Should the ARM Industry Follow Banks’ Lead in Fighting Back Against Increased Regulation?

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Dave Camp, a Republican Michigan lawmaker who was elected to Congress in 2012, received a great deal of support from banks during the 2012 elections.  However, the chair of the House Ways And Means Committee has recently turned his back on his supporters and proposed a bank tax to be collected from U.S. banks. Rep. Dave Camp’s proposal would increase taxes on banks in such a way that would threaten the bottom line of major equity players, causing his high finance donors to balk at the proposal.   

In a 2010 speech before the Tax Council, Camp stated, "I aim to launch and fight the tax reform battle once again.  And I am well aware that this might ruffle those who have used the tax code to benefit particular industries or activities at the expense of economic efficiency, simplicity, and fairness."  With their feathers truly “ruffled,” Bank of America, Citigroup, Goldman Sachs, J.P. Morgan and other banks have joined forces to lobby against the tax burden that would directly affect the banking industry. 

For example, the Wall Street Journal recently reported that Goldman Sachs refused to attend a fundraiser held in March for the National Republican Congressional Committee due to Rep. Camp’s tax proposal.  After being pressured by banks to publicly denounce the tax plan, 54 Republican lawmakers signed a letter to Rep. Camp expressing their concerns about the tax.   

The concerted effort to join forces and fight increasing taxation and regulation that could harm the industry’s bottom line is something ARM insiders should take notice of.  As can be seen in the case of banks, if the ARM industry makes a concerted effort to protest regulation—including pressuring lawmakers and withholding political contributions—would it see the same success?  The question is: how much will the industry suffer before we begin fighting back? 

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.  

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.

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.   

Are Consumers Buying Again And Will This Lead To Increased Sales And Thus Increased Collections?

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The economy has slowly been getting better and with the better news from Wall Street regarding unemployment and consumer confidence, it makes sense to say that people are buying again.  The good news for businesses is that the increased number of purchases means more capital coming in, but it usually means that collections efforts will have to increase as well.

People Being A Bit More Careful

Though the purchases are starting to increase they are nowhere near the levels they were before the 2008 collapse.  That is not all good news as a lot of them feel that they need to exercise more care because their salaries have gone down.  In other words a lot of them may face the same problems making the payments that they had in the past, but now they will do so because they have less money to spend.  Do not think of the extra care people are taking as proof that collection efforts will not be needed as much.

Sales And Collections

There is a correlation between the increase in sales and the increase of collection efforts.  That is because the math cannot be denied.  The more sales that you have the bigger the chance that some will default in their payments; it is simply a matter of averages.  That does not mean that you do not want more sales, it only means that a percentage of those additional sales will eventually default, not that every additional customer will. 

Business Owners Should Be Ready

If there is a project that is expected to increase the amount of sales or accounts that your company will see then it is a good idea to be ready for some collections to take place.  You will notice that defaults can start taking place after the first payment for the account all the way until the end of the contract or payment plan.  The collections strategies will be different depending on the account and the amount of default so be ready for all of them.

Foreclosures Have Been Ruled By FDCPA As Debt Collection

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It is common knowledge that the housing market took a large turn for the worse over the past few years.  More and more foreclosures have put homeowners out of their home and placed banks scrambling to sell houses they thought were already sold. 

Recently, the Sixth Circuit U.S. Court of Appeals passed a judgment that made foreclosures on mortgages an act of ‘debt collection.’ This was done under the Fair Debt Collection Practices Act and it reversed a decision made by the lower courts. 

This decision basically states that third parties that are working through the foreclosure process need to abide by the FDCPA laws and regulations.  The decision was made in response to Glazer V. Chase Home Finance, LLC.  Glazer inherited a home only to discover there was still an active mortgage that Chase held.  Six payments were missed and  a law firm was contacted to start the foreclosure proceedings. 

The mortgage wasn’t owned by Chase, nor did it originate there.  Fannie Mae was the mortgage owner and Chase was assigned to service the originator.  This made the entire process more complicated for Glazer to find details of the proceedings out and made it difficult to settle the problem. 

