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Summit Seeks to Find Common Ground between Collection Industry and Consumer Groups

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While there is worry that the Consumer Financial Protection Bureau’s new regulations will create problems for the collections industry, some ARM industry insiders are using the current period of Advance Notice of Proposed Rulemaking (ANPR) provided by the CFPB as an opportunity to communicate openly with consumer groups. 

Last month, an ARM publication, insideARM (affiliated with the iA Institute) hosted a Large Market Participant Summit in Washington, DC.  The summit included a panel moderated by an ARM defense attorney and in-depth discussion of what consumers want to see happen regarding the CFPB’s proposed new rules.  While many of the suggestions provided during the summit were not in sync with the ARM industry’s best interests, there were still some common goals found between consumers and collection industry insiders.    

Both sides reiterated the need for better data flow and verification of consumer debt.  Consumer advocates suggested one database that could be populated by the creditor or original lender, and accessed by downstream collectors.  However, according to Barbara Hoerner, counsel and Chief Compliance Officer at collection agency Progressive Financial Services, such a database could have negative consequences, such as data standards requirements added to ARM firm systems already struggling to handle the current ones. 

Both sides did agree, however, that a push toward better communication is important.  In such, any rule that the Consumer Financial Protection Bureau creates that serves to encourage more consistent and accurate communication would be readily accepted by both consumer advocates and ARM industry insiders.  However, the specifics of how better communication efforts would work in an increasingly digital landscape are muddy, at best.  Email communication and voice mail communication are two particularly difficult topics facing the industry, but regulators are beginning to see the value in focusing on them.  In the meantime, many in the collections industry are looking on the bright side and hoping the rulemaking period provides much-needed communication happening between both sides of the debate.  

The Big Wait for the Consumer Financial Protection Bureau’s Next Move

The Consumer Financial Protection bureau has placed the topic of debt collection at the forefront of their priorities as soon as the period of Advance Notice of Proposed Rulemaking ends.  What this means for the debt collection industry is that 2014 might become one of the most important years for the collection industry since the FDCPA was passed in 1977.

Some of the changes announced by the agency include increased regulations for debt collection practices.  These regulations could include restrictions placed on the originating creditors, as well as better accuracy on forms or documents that are shared between collection parties, debt buyers and settlement companies.  The potential also exists for updated rules on the limit and scope of communication that must transpire between a collection agency or collection attorneys and a debtor, including communication via text messaging. 

The biggest changes, according to senior CFPB officials, will likely occur for creditors that both originate -and collect on debt.  Currently, the Fair Debt Collection Practices Act only places restrictions on third-party collectors.  These changes proposed this year by the CFPB could affect first-party creditors in much the same way that the Fair Debt Collection Practices Act affects current third-party collectors.  It could also give the Consumer Financial Protection Bureau the authority to supervise larger debt collectors that are not affiliated with a bank; although banks are also under fire for their current debt collection practices, as well. 

This past July, American Banker interviewed Paul Joseph, the director of business development for McCarthy, Burgess & Wolff, a debt collection firm.  In that interview, Joseph stated: “You can't ignore this.  It's a freight train.  I have no doubt they're going to eventually come after everything [with regard to consumer debt].” If his conclusions are true, the ARM industry might be in for a rude awakening when the dust settles and the new regulations are in place.  

Is The Consumer Finance Bureau Becoming Draconian Like In Its Attempts To Audit And Control Collection Firms?

The Consumer Financial Protection Bureau is in charge of overseeing banking practices so that consumers are protected from abusive tactics.  It was created in 2010 as one of the parts of the 2010 Consumer Protection Act, and while most people will agree that the consumer must be protected against abuses it needs to be asked if the bureau is actually overreaching in an attempt to audit collection agencies.

Last January 2013, CFPB declared that any party with greater than $10 million in annual revenue from consumer debt collection activities will be subject to the Bureau's audit. The 3 major categories of debt collection included under the rule are:  (1) firms that buy defaulted debt and collect the proceeds for themselves; (2) firms that charge fees for collecting defaulted debt owned by another company; and (3) debt collection attorneys that collect through litigation.  This is the first time that the federal government will supervise collection attorneys.  Because of this, the CFPB will start overseeing about 175 debt collection agencies, representing more than half of the debt collection industry's annual receipts.

