Some customers have criticized the recovery rate calculation stating that a borrower who defaults is liable to return the principal balance at once. This criticism is valid from a legal perspective but not from a financial. The right to demand immediate payment of the principal balance is stipulated in the agreements to make enforcing the contract economic. The cost of collection and recovery would be excessive if enforcement steps would need to be taken for each missed payment. This clause makes it possible to substantially reduce the number of steps necessary to enforce the contract and get the borrower to start making payments under the agreed schedule.
The right to demand immediate payment of the principal balance does not mean it is reasonable to expect this to happen. Consumers take out loans to pay for larger purchases in affordable monthly payments. Loans would not be required nor interest paid on them if people would have the capital available themselves. Borrowers having financial difficulties are even less likely to have this sort of capital available. Therefore the main objective of collection and recovery is to restore the cash flow, or part of it. The success of these activities are measured by looking how much of the cash flow was restored.