Glazer sought a lawsuit for FDCPA damages but an Ohio judge sided with Chase and their lawyers instead and dismissed the case entirely.  The panel stated Chase wasn’t a debt collector; however the lawyers working to collect on the lien were considered debt collectors and expected to follow the guidelines of FDCPA.

This means that there are a set of regulations and guidelines mortgage collectors will be expected to follow.  Likewise debtors will also be expected to follow the laws and regulations.  With this kind of formalities imposed on the system there is expected to be smoother transitions and hopefully less homeowners put out of their home.  

Using Technology to Increase Efficiency in the Collections Industry

The collections industry has come a long way in its technological prowess, making the process of collecting unpaid debts easier across the board, despite tough economic times.  With a wide scope of technological platforms and software available, your collections agency can operate smarter and more efficiently, allowing your staff to prioritize and plan their strategies better. 

Many software platforms offer unlimited configuration capabilities and an intuitive user interface. For example, there are platforms which provide each user with a personalized view of the system, depending on their role in your company.  This means that software can be customized depending on who is viewing the screen: Reps and Agents, Supervisors and Manager, Executives and Accountants, Creditors and Debtors, Analysts and System Administrators.  This allows you to organize your collections operations in a hierarchy of groups, collectors, supervisors and external users to define automatic case assignment decision rules.

As additional components, with many software platforms created specifically for the collections industry, you can:

·         Assign collection tasks among different collector groups, agents and back-office support groups.

·   Include creditors and debtors for approval of payment arrangements, deduction or settlement authorizations.

·    Automate case assignment rules among different collection groups and task assignment rules for support groups.

·         Establish special rules and conditions for collecting cases based on each client contract.

·         Trigger alerts according to collections performance, activity or inactivity.

·         Know the best language to contact your debtors.

·        Allow foreign language speaking agents to use the software application in their first language.

·    Assign accounts that have a preferred foreign language to a sub-group of agents that speak their language.

·        Customize application alerts and messages according to user language.

·    Send communications such as letters, emails, SMS and other reminders in the debtor’s preferred language.

·       Set a schedule of automatic and suggested actions according to the case profile.

·      Trigger different collection stages based on case aging and elapsed time from placement.

·       Ensure consistency in planned follow-up actions and maintain fluid communications with debtors.

How to Avoid Burnout in the Collection Industry

Collection industry professionals are some of the most misunderstood professionals working today, prompting many within the industry to burn out before they are able to achieve success.  For any job—whether within the collections industry or not—the state of career burnout results from a combination of exhaustion (both physical and emotional) and an overall displeasure and diminished interest in the work.  It can happen to anyone in any career field but is most common in those fields that are misunderstood by the general public or carry enormous pressure, two qualities that certainly apply to the collections industry. 

So how do I avoid it?

The first step to avoiding burnout in the collections industry is to set realistic expectations for yourself and avoid the tendency to be a perfectionist.  Perfectionists tend to set goals that are too high; when the goals are inevitably not met, they blame themselves for the failure when really, very few people (if any) could have met such unreasonable goals.  When you admit that there are facets of the collections industry that are out of your control, you allow yourself to set more reasonable expectations and goals. 

The next step to avoiding burnout is to become an active part of building the business for which you work.  Many of you reading this blog are collections attorneys or professionals who are building your own collections firm, so this advice is a given, but still others reading might have been hired on as an employee without a vested interest in the success or failure of the company.  In either case, taking on an active role in building the business will do two things to help you avoid burnout: 1) It will help you look beyond the momentary struggles and see the bigger picture and 2) it will provide the incentive to look for solutions to problems instead of becoming overwhelmed by them. 

Finally, and perhaps most importantly, immerse yourself in tasks that are at various stages of completion.  Not only will this make your work more varied (thereby preventing boredom), it will allow you to celebrate small victories across a timeline of several months.  These small victories will be the impetus for renewed energy in your job and renewed focus, preventing the dreaded burnout so many in the collections industry experience.  

Speed is Necessary in Debt Collection

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Which single element of debt collection contributes the most to the success, or failure, of receiving the payments you’re owed? Pin-pointing a single “most important” element of the process is difficult, but a strong case could be made for speed. The longer a debt is outstanding, the less likely it will be paid off, it’s as simple as that. For this reason, the most effective collection firms all work on the tightest timelines possible.