Why Collection Firms Are Targeted

Collection agencies and firms seem to be targeted a lot more because it is up to consumers to complain about practices.  Since no one likes to be called about a payment (even when they know they owe the money), it is more likely that they will complain to the Consumer Financial Protection Bureau.  That means that the more complaints, even when they are not justified, make it more likely that a firm will be paid closer attention to.

Is It Fair?

While there are some collection agencies which have made mistakes and in some cases even overstep the things they can and cannot do, most firms are responsible in their practices.  Collection firm owners and workers will be happy to see an abusive firm go off the market, but unfortunately a lot of the good players in the industry are also suffering the consequences.  Some will be happy to make the industry look bad which means the firms have to pay a fine plus legal fees even when the complaint seems to be a little unjustified.

What Firms Can Do

The one thing that the best firms have been doing is to ensure that their personnel have the latest in training so that they can stay updated with the latest changes in the industry.  The bureau can propose changes in the laws at any time and if adopted the firm must comply from day one.  

What is the creditor's role in the collection process?

What are some of the best methods to get clients to get clients to pay on balances?

Top Three Things To Remember When Collecting Overdue Accounts

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An experienced collection attorney will tell you that to successfully collect from tardy customers requires time, effort and skill in negotiation.  It is a dynamic that must be practiced to be perfected and it requires both firmness and understanding.  The following tips can help you collect debts successfully. 

Negotiation Is Key

To be able to collect debts, a thorough understanding of how negotiation works is necessary.  Negotiation is a process between the debtor and the creditor, and as a debt collector, you have to understand all of the processes involved to be able to recover debt.  This includes understanding how the credit approval process, billing and payments work.  Without a good understanding of all of the steps leading to the debt that you are trying to recover, then you are not in a good position to collect. 

Avoid Persecuting

A debt collector must also understand that no one wants to feel like they are being persecuted, even though they are responsible for the debt.  Offering a solution to the debtor’s problem that can be viewed as a win for both parties will allow you more ease in reaching an agreement.  To do this, you must be clear on what the creditor will accept in terms of payment, and you must be firm with the debtor to ensure that you get at least that amount for the creditor.

Be Confident

It is important for a debt collector to be confident when trying to reach an agreement with a customer, but the debt collector must also be willing to listen.  Patiently listening to what the debtor has to say will go a long way in helping you to reach an agreement.  If you interrupt a customer or make it clear that you are unwilling to hear what the customer is saying, you are almost guaranteed failure.  After listening to the customer, then you must be confident yet polite when offering a solution.  For help collecting on unpaid debts, contact Ross Gelfand at www.collectionfirm.net

Debt Recovery Tips For Better Collections

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When you have an account of a customer or client that has not been paid in some time, you may have to become proactive in the recovery of this debt.  You can either try to collect it yourself or you can hire a collection agency to do the job for you. 

Make Communication Easy

One of the things any debt collector must keep in mind is the importance of communication.  Closing all avenues of communication will have detrimental effects on any future business between yourself, if you are the collector, or your client, if you are a hired collection attorney.  You want to try to avoid that situation, especially if the debtor has been a good customer in the past.  Most problems can reach a mutually beneficial conclusion if both sides communicate.  At the same time it is imperative that the debt be paid.  Respectful but firm reminders are the best way to make your point that the account needs to be paid.

Stay Organized

As a collection lawyer, you need to be organized.  Have the debtor’s file in front of you when you make that reminder phone call.  When you call, make a note of the date and time you place the call.  Also, write down whether your call was answered in person or by the answering machine.  If a person answered, write down who this person was.  It is also helpful if you make little notes about the content of the conversation.

Calls Must Be Respectful

The call to the debtor should not contain any objectionable language.  It should be firm but polite and without any harassment in tone or content.  No matter how frustrated you are, you have to stay within the guidelines of the law.  If the debtor seems to be stalling and after a preset amount of time there is no attempt to pay, you may have to go to the next step and involve the judicial system to recover the money owed to you. 

