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With Delinquencies Rising, Experts Advise Flexible Repayment Plans for BNPL Users

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Peter Lucas November 30, 2021 Competitive StrategiesE-CommerceIssuing/OriginatingMobile CommercePoint-of-saleTransaction Processing

With defaults on buy now, pay later loans on the rise, BNPL providers need to be cognizant that creating a flexible repayment plan can not only help improve recovery rates, but help retain delinquent customers by providing a better customer experience during the collection phase, says a study from digital debt-collection agency TrueAccord.

The latter is important, as BNPL providers are slugging it out to attract and retain new customers. Over the past 12 months, the typical BNPL customer used up to six different BNPL providers. “Retaining consumers, therefore, becomes a priority in the whole customer lifecycle, even post-delinquency,” the report says.

Two advantages BNPL providers have when it comes to crafting flexible repayment schedules is that outstanding BNPL balances tend to be lower than those on credit cards, and that BNPL repayment rates are higher once these debts go into delinquency. The average BNPL debt is more than $100, but less than $250. In comparison, the average credit card debt is about $1,100, the report says.

Also, the repayment rate for delinquent BNPL loans at 30 days past due is 30%, compared to 10.5% for credit cards, the study says. At 90 days past due, the repayment rate on delinquent BNPL loans is 60.9%, compared to 34.5% for credit cards.

One option for crafting a flexible repayment plan is a repayment schedule that aligns with periods when consumers are most likely to have cash available. Taking such an approach leads to a 45% drop in payment-plan drop-off, and low-friction tools to delay or reschedule individual payments reduce drop-off by an additional 13%.

“Flexibility is crucial in order to minimize those adverse effects when servicing these accounts as they fall behind: highly customized, longer-term payment arrangements are used by 49% of all consumers repaying balances via TrueAccord,” the report from Lenexa, Kansas-based TrueAccord says.

Another way for BNPL providers to improve repayment rates is to offer a variety of contact channels, such as text messaging in addition to email. Adding text messaging on top of email communications can increase repayment rates more than two-fold.

Targeted repayment outreach leads to 12% higher repayment rates in the first 60 days. Identifying and encouraging consumers who are motivated to regain access to their BNPL service, using the correct combination of content and communication channel, increases repayment rates by 11%, the report says.

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Michigan license number:   DM-0016282 Available to the public and licensed in Michigan.

Section 13(1)  When a licensee establishes a debt management plan for a debtor, the licensee may charge and receive an initial fee of $50.00

Section 13(2)  A licensee shall attempt to obtain consent to participate in a debt management plan from at least 51%, in number or dollar amount, of the debtor’s creditors within 90 days after establishing the debt management plan. If the required consent is not actually received by the licensee, the licensee shall provide notice to the debtor of the lack of required consent and the debtor may, at its option, close the account. If the debtor decides to close the account, any unexpended funds shall be returned to the debtor or disbursed as directed by the debtor.

Sec. 14. (1) A contract between a licensee and debtor shall include all of the following:

(a) Each creditor to which payments will be made and the amount owed each creditor. A licensee may rely on records of the debtor and other information available to it to determine the amount owed to a creditor.

(b) The total amount of the licensee’s charges.

(c) The beginning and termination dates of the contract.

(d) The principal amount and approximate interest charges of the debtor’s obligations to be paid under the debt management plan.

(e) The name and address of the licensee and of the debtor.

(f) Any other provisions or disclosures that the director determines are necessary for the protection of the debtor and the proper conduct of business by a licensee.

Sec. 18. (1) In addition to the fee described in section 13(1), a licensee may charge a reasonable fee for providing debt management services under a debt management plan. The fee under this subsection shall not exceed 15% of the amount of the debt to be liquidated during the express term of the plan.

(2) A licensee may offer a debtor the option to purchase credit reports or educational materials and products, and charge a fee to the debtor if the debtor elects to purchase any of those items from the licensee.  Fees charged under this subsection are not subject to the 15% limitation on fees described in subsection (1).

(3) Except for a cancellation described in subsection (4), in the event of cancellation of or default in the performance of the contract by the debtor before its successful completion, a licensee may collect $25.00 in addition to any fees and charges of the licensee previously received by the licensee. This $25.00 fee is not subject to the 15% limitation on fees and charges under subsection (1).

(4) A contract is in effect when it is signed by the licensee and the debtor and the debtor has made a payment of any amount to the licensee. The debtor has the right to cancel the contract until 12 midnight of the third business day after the first day the contract is in effect by delivering written notice of cancellation to the licensee. A cancellation described in this section is not subject to, and a licensee shall not collect, the fee described in subsection (3).

(5) If a debtor fails to make a payment of any amount to a licensee within 60 days after the date a payment is due under a contract, the licensee may, in its discretion, cancel the debt management contract if it determines that the plan is no longer suitable for the debtor, the debtor fails to affirmatively communicate to the licensee the debtor’s desire to continue the plan, or the creditors of the debtor refuse to continue accepting payments under the plan.

(6) A licensee shall not contract for, receive, or charge a debtor an amount greater than authorized by this act. A person that violates this subsection, except as the result of an inadvertent clerical or computer error, shall return to the debtor the amount of the payments received from or on behalf of the debtor and not distributed to creditors, and, as a penalty, an amount equal to the amount overcharged.

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