Debt Collection 411s: Resources For Small Businesses

Any business that extends credit to its customers can find itself with bad debt on the books.  When this happens there are two basic approaches to recovering that debt: An inside collection department, or hiring third-party collection agencies.  While both approaches have their advantages, most small businesses lack the funds and staff to make debt collection a priority or a success, and most opt to hire collection law firms or collection agencies to assist in their debt recovery efforts.

That leads to the challenge of choosing the right collection agency for your business.  A little due diligence will go a long way towards partnering with the right agency.  Agencies typically offer two tracks of collection: Either on a contingency basis, claiming a percentage of the debt owed when it is repaid, or on a flat-fee basis per account serviced.  Luckily, there are several resources available to small businesses that can help them locate and identify the right collections partner for them.

Collection Agencies Resources

• The Association of Credit Collection Professionals International (www.acainternational.org).  The ACAI was founded in 1939 and counts about 5,000 members worldwide.  They codify ethical standards and certify collection professionals.  This is an excellent place to start because you’re guaranteed to find only legitimate and above-board collection agencies.

• The California Association of Collectors (www.calcollectors.net).  The CAC is a California-based organization similar to the ACAI.  Found in 1917, it was the first such organization in the United States.

•  insideARM (www.insidearm.com).  Acts as a clearing house for information and discussion for accounts-receivable professionals.  While not specifically geared towards listing and contacting collection agencies, the web site is a great place to read about issue connected to debt collection, and engage with professionals across the country who are treasure troves of experience and networking.

• There are also a plethora of blogs written by collections insiders, such as Michelle Dunn’s Credit and Collections Blog (www.credit-and-collections.com).  These blogs are packed with shared experiences and strategies for any small business saddled with unrecoverable debt.

Beyond Friend Requests: How Social Media Is Used For Debt Collection

If you owe money and collection agencies are chasing you, be aware that there is a whole new wrinkle in the debt collection business: Social media, as in your personal Facebook and Twitter accounts.  Increasingly, collection agencies are using these goldmines of personal information to track down their debtors and find out everything they need to use in their efforts to collect on a debt.

Giving It All Away

People are increasingly aware of the privacy concerns associated with social media platforms; you are basically giving away all of your personal information, which can be collated and connected with other pieces of data to create an incredibly accurate picture of your life.

Collection agencies are first using social media to locate their debtors, which is sometimes the most difficult aspect of collecting on a debt.  They are even creating fake Facebook profiles and friending their targets in order to monitor their activities and location.  Many people are not aware of how much information they make available on social media.

One of the most common strategies for collection agencies and collection lawyers is to watch for inconsistencies when a debtor has claimed they lack the funds to pay their debt and yet posts in public about spending money on shopping, vacations, or other big-ticket purchases.  When they catch someone in this sort of lies, a lawsuit is almost certain to follow – and they already have the evidence they need.

The Rules Still Apply

However, there are limits to what collection agencies can do on social media.  For example, they are not allowed to harass debtors or publicly post their debts or demands that they pay their debts.  Most of the rules that apply to phone interaction also apply to social media, although the laws are in dire need of updating to reflect the new social media reality.

Consumers being pursued by collection agencies can help protect themselves by being very careful about the information they offer to the public on social media.

Are Debt Buyers Ever Going to Start Buying Paper Again?

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Ever since the new policies of the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) went into action over the past few months, bringing with them a sustained focus on collection agencies and collection law firms that has yet to abate, there has been a perceived shift in the industry.  Banks and other large players in the debt field have put severe restrictions on who they will sell “paper” to, restrictions which have had the practical effect of freezing out the smaller collection agencies.  At the same time, many small firms have shown a disinterest in buying all but the most sparklingly well-documented paper for fear of running afoul of the newly watchful Federal Government.  The spate of charges and lawsuits brought by the FTC in recent months has underscored the new reality: Shady practices and robo-signed no-doc debts or contested debts will no longer fly for very long.

The market for paper has thus been in a depressed state, as in many ways, the FTC has forced the larger collection agencies who meet the $10,000,000 revenue baseline to collude against smaller agencies as a form of self-defense. They want the scrutiny to go away, and as such feel they can’t afford to be connected to smaller firms who might play fast and loose with disclosure and documentation regulations.

There are signs that smaller firms are ready to start buying paper again.  After all, the debt business in the U.S. alone is worth $12.2 billion annually.  That means, no matter how large the big players are, there is a lot of money left over for small firms to reap.  And the larger firms can’t afford to take on smaller debts that aren’t cost-effective for them to handle, traditionally the impetus to sell paper off down the food chain.

However, while most experts in the field feel certain that the small firms will begin buying paper in bulk again soon, so far there has been no overt sign that this gold rush has begun.

Is it worth making a complaint to the Consumer Financial Protection Bureau (CFPB) about collection agencies?

