FTC and CFPB Affecting Collections Large and Small

The recent change in focus and attitude on the part of the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) has brought an aggressive new strategy from the Federal Government against the tactics and business practices of collection agencies and related industries such as debt relief companies.  While the new rules and policies were welcomed by consumer advocates who have long complained that debt collection has been existing in a quasi-legal and certainly immoral space for some time, the new policies at first seemed to focus only on the larger firms that had revenues of $10,000,000 and up.  Many consumer advocates were unhappy with this baseline as it meant the vast majority of agencies would be excluded from review, as only 175 out of approximately 4,500 collection firms meet the revenue baseline.

However, in the months since the new rules went into effect, it’s become clear that this aggressive new policy will affect the smaller collection agencies that don’t meet the revenue baseline just as heavily.  This has been demonstrated in two ways, direct and indirect.

Directly, the FTC and CFPB have brought several complaints and suits against smaller agencies in Florida and California in recent months, seeking judgments for violations including charging fees for debt relief services and improperly withholding information from consumers.  Many of the firms targeted do not meet the revenue baseline.

Indirectly, the tightened rules and renewed focus have impacted the smaller collection shops and collection law firms by a trickle down affect. Hence, a large collection agency that is subject to the new rules will have to insure their subcontractors all meet the new stringent guidelines. Therefore, smaller collection firms are now impacted—therefore their bottom lines are being negatively affected as well.  Poorly documented or contested debts that were previously sold to smaller shops as well as larger firms are now being sold more or less solely to the largest debt firms in the country.  The result is that smaller collection agencies do not have access to a great deal of the existing collectible debt.  As a result, even without direct action from the Federal Government, the smallest debt collection shops are suffering a sizable reduction in business.

Getting The Biggest Bang For Your Buck By Using Law Firms Rather Than Agencies

It is never pleasant to have to resort to stronger measures than a friendly reminder letter in order to collect the money owed to your firm.  Of course, there are a number of ways to go about it, but the aim is to make the best out of a frustrating situation.  When you need help, choose the kind of assistance that will treat you like the valued client that you are.  In general, law firms have a better understanding of the importance of treating a client with respect.  This is a definite advantage of hiring a law firm to represent you over a collection agency.

Debtor Attention

Your dollar will also go much further with a law firm than a collection agency because an attorney or law firm representation immediately commands greater attention.  Debtors may have faced collection agencies before and totally ignored them, delaying collection for many months if not years.  Collection agencies do not have the knowledge of the law an attorney brings to the table.  They may use offensive and disrespectful measures that can give the whole industry a bad name and which will delay any recovery you may hope for.  By working with a law firm instead an agency, your recoveries should increase in an ethical manner that is respectful and legal. 

Collection And Litigation

More tangibly, hiring a law firm for debt collection is a plus because if the debtor proves to be unwilling or unable to pay what he owes you, a law firm can begin litigation immediately.  You do not have to go and hire an attorney once the collection agency has failed in its recovery efforts.  The attorney assigned to your debt collection has all the facts in front of him.  He will also be aware of the debtor’s previous subterfuges and evasive maneuvers.  This saves time and effort, which is to your benefit. 

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

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. 

Why A Collection Legal Network May Be More Effective Than Straight Collection Agencies In Collecting Your Debt

While a collection agency can be effective in recovering debt, in many cases, you will get much better results by using a collection legal network.  Collection agencies are limited to the services they can provide.  They can make phone calls daily and send letters in an attempt to recover debt, but that is the extent of their abilities.  If the debtor ignores the calls and letters and fails to make acceptable arrangements to pay the debt, the collection agency will have to hire an attorney if they want to pursue legal action to recover the debt.  This means that in the event that the debt is recovered, you will receive a lesser amount due to the legal fees that are on top of the fees paid to the collection agency for their services.

Calls and letters from a collection legal network, however, are typically more effective than those from a collection agency.  One reason for this is that debtors tend to take a call or letter from a collection legal network more seriously than those from a collection agency because they are more intimidating.  When faced with the legitimate threat of legal action, debtors tend to be more willing to make payment arrangements in a timely manner, saving you the added time and expense of litigation.

If the debtor is still unwilling or unable to settle the debt, a collection legal network can begin the litigation process on your behalf, sparing you the stress of having to deal with it yourself.  In addition, you will benefit during litigation from having the collection legal network involved throughout the entire collection process, as they can provide all of the necessary documentation to establish the previous collection attempts made.  This will make it easier to successfully make your case so that the court proceedings will go in your favor, and you will be able to recover the debt.  

