How do I know if my ARM vendor will play by the rules?

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?

Your Options For Debt Collection

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If you have debt owed to you, you may be wondering just how you can go about getting the money.  Businesses that aren't able to collect the money owed to them can face a huge disadvantage as they may need those funds to further their business.  There are plenty of options of how to go about collecting the debt and most people will go in order, from the least aggressive to the most aggressive option. 

Do It Yourself

Many companies do not want to spend the money to hire a collection agency or collection attorney to help them get their money back.  These companies will try to send letters or call the person or company that owes money themselves.  While this can occasionally produce results, there are many cases where it will not.  When attempting to collect the money yourself does not work, it is best to turn to a professional with experience in the matter. 

Collection Agencies

The next obvious option is for your company to hire a collection agency to help you get your money back.  In some cases, this will work simply because it will be a wake-up call to the debtor or it may bring up more concerns about future credit ratings.  In addition, these collection agencies are experienced in these matters so they know the best methods to ensure you receive your money. 

Dedicated Collectors

If you have hired an experienced collection agency and are still having troubles collecting payments, there is a more robust collection program such as more letters or phone activity.  They will use their vast experience to come up with a solution that works for both your business and the debtor.  Even if the debtor is only able to pay part of the debt in these difficult cases, it may still be worth it with the current economy.  

Government Collections and What a Government Contract Can Mean for Your Collections Agency

According to ACA International’s website, the U.S. Government obtains the help of private collection agencies to collect on non-tax debts that are owed to the Federal Government.  The agencies that use PCAs for collections purposes include the U.S. Department of Education, the Department of Health and Human Services and Department of Treasury’s Bureau of Financial Management Service. 

According to the site, “in fiscal year 2010, PCAs under contract with the departments of Education, HHS and Treasury had referrals of $35.9 billion in delinquent federal debt. PCAs collected $777 million in FY 2010.” (Source: Department of Treasury Fiscal Year 2010 Report to the Congress—U.S. Government Receivables and Debt Collection Activities of Federal Agencies)

The government seeks private collections agencies and collections attorneys to assist with its debt collection and aid in establishing repayment agreements with debtors.  The government also hires private collections agencies and collections attorneys to help determine whether a debtor is deceased, disabled, bankrupt, or out of business.  In addition to the Federal Government, state governments also use private collections agencies to collect on delinquent taxes and other debts owed to the state. 

How the Internet Can Increase Your Collection Company’s Reputation and Brand Image

According to a recent Pew Research poll, there are currently 164 million adult users of the Internet in the US.  This is why having an online presence is necessary if you are a collection agency that is looking to market your services and maintain a solid reputation.  The best part about your online presence is that it is a simple, inexpensive way to not only control your image and your brand image—it is also the best tool you can offer to allow your company the room it needs to grow and thrive, even in tough economic times. 

Content marketing

Marketing through your website’s content is an easy, inexpensive way to get the word out about your business.  While a lot of businesses worry that this will take too much manpower, it really is as simple as writing about the topics in which you are an expert.  Is there a question that your clients typically have about the debt collection process?  Write out a 300-400 word response to that question and put it in the form of a blog entry on your website.  This not only establishes you as an expert in your field, but also makes it easier for search engines such as Google to find your website when someone types that particular question into their search engine. 

Get involved in Social Media

LinkedIn, Facebook and Twitter all offer easy, free applications to increase your company’s reputation and brand image.  These social media portals provide you with the opportunity to participate in group discussions and announce any special achievements that your company has won or attained.  Facebook and Twitter are also good places to announce when you have a new blog topic that has been posted, and will link your social media “friends” to the blog within your website.  This not only increases your website traffic (which helps you reach better visibility on the Internet)—it establishes your site as a professional link that helps potential clients build trust in your services and abilities.  

Are Government Contracts the Next Big Wave for Collection Agencies and Attorneys

When the economy faces uncertain times, government contracts can prove to be a lucrative and steady income for your collections business.  Beyond the increased business and stable pipeline of income, one of the biggest pros to securing a government contract is that you can be assured of prompt payment—often in as little as 15 days. 

Some of the cases for which both local and state governmental agencies hire outside collections firms include motor vehicle violations, parking violations, and court-mandated alimony.  On a federal level, student loans are becoming a hot commodity for collections as many people are defaulting on them, and can prove to be extremely lucrative for any collection agency that manages to secure the contract. 

The best way to apply for a government contract if you are a collection agency is to look on the Federal Business Opportunities website.  In order to do this, you will need your firm’s North American Industry Classification System (NAICS)code—this can be acquired from your accountant or you can find it through a search of the U.S. Census Bureau’s website. 

The process to apply for a government contract isn’t an easy one, however, and many small businesses fail to secure one simply because they don’t spend the time and effort required to make sure they are familiar with the process and have the funds needed to start.  Experts estimate that obtaining a government contract for your collection agency will cost approximately $3,500 and take approximately eight months to achieve.  And this is only if you follow the rules carefully and pay due diligence to deadlines and certification requirements in order to get priority bidding status for your collections firm. 

Many Chambers of Commerce and Small Business Association chapters offer workshops and informational sessions to help small businesses cover their bases in obtaining a government contract.  Use these resources that are available to you, or you can hire a private consultant who will guide you through the process.

