Lately, the buzz about a potential recession has been overpowered by talk about a related warning signal - delinquent payments. TransUnion predicts that over the course of 2023, serious credit card delinquencies will rise by 24% to levels not seen since 2010.

Common wisdom has it that today’s delinquencies are due to inflation.

‍The Motley Fool warned consumers are using credit to cover “higher living costs.” USA Today’s analysis of the most recent New York Federal Reserve Bank Quarterly Report on Household Debt said, “But as prices remain stubbornly high, [Americans are] also having trouble making payments on time.”

Is that it? Is inflation really the cause of increased delinquent payments? Or could it be something else?

What's behind rising delinquencies?

A random sample of calls from two of our largest customers offers surprising insight into the reasons consumers become delinquent. 

Here were the top five reasons borrowers gave for late and missed payments:

1. Unemployment
2. Bankruptcy
3. Divorce
4. Other payment obligations
5. Medical conditions

Of those top five delinquency reasons, the only one that can directly be attributed to inflation would be “other payment obligations.”

The other four are much more interesting - and complicated - stories. Bankruptcy is not a single event, but a series of problems leading someone to file for relief. 

Unemployment, especially in this labor market, is also complex - there’s no lack of jobs, after all. But someone could be fired, become delinquent on their car payment, lose the car, and then be unable to find a new job because of a lack of transportation.

And divorce and medical issues are similarly human stories. Is divorce a cause of financial pressures, or a result? Are medical conditions a reason for delinquency, or are they the cause of unemployment and bankruptcy?

Intelligence that makes a difference in managing missed payments

Prodigal is the pioneer of consumer finance intelligence, using AI to support borrowing and lending organizations in improving processes and customer experience.

Having analyzed over 250 million consumer finance calls, Prodigal has a unique ability to deliver insight about individual borrowing and repayment, and in the case of consumer delinquencies, that insight upends traditional thinking.

What Prodigal’s data reveals is that while inflation can be a contributing factor to late or missed payments, it’s not the only - or even the most prominent - one on people’s minds at the moment.

And without that insight, lenders looking for repayment will miss out on useful intelligence that can help their customer service representatives support customers in finding the best options to repay their debt and achieve financial stability.

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