While missed payments and rising bad debt are placing a growing financial burden on lenders, ironically so is their decision to refuse credit in the first place.
That’s because lenders are legally required to notify every applicant in writing after their loan, lease, credit card or other financing is turned down. The volume and cost of mailing these adverse action letters are soaring, prompting cost-conscious creditors to adopt cloud customer communications management technology to increase automation, productivity and efficiency, especially accelerating their shift to digital channels.
Tighter credit leads to more denials
Already coping with rising personal debt, many consumers wanted to take on more in 2024: Almost half, or 45%, of Americans applied for a loan or financial product between December 2023 and December 2024, according to Bankrate’s annual Credit Denials Survey. But nearly 1 in 2, or 48%, weren’t approved for at least one credit application, reported Bankrate.
Assuming 45% of 134 million U.S. households, or roughly 60 million, applied for credit, and 48% of those applicants were declined, creditors needed to send nearly 30 million adverse action letters last year. With printing and 2024 first-class postage costing $0.75 per adverse action letter, creditors may have spent more than $22 million on credit denial communications that bring in no revenue or profit.
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Auto Lender Saves by Going Digital with Adverse Action Letters
Several lenders across multiple verticals are using Nordis Technologies’ patented CCM platform Expresso®
to transition to adverse action emails and text messages, using a “waterfall” approach that
sends an automatic hard copy if the digital attempt is not delivered successfully.
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Modernizing adverse action letters and other communications
To tame rising adverse action letter costs, some lenders are using innovative cloud software to streamline communication development and management and prioritize digital delivery.
The catalyst for these changes is an omnichannel CCM platform, which enables creditors to control development and distribution of customer mail, email and text communications, including adverse action letters. Working with their software-as-a-service CCM partner, creditors create reusable document templates and a content library with text blocks, images, and logos. Companies simply upload a single data file to the CCM platform and it automatically fills fields for customer name, address, amount due, due date, relevant disclosures and other content for each bill, letter, email and text message.
These systems increase employee productivity and operating efficiency as they digitally transform and automate much of the communications process, all while requiring little internal IT implementation or ongoing support. Other benefits: Creditors can review documents, generate proofs for sign-off, and make disclosure changes in real time. The software also lets companies track communications delivery, run detailed reports and create audit trails.
Slashing adverse action letter costs
Before a letter is printed, address hygiene tools identify and fix bad addresses using USPS Intelligent Mail® barcode (IMb) technology. This reduces the amount of undeliverable mail – Creditors with cost-effective CCM technology are positioned to save even more by shifting to low-cost email for adverse action letters and other communications.
Federal laws governing consumer credit, the Equal Credit Opportunity Act and Fair Credit Reporting Act, enable companies to use digital delivery for adverse action letters. Of course, doing so means following all applicable regulations for electronic communications, including obtaining explicit consent during the loan application process from consumers to receive email, text and/or other digital communications.
Auto lender moving to adverse action emails
A major auto financing company has recently moved to Nordis Technologies to gain greater control and agility over its overall customer communication programs. A key initial focus: Cutting the cost of mailing its adverse action letters.
Using Nordis’ patented CCM platform Expresso®, the lender is simplifying and accelerating development of customized and compliant communications, including adding applicant-specific reasons for a credit denial, which are legally required to be included in adverse action notices. For more cost savings, the creditor plans to convert adverse action letters to emails, starting with roughly 15% of these notices that are tied to online loan/lease applications. Online applicants consent to digital communications as part of the application.
Adverse action letters offer an ideal test case for adopting an omnichannel strategy for customer communications. With CCM SaaS, creditors can more easily and efficiently provide the specific and accurate reasons for each credit denial that regulators expect. They also can capitalize on inexpensive emails for communications. With the ability to track digital delivery, CCM platforms also help ensure compliance with timely notifications even as the U.S. Postal Service has extended delivery times and falling on-time first-class deliveries.
Please contact us for more information about cutting adverse action letter costs.