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The Rewards and Pitfalls of International Collections

For a collections company looking to expand their business and horizons, international debt collections is a viable option to put your company on the track to more money and more clients.  In an increasingly global marketplace, companies are doing business with third-party contractors from other countries who might offer great prices at the beginning of a business enterprise but end up failing to pay. 

As this situation becomes more common, these companies and small businesses will be looking for collections agencies and collection attorneys who specialize in this unique form of collections.  Since few collections agencies offer international collections, your company would have a lucrative advantage in a specialized area that is too often under-represented in the United States. 

While the advantages and rewards are immediately apparent, there are several pitfalls along the path of international collections that should be considered before you branch out into this arena.  Below are some issues to further research before making the decision to accept international collections tasks from your clients. 

1. Different legal requirements—branching out into international collections means facing an entirely new set of legal requirements for collections practices, depending on the country where the debtor resides and operates.  These legal requirements can create hoops that are tricky to jump through and must be thoroughly researched before taking on a case. 
2. Foreign language ability—language obstacles present a significant hurdle to debt collections, and might require the use of translators to effectively communicate with the debtor and with the necessary legal agencies in the debtor’s country of residence and business operations.  This presents an added cost to your base operating expenses that is not always necessary in collections within the United States. 
3. Time zone differences—since you will be on a vastly different time zone than the debtor, this obstacle might present challenges for communicating with him or her.  In addition, as there are US laws regarding the times in which a collector can communicate with a debtor during the nighttime hours, these laws are also present in other countries, increasing the challenge. 

Free Marketing for Your Collections Business

There are as many marketing schemes out there for small businesses as there are small businesses.  Marketing “gurus,” marketing companies, and marketing plans will have your head spinning with ideas—but when you look into the actual Return On Investment (ROI), you might be disappointed to learn that many of the schemes that work for one company might have a completely different success rate (or lack thereof) for another.  That’s why focusing on avenues of free marketing still makes the most sense for small collections companies that are wishing to expand their business and reputation.  Below are a few of the most-used free avenues for online marketing. 

LinkedIn

Do you (or does your company) have a profile on LinkedIn?  If not, you’re missing one of the most valuable, FREE online marketing opportunities available to your collections firm.  On LinkedIn, your employees can connect with your business, which adds a human face to your company, providing something that has too often been lost—particularly within this industry. You can also connect with other businesses and prospects who will be potential customers for you down the road. 

Facebook

According to the most recent numbers available, Facebook has hit the one billion active users mark this October 2012.  “Active users” means users who visited the site within a month.  If we were looking at the website in terms of population, those numbers would put Facebook as the third most populous “country” in the world. 

There is a lot of confusion about Facebook in the online marketing world.  While on one hand, many people recognize it as a viable marketing opportunity that is both free and accessible to most people, they also realize that Facebook is used primarily as a social networking site for individuals.  While LinkedIn focuses on business to business connections, Facebook focuses on social interaction among individuals—interaction that often doesn’t include easy acceptance for business marketing.  However, when a company chooses to use Facebook as primarily a placeholder page with company information, this is still a better choice than not having a Facebook page at all. Even if you don’t have a lot of daily action taking place on your page in the form of status updates and “likes”, you are still represented on a platform that has 900 million users and your Facebook page still gives your company greater search engine visibility on the Internet.   

How Dormant Judgment Collections Will be the Next Big Arena for Collection Attorneys and Agencies

The economic struggles still facing our nation—as well as the rest of the world—have a significant impact on the collections and accounts receivables business.  As consumers are unable to find jobs to replace the ones they might have lost, and the housing market is still keeping many homeowners underwater with mortgages they can’t afford, the collections industry faces a truly formidable foe.  Not only are debtors moving more and becoming increasingly hard to locate, but the amount of money that goes into resources to locate a debtor and his/her assets is often not worth the amount of the debt they owe.

 

In order to recoup the additional operating expenses involved in tracking down and filing lawsuits against debtors, collection firms and collection agencies are looking to dormant judgments—and there are plenty of them out there.  A collections enforcement firm recently released statistics revealing that up to 80% of judgments remain unpaid every year.  These high numbers of unpaid debt, even after the debtor had been sued, has caused a serious dent in the pockets of collection attorneys and collection agencies around the country, and has prompted such tactics as skip tracing and accessing payroll databases in order to locate debtors who have changed their address, phone number, and/or place of employment.

 

When reopening a dormant collection, it is important for the agency to spend time thinking about the best chances for recovery so that no more wasted effort or money is spent toward the dormant account.  One way to do this is through the use of asset locators to determine the debtor’s vehicle and real estate assets.  If the debtor has significant assets—either in the form of real estate, vehicles, bank accounts, retirement accounts, etc.—the collection agency can then place a lien against these properties or receive court approval for wage garnishment, making collecting from a non-compliant debtor a little easier in the process.  