Using Asset and Bank Account Locators Effectively

The new “hot topic” in the collections industry right now is dormant collections, and debt collectors and collection agencies across the nation have begun to focus on dormant collections accounts as a valid revenue source.  However, this “hot topic” is also a topic that is fraught with concerns over regulation and litigation, and collectors should approach it cautiously, being sure to remain in compliance with Federal regulations at all times.  With careful research and properly managed dormant collection accounts, these potential revenue sources can help a collection firm offset the costs of litigation and resources needed for asset searches.

 

When beginning a dormant collection, a collection agency or collection law firm should first validate the judgment.  Often, this is easier said than done.  In many cases, the balances shown on the court documents are incorrect, the information doesn’t line up, or there are other issues that might cause compliance issues if not thoroughly validated.

 

After complete and thorough validation of the debt and the debtor’s responsibility to pay it, the firm should then find a solid source for asset location.  It’s important to remember in this step that accuracy rates for even the best asset locator sources are rarely more than 20% and often closer to 5%.  This inaccurate information can end up costing the creditor or collection holder even more valuable time and money.

 

Collections firms who specialize in dormant judgment validation and collection will often have the resources to perform skip tracing and asset location without hiring a third-party firm.  However, these searches take considerable time and money, two resources that many collections firms have little of.  Once a dormant judgment is established, validated and located, the collection firm can then use tactics such as wage garnishments to ensure that the collection will be processed and time and money are well spent.  

Are collection agencies beginning to focus more on dormant judgments? How are they doing it?

The Importance of Varied Collection Tactics

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It isn’t enough to simply hire a collection agency that doesn’t use underhanded tactics to attempt to pressure debtors into paying- you need to hire a firm that utilizes a variety of different tactics to increase the chances of acquiring the money owed to you. Tactical variety is important for a number of different reasons.

First, it can be more difficult for a debtor to lodge a legal complaint against a collection agency that uses a variety of low-pressure tactics than a collection agency that hammers them repeatedly with the same tactic. For example, a collection agency that calls their debtors multiple times a day is a much clearer candidate than a collection agency that occasionally calls, occasionally sends a letter, and occasionally makes a personal appearance.

If an agent repeatedly calls a debtor and that debtor never picks up the phone or calls the agent back, it’s clear the phone doesn’t offer a viable form of communication. As such, any agent who persists in calling proves they are simply attempting to pressure their debtors and isn’t attempting to discover a legitimate communication channel with them.

On the other hand, an agent who uses multiple communication channels is more clearly searching for a way to speak with their debtor about their outstanding account. As long as an agent uses a varied set of collection tactics within the bounds of the law, they inhabit a far more legally defensible position.

Varied collection tactics are also more effective than a single tactic, used repeatedly, because varied tactics are more difficult to defend against. A debtor who solely receives repeated phone calls from a collection agent needs to do nothing more than ignore those calls to wall themselves off from taking responsibility for their debts. An agent who uses multiple tactics has a considerably greater chance of getting through their debtor’s defenses and actually making contact. 

Even More Reasons to Work with a Responsible Collection Firm

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There are plenty of reasons why choosing to work with a responsible collection firm is a wise decision. Not only are responsible collection tactics less distasteful than the “thug tactics” employed by many collection agencies, but relatively respectful collection tactics are more likely to produce favorable outcomes with your debtors as well. There’s a third, even more important and even more practical reason to choose a collection agency that does NOT utilize inappropriate tactics- there are laws against the most common debt collection harassment tactics.

At a very base level a collection professional needs to be polite and respectful to the debtors they speak with. Collection agents aren’t allowed to bully or otherwise act in an excessively rude manner to the debtors on their lists. While a collection professional isn’t likely to be reported if they speak in a manner a debtor considers “rude” or “disrespectful,”such a manner will hurt your case if your debtor’s account goes to court.

One of the most common forms of harassing behavior utilized by debt collectors is a continuous string of phone calls at inappropriate times. Now, there’s nothing wrong, illegal or immoral about calling a debtor about the money they owe. But legally speaking a collection agent can only make these calls during a range of hours that have been clearly defined according to state and federal law. The laws dictating when a collection agency can call a debtor differ from state to state, and if an agent repeatedly makes calls during prohibited hours they can be sued for harassment.

Harassing behavior does more than simply lower the chances you will collect from your debtors- it gives your debtors legal ammunition to use against you. 

Why Consumer Debt is the Biggest Threat to Your Business

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If you’re a business owner then you likely feel besieged at all times, from all sides, by threats to the organization you’ve crafted and cared for. None of these threats should be discounted, yet some of these threats are more dangerous than others. It’s natural to feel your direct competition, or changing technology, is the biggest threat to your business. But ultimately the biggest threat to your business is consumer debt.

Consumer debt threatens your business in a variety of ways. From a “big picture” viewpoint consumer debt threatens your business because it threatens the larger economy which you operate within. High levels of consumer debt lead to unstable economic conditions, which lead to conservative policies within banks, the same banks whose loans you rely on to expand your business.

Taking the scale of the discussion down a notch, consumer debt is also dangerous to your business because large-scale consumer debt can reduce consumer purchases of goods and services, including your own. After consumers reach a certain level of debt they simply stop buying non-essentials, and this is especially true during hard economic times where lots of people are either out of work or have had to take on pay cuts.

But on a more 1-to-1 level, consumer debt is an incredible threat to your business if you allow your consumers to open up lines of credit with your company. It might sound like a good idea to open up lines of credit with your customers, doing so provides you with both the initial sale and the miracle of compound interest, but what happens when your customers stop paying that debt? What happens when they default on the debt they accrued with your organization?