Some Collectors Use Psychology in Their Collection Efforts

A recent New York Times article* looked at how debt collection agencies are using new statistical relationships to gauge payment risks.

The findings from the study include the following:

1)  That people who bought cheap, generic oil for their car were much more likely to miss a credit card payment than someone who bought expensive brand name oil.

2) That people who purchased carbon-monoxide monitors for their homes almost never missed their credit card payments, whereas someone who purchased a chrome-skull car accessory or something as lame as a "Mega Thruster Exhaust System" (you know who you are) was almost certain to miss a payment.

According to the study, some companies started reducing consumer's credit limits when charges appeared for pawnshops or marriage therapy because those are signs of depression or desperation. Most of the major credit card companies have developed systems to comb through a cardholder's data for signs they are going to stop making payments.

One of the strongest conclusions of the psychological studies is that cardholders are most likely to pay bills of those companies with which they have an emotional connection. In response, some in-house credit companies are making an effort to befriend their debtors. In one instance a collector, after speaking to a consumer regarding her account, shared her mutual challenge of raising kids. The debtor gave preference to that creditor over the next three years and paid her $28,000 dollar balance in full.

*Charles Duhigg, "What Does Your Credit-Card Company Know About You?" N.Y.T. Magazine (May 12, 2009), available at www.nyt.com