management solutions company based in the Southern Hemisphere. He has over 15 years of risk management experience in the banking and consulting industries at Chase Manhattan Bank and Fair Isaac International. He holds an AS (State University of New York), BA (University of Toronto), MBA (Adelphi University – School of Banking, New York) and is a member of the UK and South African Institutes of Credit Management.