What Happens to Complaints About Collection Agencies?

Collection agencies worldwide do not enjoy the best of reputations.  With long-standing strategies that many debtors find offensive or unfair, and a continuous war of new regulations to outlaw behavior most people would assume was simply beyond the pale, collection attorneys and collection agencies traditionally have a lot of complaints filed against them – and that is true, with more than 15,000 such complaints filed with the Federal Trade Commission monthly.  The real question, however, is how are collection agencies handling these complaints?  The answer is: surprisingly well.

Satisfactory Conclusions

The Consumer Financial Protection Bureau (CFPB) recently released a report detailing the outcome of over 5,000 complaints against collection agencies, and the data is surprising.  Out of those complaints, more than 68% were “closed with explanation,” meaning that the complaint was resolved without any action needing to be taken – implying the agency was acting within the boundaries of the law.  An additional 20% were closed with “non-monetary” relief (meaning something other than a settlement – most commonly the removal of a name from a database) was awarded.  Only 2.6% of complaints resulted in a monetary settlement.

Mutual Relief

Another surprising thing is that the consumers themselves were generally satisfied with these outcomes despite bringing the complaints in the first place.  Out of all of the listed outcomes, only about 17% disputed the outcome, most commonly when the complaint was closed with explanation – in other words, without any action at all being taken.

It’s good to note, however, that registration with the CFPB is voluntary, and many collection agencies have not signed up and have no intention of signing up.  It’s also worth noting that the balance of the 15,000 monthly complaints that were not included in this report were likely scams and illegal collection attempts and one can assume the outcomes there were not satisfactory for consumers.  Still, for legitimate and law-abiding collection agencies and collection attorneys, it would seem customer service is more of a priority than in the past.

Are collection agencies allowed to use my social media accounts in their collection efforts?

Just What Is Debt Buying Anyway?

Despite the fact that credit and debt are everywhere in our lives, forming some of the basic foundations of modern life – we simply could not exist in modern society without some forms of credit – many people do not understand debt buying.  But if you hold debts of any kind, you should be aware of what debt buying is and how the process could potentially affect you.

Debt buying is a process where a company purchases debts from another.  For example, say you owe a credit card company one thousand dollars.  The credit card company sells that debt to collection agencies or another entity, and the agency now own your debt.  You no longer owe the money to the credit card company, but to the agency.  Typically, creditors sell debts at a steep discount because they have been unable to collect on the debt and would prefer to get something rather than nothing.  On the other hand, companies purchase these debts because they will attempt to collect on thousands at a time – with the steep discount on the cost of the debt; even if only a small number of debts are cleared, they make a profit.

Debt Buying and You

You still owe the full amount when your debt is sold, even if you are unaware of the sale.  If attempts to collect on the debt are made by a new owner, there a few things every consumer should know:

• Check the details.  Collection agencies often launch thousands of collection attempts on purchased debt simultaneously, and numerous mistakes in paperwork – including an inability to prove ownership of the debt with origination paperwork – are common.  Often lawsuits concerning the debt can be stopped simply by pointing out paperwork errors.

• Always consult an attorney.  A lawsuit to collect on a debt, whether by the original creditor or a debt buyer, is still a lawsuit and you should behave accordingly.

Always remember: Debt buying changes the players in a debt situation, but not the rules.

FTC: When It Comes to the TCPA and FDCPA, Everything Counts

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For an industry that relies so heavily on communication devices to reach their targets, debt collectors have been carefully watching how the Federal Trade Commission interprets and enforces laws relating to their business for decades.  Collection agencies and collection attorneys have been paying particular attention to the Federal Debt Collections Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA) because the language of both acts – the first written in 1977 and the latter amendment created in 1991 – predate many modern technologies, especially text messaging and ringless voicemail.

The FTC has no rulemaking authority, but frequently uses its enforcement authority to telegraph how it plans to interpret rules and regulations going forward.  Recently, the FTC brought the first case against a collection firm based in Glendale, California that involved the sending of text messages and found that the firm had violated the clear disclosure rule of the FDCPA when it used text messages that made no reference to debt and did not obtain prior permission from the consumer.  The company in question agreed to a $1 million settlement and to accept guidelines for future collection attempts.

The ruling was enlightening because the FTC chose its words very carefully to state that it does not matter where the transmission was targeted (i.e., a land-line phone or device).  In fact, the FTC underlined the issue in a post to its web site, writing ‘Regardless of the means you choose — mail, phone, text, or something else — the law applies across the board.’

Thus, the FTC’s policy going forward is relatively clear: There will be no tolerance for “loopholes” regarding text messages or so-called “ringless voicemail” messages that bypass a mobile phone’s ringer and allow direct recording to voicemail.  The FTC clearly intends to regard any communication without clear and prominent disclosure as a violation of the FDCPA and/or the TCPA.