How Smaller Firms Are Not Exempt From the CFPB’s New Rules

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While the bulk of the new rules enacted by the Consumer Financial Protection Bureau (CFPB) are aimed at the bigger banks and servicers of consumer loans, small banks will also experience some changes.  The January 10, 2014 deadline for these rules to go into effect has already passed, meaning that all firms (including the small, community banks) must now comply with the new regulations with new procedures or face heavy fines. 

Since the smaller banks and lending firms are often unprepared for this level of in-house scrutiny and regulatory compliance measures, many will look to third-party vendors for solutions to handling the increased workload of ensuring all transactions are compliant.  According to the CFPB’s new rules, these smaller firms will be responsible for the actions of their third-party vendors—including all debt collection practices—making their financial interest in maintaining compliance even more significant. 

Since the CFPB has made it clear that all servicers, whether large or small, are expected to uphold the new regulations or suffer penalty, no firm will be given special consideration unless it services 5,000 or fewer mortgages as of the first of each year.  However, even in this special circumstance, the smaller firm must originate and own the loans.  If it services loans that are originated or owned elsewhere, the exemption does not apply, even if that total number of loans falls beneath the 5,000 cut-off amount. 

There are loss mitigation requirements that are also required of the small servicers.  A notice of foreclosure or filing of foreclosure cannot be processed until the borrower has reached 120 days of delinquency on his or her loan.  Additionally, the foreclosure cannot be continued and the sale cannot be conducted if a borrower is following specific actions stated within the loss mitigation agreement.  

Fewer Lawsuits Mean Better Days Ahead: FDCPA Lawsuits Filed Against Collectors Down 10% in 2013

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If the mutual goal of both consumers and debt collection industry insiders is better communication, there is light at the end of the tunnel for 2013’s heated exchanges between the two sides.  The numbers prove it: 2013 saw 10% fewer cases filed under the Fair Debt Collection Practices Act (FDCPA) by consumers and their attorneys against a debt collector. 

This data, compiled and released by WebRecon LLC, shows a decline in lawsuits that has been happening for two years straight and is showing every sign of continuing this trajectory.  Specifically, 10,320 FDCPA lawsuits were present on federal district courts dockets in 2013, which is a 10.2% decline from 2012’s numbers.  2012’s numbers showed a 6.8% decline from 2011. 

Lawsuits filed by consumers against debt collectors, collections attorneys, and ARM companies saw a rapid rise in 2005 and peaked in 2011, following the brutal economic aftermath of the 2008 world financial crisis.  Fewer lawsuits claiming FDCPA violations means the industry is stabilizing and finding its footing on a path to higher customer satisfaction. 

There are multiple reasons for this but much credit can be given to the willingness of both sides to negotiate best practices in the industry.  Additionally, the recent outspokenness of key players in ARM during the CFPB’s Advance Notice of Proposed Rulemaking (ANPR) shows a willingness on behalf of the debt collection industry to meet consumers halfway. 

Despite the gains being made and the decline of FDCPA lawsuits on federal court dockets, lawsuits alleging ARM violations of the Telephone Consumer Protection Act (TCPA) have risen rapidly in 2013—up almost 70% from 2012’s numbers.  However, as this statute was originally written for telemarketers, there remains open debate concerning the scope and range of this Act as it relates to debt collection industry best practices.

Three New Year’s Resolutions You Should Make If You’re in the Debt Collection Industry

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The past year has been a whirlwind of speculation and heated discussion in the debt collection industry and among collection attorneys, as federal regulators zeroed in on ways to resolve the backlash of problems created by the financial crisis of 2008.  Much of those solutions involve increased regulations in an already heavily regulated industry, as topics like accurate originating documentation for litigation and communication via digital methods became “hot button” issues across the media. 

With this in mind, here are three New Year’s resolutions you need to make now if you’re in the collections industry in any capacity. 

Resolution #1:  Stay vigilant and informed

By February 16^th, 2014, the Consumer Financial Protection Bureau will stop taking advice from consumer advocates and collection industry insiders.  At that point, they’ll determine the new rules based on the knowledge they received during the Advance Notice of Proposed Rulemaking period.  This means that there will be new rules and you will have to stay updated on them, so vigilance is more important this year than it has been in a long time. 