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.  

Medical and Student Loan Debt Sales Growing Explosively

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It’s a bit of an understatement to say the sale of student loans and medical debts are on the rise. The amount of student loans and medical debts being sold to collection agencies is surging. Why are we seeing this surge happening and what does it mean for lenders of these loans?

There are a few huge obvious reasons why student loan and medical debt sales are rising so rapidly. At a very base level, we’re buying more of these debt cases because there are simply far more people with student loans and medical debts than ever before. More people are going to colleges and universities than attended a decade ago, and we have more sick people than ever before. Not only is the Baby Boomer generation entering years of near-constant medical care and attention, but children are coming down with degenerative diseases and other illnesses at unprecedented rates. An increase in student loans and medical debts will naturally correspond with an increase in sales of those loans and debts.

Yet there are other factors at work here. Students have been taking on HUGE loan burdens over the last decade as tuition costs have spiked and financial aid has dwindled. Medical procedures are increasing in price as well, and the number of procedures, tests, and prescriptions the average individual undertakes has grown at the same time. The price of an education or of receiving medical care is greater than ever, and most people can’t afford either without taking on some level of debt.

Combined with a high unemployment rate and a less-than-stellar economy, it’s understandable why we’re seeing such a surge in student loan and medical debt sales these days. In fact, we expect this trend to escalate in the coming years. We won’t be surprised if, in five years, the majority of our cases are student loan or medical debt purchases! 

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. 

Taking Responsibility as a Collection Agency

Collection agencies don’t always have the best reputations, and often with good reason. Many collection agencies utilize a whole suite of underhanded and downright immoral tactics in their quest to receive payment on their accounts. While tenacity is certainly a good thing in the world of debt collection, there’s no need to resort to unsavory tactics in order to close a case. Any collection agency that resorts to harassing, bullying, and applying negative pressure to their debtors is simply proving their lack of expertise in this admittedly challenging field.

Most lenders would prefer to collect from their debtors without their collection representative resorting to these sorts of tactics for a couple reasons. The first of these reasons is moral in nature- most lenders don’t want to be associated with a collection agency that uses tactics they consider underhanded, manipulative or actively insulting.

Yet there is a very good reason why a collection firm shouldn’t resort to acting in such a negative manner- thug tactics rarely work. The more a collection agency attempts to “squeeze” or threaten their debtors, the more that debtor will take increasingly drastic measures to avoid their financial responsibilities. A hefty loan is distressing enough on its own for debtors. Once you add on the constant threats and acts of harassment utilized by some debt collectors you create a negative situation of truly overwhelming proportions.

Considering the fact bullying collection tactics are both distasteful and ineffective, it’s surprising so many collection agencies continue to utilize them. The reason why most agencies stubbornly persist with these tactics is simple- they don’t know any other method to try out. Most collection agencies simply don’t have the training, the experience, or the imagination necessary to figure out a more effective, and less distressing, mode of closing their cases. 

Why Legal Networks Make More Sense than Collection Agencies in This Economic Period

Collecting debt can be a nightmare for many companies, especially when dealing with debt collection agencies that just don’t really care whether or not you ever see results and just want to take your hard earned money. That’s why it is important for you to choose the right fit, so that you not only collect what is owed, but also that you do not waste too much time in retrieving your money.

 

There are two main choices when getting help in collecting owed debt. You can choose to send your accounts to a debt collection agency or you can choose to use the services of a legal network. The advantage over having a legal network on your side is that it puts more pressure on the debtor to pay up. Imagine getting mail about a debt owed from an attorney or law office. This definitely will put a sense of urgency on the debtor to pay as soon as possible, while those getting letters from just an ordinary debt collection agency may not feel that same sense of urgency to pay up right away. 

In additions to that, a legal network can handle a wide variety of collections, including contracts, insurance subrogation, commercial collections, and high technology accounts. The network would also have a retail collections department. This department would help in collecting unsecured loans from finance companies and banks, as well as auto deficiency loans and credit card debt. 

A third department is the medical collection department that will work on a variety of medical finance issues. These would definitely include contract compliance, PPO appeals and HMO reimbursements. Most of your collection problems can easily be handled by one main office. That can make life a lot easier, when you have one main contact to call for questions.