Key Ways To Deal With Collections, Receivables and Credit

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A well-managed accounts receivable can be one of the biggest assets to a company.  It can give them the opportunity to leverage cash quickly and efficiently when records are well-kept and when working capital is needed.  For a long time this department was viewed as a basic necessity.  Recently, companies are beginning to look at it in a much different light.  It is becoming widely accepted that the better managed accounts receivable the better financial opportunities a company will have. 

Though a company may deal with either consumers or commercial companies, and therefore either many small invoice balances versus a few large invoice balances, the fundamentals of each are the same.

The Three Steps Of Accounts Receivables Are:

• Process of Remittance- methods of payment or an automatic process will be set up. 
• Management of Credit- This will include informing client of policies, checking credit and getting approval as well as maintenance of credit. 
• Collecting- This step can include technology, different techniques as well as ways to motivate or monitor both external and internal agents. 

It’s important that you don’t underestimate the role that great customer service plays in any of the above processes.  Having a good relationship with the client throughout can help to speed the process up.  It’s a good idea to incorporate a customer focused approach into each of the above steps for accounts receivable. 

Not so long ago there wasn't much done on credit, so accounts receivable wasn't as essential as it is to today’s companies.  These days, however marks a difference in how we view cash flow.  A healthy portfolio of companies that have credit lines means the company has the opportunity to collect and increase their cash flow.  Likewise, companies expect to be able to purchase on a credit line and pay as needed so this creates a new way of looking at cash flow.  

Why do Collection Law Firms Outperform Collection Agencies?

To ask the question ‘What has a better outcome- a collection agency or a collection law firm?’ is the same as asking ‘What is better, a diner or a 5 star restaurant?’.  Both offer food, however one obviously excels over the other.  In this case, it just so happens to be the collection law firm that excels.

One of the main reasons why a collection law firm out performs a collections agency is based on the fact that collection law firms have much more legal rights.  An agency cannot perform nearly as many duties as a law firm.  

A collection agency is merely an agency.  They can make phone calls and write letters.  That is basically the extent of their legal boundaries.  If the debtor doesn’t pay, there aren’t any real consequences coming from the agency.  This is where the law firm and agency differ.  A collection law firm is able to all of the same things as an agency; however they can also file suits.  Debtors are typically much speedier in payments if they know a credit hurting suit can be filed against them.  

Also, in the long run, a collection agency can potentially cost you more money.   When a collection agency is not able to collect, which is often, they have to then turn the case over to an attorney who can file a suit.   This leads to more money being paid out by the one who is seeking a collection.  The most efficient thing to do is to just cut out the middle man (the agency) and hire the attorney in the beginning.  

It’s also important to consider the types of people that will be taking your case.  With a collection firm you are guaranteed to have educated, motivated individuals who will be able to know the full realm of your claim. A collections agency cannot grant the same expert treatment that you will receive from a collections attorney. 

With that being said, it really does depend on the size of the debt that is being collected.  While law firms stand strong on their legal ground, collection agencies have call centers, and technological features, that simply cannot be matched by a law firm.  

Agent or Attorney- Who Gets You More Money?

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So you have some debtors who refuse to pay up, huh? You’ve tried everything in your power to get them to take responsibility for their debts, but they are either unresponsive or they simply refuse to pay you a single cent of the loan they owe you. It’s become clear that if you want to restore cash flow from this debtor’s account, you will need to take decisive action and hire a collection professional to settle the matter for you.

But who should you hire- a collection agent, or an attorney?

For most people, the choice between an agent and an attorney revolves around which professional will get them more money from their debtors. And in just about every case, hiring an attorney is the more profitable choice to make.

Debtors love to ignore collection agents. Debtors understand that collection agents don’t actually have any power in and of themselves. Agents are just normal employees who work for collection companies and have no leverage over their debtors. Even more importantly, a collection agent can’t personally take a debtor to court or levy serious action against them. Instead, a collection agent can only harass a debtor with phone calls and letters.

These days debtors are experts at dodging or otherwise ignoring these annoying attempts at communication, rendering collection agents effectively powerless. If a collection agent wants to take any sort of serious action against a debtor, they will need to contact an attorney.

Only an attorney can provide a debtor with the real pressure they need to begin repayment. If your collection agency needs to hire an attorney to enforce their actions, then why not skip the middle-man and simply hire an attorney from the start? Not only will you save money, but communication from an attorney bears the weight you need to actually see positive action from your debtors.