Resolution #2: Pay close attention to your third-party vendors

Last year, the Consumer Financial Protection Bureau made it very clear that a collection agency could be held responsible for the collection actions taken by any third-party vendor it hires.   

Resolution #3: Remember that communication is working, and will continue to work

The Consumer Financial Protection Bureau stated that out of the 5,329 debt collection complaints it added to its consumer complaints database, 5071 consumers reported a timely response from the company.  What this means is that despite the current agitation between consumer advocacy groups and debt collection insiders, opening lines of communication to improve the consumer experience works and both sides want to see it happen.  Also, almost 20 percent of the total number of complaints added to the database fell under the category of “communication tactics,” with the largest portion complaining about too-frequent calls, or calls that occurred after a cease and desist request was filed.  Honest discussion about digital communication, or methods of contact other than calling, should be (and are being) brought to the forefront of the debate.  

What are the biggest changes anticipated from the Consumer Financial Protection Bureau's proposed new rules?

Balances Rise While Third Party Debt Collection Accounts Decrease: Is This a New Trend?

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According to information released last year by the Federal Reserve Bank of New York, the percentage of American consumers with at least one account serviced by collection agencies or collection attorneys fell sharply in 2013, particularly during the third quarter.  This is despite average account balances increasing—a trend that is just now changing from the previous year and a half. 

This trend has been interpreted to mean that consumers are paying down debts with smaller balances first, leaving their accounts with higher balances to collect further interest charges.  These accounts observed in the survey include a small percentage of credit accounts, but most were accounts held by parties collecting on medical bills and utility bills. 

Also on the FRBNY report was a general outstanding household debt that showed the largest quarter-to-quarter increase since 2008.  Among these debts, balances on mortgage accounts ($56 billion), student loans ($33 billion), auto loans ($31 billion) and credit card debt ($4 billion) were among the top consumer debt balances held by Americans in 2013.

Donghoon Lee, senior research economist at the New York Fed, stated “[In the third quarter of 2013], we observed an increase of household balances across essentially all types of debt. With non-housing debt consistently increasing and the factors pushing down mortgage balances waning, it appears that households have crossed a turning point in the deleveraging cycle.”

The final numbers of Q3 in 2013 showed American household debt at $11.28 trillion, which is only 11% below its peak in 2008 of $12.68 trillion.  Other trends include:  

• Student loan balances appearing on credit reports increased $33 billion to $1.03 trillion.
• Auto loan balances increased for the 10 straight quarter, up $31 billion to $845 billion.
• Credit card balances increased $4 billion to $672 billion.
• Total mortgage debt increased to $7.9 trillion, up $56 billion.

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

What Every Business Should Know About the New CFPB Rules and How They Will Change the Debt Collection Process

The Consumer Financial Protection Bureau is broadening its reach witha recently released Advance Notice of Proposed Rulemaking meant to cover a wide spectrum of topicsconcerning debt collection and how the process of debt collection should be handled by a collection agency or collection attorney. 

According to CFPB’s Robert Cordray, “Debt collection . . . has more salience today than perhaps at any time in our country’s history … and is quickly becoming the topic that draws the most complaints of all of the consumer financial products and services covered by our consumer response team.”  Cordray continues to describe regulations adopted by the CFPB that prohibit “unfair, deceptive or abusive” acts related to collecting debt. 

Earlier in 2013, the CFPB was given oversight of any company that takes in more than $10 million in receipts related to collecting on consumer debt.  This number included approximately 175 companies that are now under the auspices of the CFPB for regulation.  It is expected that the CFPB will further expand its rules, including rules enacted upon debt owners and related to their communication with third-party debt collectors. 

In an effort to settle the questions that are still on the table related to the FDCPA and the specific debts that are subject to the authority of the CFPB, the CFPB has published the Advanced Notice of Proposed Rulemaking to give the financial services industry time to weigh in on certain issues that are still to be decided by lawmakers.  The issues include:

• Should first-party collectors be given the same set of regulations as those given to third-party collectors?
• What documentationshould be included in the transfer of debt collection to a third-party collector?
• Does the consumer have a right to know when a debt is given to a third-party collection firm?
• What should be the specific content of the FDCPA validation notices and Fair Credit Reporting Act dispute processes?
• Considering changes in technology, particularly mobile phone technology, what regulations should be placed on communications between the industry and consumers?