Another advantage is that a legal network can implement skip tracing methods to track down debtors. This involves tracking down those that owe you or your company money. In order to achieve success in collecting on the delinquent accounts, it is imperative that the debtor be located. Debtors may change their phone number to an unlisted one or even move and change their address. They may believe that they have left you behind with no means of contact. While that would be the end of the story with an ordinary debt collection agency, with a legal network on your team, you can rest assured that debtors’ location will be tracked down in order to collect payment. There is really only one simple choice if you want to assure a high success rate of collecting debts, and that is to choose a legal network.

How past due should be your customer before you decide to turn over to a third party collection agency and law firm?

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The first tier of collection is with first party agencies that are subsidiaries of the company itself, these are from 1 – 30 days past due. Second tier is 31- 60 days past due, this tier, it depends upon the company if they still want the first-party to continue collecting or if they will pass it on to the third-party collections agency. 

Banks, firms or credit card companies resort to third party collections once the account reaches 90 days to 180 days delinquent. Each country and state has their own rules and regulations regarding collection agencies and their practices which are quite often very aggressive.

 

Third party collection agencies, will try to trace the customer and ensure full settlement of outstanding. If the customer is unable to settle the outstanding, the collector will ensure that a settlement plan or a discount strategy – as agreed by the company and the collection agency- is offered to the customers. 

The advantage of first party collection is there is no lag in time between an account becoming delinquent and the beginning of the collections process. Another is you have knowledge of your customers needs and practices, making the client-customer relationship positive even if the later incurred a debt, which helps down the road to keep the customer loyal to the company. Third party collections can sometimes be seen as hostile, however if your clients need your product or service to keep his or her business running smoothly, they will strive to stay on your good side. Sometimes if the customer just hears a familiar voice asking nicely for a payment is enough to keep the problem solved. 

Many times the third party agency or law firm will have settlement authority from the client to settle for far less than the original balance. Now after 180 days and the account’s still in collections it is advisable to have the account transferred to third party agencies or law firms. 

Third party agency or law firm are subjected to Fair Debt Collection Practices Act of 1977 (FDCPA). This law is administered by the Federal Trade Commission (FTC), this federal law limits the hours of collection agency or law firm to call the customers and prohibits communication of the debt to a third party. It also prohibits false or misleading representation and making threats of actions the agency cannot lawfully or does not intend to take.

Why collections is an important part of your business

Managing credit and collecting money are the 2 most important and vital factors which decide the fate of any business.  If you own a business that renders services or sells a product on credit, there is a big chance that at some point you will have a delinquent customer. Account receivables should be considered an asset to your business not a liability that is holding your business back. No matter what your business is or what its size is, at some point or another debt collection will become an issue for you.  Customers who delay payments have become a common scenario these days.   Bad debt or unpaid dues is an unavoidable problem for all organizations which further lead to restricted cash flows hampering the growth of the business.

Right now, with cash tight and business slowing down, companies need to go after the bad debts as a way to raise needed cash.  They need to go after the receivables even it if means getting just something now!

Significant economic change creates opportunities for those who have it in them to deal with it. During economic downturns and worldwide recession the importance of debt collection has come to the fore as a result of the lack of liquidity in the marketplace.  It has been magnified since 2008 with the collapse of many worldwide financial institutions. Consequently, banks have either withdrawn or reduced credit facilities to business and the impact has made firms being unable to discharge their debts in a timely fashion due to the diminished circular flow of funds.  Successful cash flow management should therefore be your main priority. 

 

BAD DEBT is the one major cause for bankruptcy. In a fast changing economy, selling on credit has a number of advantages, especially when it generates a larger volume of business as well as widens one's market share. In fact, selling on credit often 'Makes' or 'Breaks' a sale and at most times gives one that edge over competition. Yet, one cannot afford to take this area of credit control lightly, as too many companies everyday are mounting with debts that are increasingly doubtful of recovery.

The volatile business conditions of recent years have created problems of cash flow and interest charges never before encountered.

Companies large and small have, in many cases for the first time, come to realize that the trade debtors or receivables, on the balance sheet represent a very substantial and expensive consumer of capital employed. They are also now beginning to accept that, in total, trade debtors represent an investment in the market -place on which the expected return is the profit to be earned only when payment has completed the sale. At the same time, like all investments, those trade debtors are subject to the risks arising from the effect of the economic climate on that market-place generally.

A company can have the best product, an excellent sales record and the most dedicated workforce, but if it does not get paid, it will die.  An unpaid debt is a loan being financed by your company - it means that many companies are prevented from achieving their full potential, because instead of using borrowed money to develop and grow their business, they borrow money just to fund their own sales ledgers.

  

REMEMBER: Cash is to business, as blood is to the body -- allow it to drain away and the body becomes weak and eventually dies.