2014: What the Consumer Debt Collection Industry Can Expect with the New CFPB Debt Collection Rules

Get ready for it—2014 is going to change the entire credit and collection world, particularly the world of creditors in the banking and healthcare industry.  These changes are going to come in the form of new rules for credit collections expected to be released by the Consumer Financial Protection Bureau (CFPB) in the first half of the year.  In the meantime, the CFPB has released its Advanced Notice of Proposed Rulemaking (ANPR) to allow a period of time for feedback from interested parties—from consumers and creditors to collection attorneys, vendors and government officials—and fine tune the rules before they become regulations that must be followed. 

The biggest change noted so far is that these rules will affect everyone along the chain of collections, and some industries previously unaffected by the rules will now be affected.  Concerns are being raised about the care that will go into considering these new regulations and considering the impact they will have on the collections industry, as a whole.  ACA International, a trade group representing debt collectors, issued the following statement concerning this pending rulebook. “We agree that modernizing the nation’s consumer debt collection system is important so long as changes are based on common sense solutions that preserve balance between consumer protection and the ability of a creditor or debt collector to lawfully recover debts.” 

Particularly of concern to the Consumer Financial Protection Bureau are contact frequency, contact methods and claims during contact, including threats to initiate lawsuits or criminal prosecution, garnish wages, seize assets or damage a consumer’s credit rating.  The CFPB is looking to ascertain the extent of these activities, and if they are occurring, who is doing it. 

The gist of the changes is that every business will now be held liable for what it does (and doesn’t) know about Federal regulation for debt collection procedures.  A business’ reputation and future will depend on following such regulation, making it all the more important to stay updated on the changes being made in the industry.   

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.

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.

How many debt collection firms meet or exceed the FTC's $10,000,000 revenue baseline for review?

Bang for the Buck: Efficiently Training and Motivating Collectors

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Debt collection, like any other business, has a skill set.  Not everyone is born with the proper skills and mindset that make an effective collection professional and even those who do have the right mix of mental and emotional attributes still require training.  Many collection agencies – especially smaller shops – struggle with staff turnover and the sense that they waste hundreds of hours and untold amounts of money and resources training collectors who then leave the industry shortly thereafter.

Typically, this sort of turnaround can be traced right back to the training the collectors are given.  Here are some simple suggestions to reduce staff turnover and make sure you’re getting the most ‘bang for your buck’ when it comes to training and motivating your collection staff.

·              Educate.  Training can’t simply consist of handing your new hire a stack of documents to read and sending them on their way.  An effective collector has to know the laws of your area and the policies and culture of your company.  Take the time to educate them.  It will pay dividends.

·              Foster Communication.  Collections can be a competitive field, and offering rewards for volume is always a good idea.  But you can’t allow your collectors to become solo agents, cut off from each other.  Weekly meetings where communication is encouraged are essential, as your collectors can learn from each other’s successes – and failures.

·              Keep Goals Realistic.  Setting goals for your collectors is a tried-and-true motivational tool, but you have to make these goals individual and realistic.  Tailor goals to the collector’s experience, prior record, and personality.  A little stretching is good, but a goal that is absolutely unreachable doesn’t motivate, it depresses.

·              Talk to Your Collectors.  Getting them to discuss business between themselves is good for education and shared experience, but you should make sure you touch base with your staff and make them feel valued, as well as to review their load and advise them on tactics and where they may be going wrong.

A motivated staff will clear more paper; it’s a simple fact of life.

Is it legal to send debtors a text message in an effort to collect on a debt?

I run an online business and have clients from all over the world. I have one particular account that is very overdue, and my efforts to collect are not working. The client resides in Asia and the laws are confusing. What is my next step?

I am a small business owner and I have a few clients with outstanding debt. At what point should I begin the collections process with these accounts?

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.