Many of our competitors will tell you that collecting outstanding debts takes a long time, and successful collections tend to occur at the end of an extended period of harassment and provocation. This is nonsense. With the right, respectful, and fully legal tactics, favorable debt collection will often occur within 30 days of handing your accounts over to a qualified collection firm. A truly qualified collection firm will be able to achieve fast results using the right combination of intelligently worded letters and non-harassing phone calls.

Cases that aren’t resolved by about a month’s worth of letters and phone calls aren’t going to be resolved by a year’s worth of letters and phone calls. For these accounts a different tactic is required- the threat, and eventual procedure, of legal action. If a debtor will only respond to legal action then there’s no reason to wait to levy this ace-in-the-hole. The explicit threat of legal action is often enough to elicit payment from stubborn problem debtors. For those debtors who still refuse to pay, court action is all but guaranteed to result in a ruling in your lender’s favor.

It doesn’t take a whole lot of time to determine whether a debtor will respond to conventional tactics or whether tougher measures are required. Once this determination is made, waiting around to proceed with those tougher measures will simply delay the receipt of your payments. 

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. 

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 the Old Debt Collection Letter Doesn’t Work Anymore

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Decades ago all a debt collector had to do was send along a letter to their prospect, letting that prospect know what they owed and when they owed it by, and that letter would generally do the trick. These days, the debt collection letter just doesn’t work anymore. Not only are you unlikely to receive any money back from any debt collection letter you send out, but there’s a low chance your prospect will ever even read your message. There are a couple of big reasons for this change.

First, you are less likely to have an accurate address where your prospect can be reached. People move around a whole lot more these days than ever before, and as a result it’s likely your prospect no longer lives at the address you would send your letter to in the first place. 

Second, even if your letter is received by your prospect there’s a good chance they will just ignore it, or even shred it. It’s easy to blame this on apathy or discourtesy, but it’s more likely due to the fact people just receive so many messages every day they’ve grown used to simply ignoring what doesn’t interest them. Tack on the fact most people don’t want to respond to a collection letter and you have a recipe for never being read, no matter how many letters you send.

Finally, people just don’t take collection letters very seriously these days. They know that a letter is just a letter, and they are accustomed to receiving more serious forms of pressure from debt collectors, such as phone calls, emails and other more forceful forms of communication. In the big picture, a collection letter is inconsequential to today’s prospect.  

Debt Collection and Social Media

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No one can dispute that the economy is heavily reliant on the debt collection industry. The economy won’t be in the pink if many businesses won’t hinge on the repayment of credit to pay for facilities, salaries, taxes, and other expenses. That’s why when times get harder, debt collectors become more aggressive in pursuing debtors. These days, creditors and collectors turn to the new means of reaching debtors—through Social Media. 

What really is Social Media?

As Wikipedia puts it, “Social Media refers to the use of web-based and mobile technologies to turn communication into an interactive dialogue.” Social networking sites such as Facebook, Twitter and LinkedIn commonly identify Social Media. However, other forms such as blogs, podcasts, pictures, videos, and social bookmarking also fall under the broad umbrella of Social Media.  

According to a report by Pew Internet & American Life Project, 65% of adult users are into social networking sites. Because of the high penetration rate, the drive of falling back on social media is too intense to ignore. 

But what can debt collectors really do in social media?

There are actually three reasons you may consider before taking the plunge into social media: to locate, communicate, and even accept payments from consumers.  A simple search on these platforms could yield vital information such as the current location and employment details of the debtor. The use of the “Big Three” in social media such as Facebook, Twitter and LinkedIn depends on the type of debt. Facebook appeals more to the younger segment, while LinkedIn is the working class’ hangout.

Downbeat consumers

Not everyone agrees that consumers should be reached through social media. Consumers and consumer protection groups alike are wary about the increasing number of collectors who turn to social media. 

However, nothing can really stop you from using social media in your collection efforts, not even the Fair Debt Collection Practices Act which was passed in 1978. Making false statements and harassment are forbidden though. You cannot just claim to be someone else when connecting to consumers online. Just don’t cross the line.

In line with this, the Federal Trade Commission is soon to release guidelines that will tell you about the dos and don’ts when it comes to the use of social media. On the other hand, The Association of Credit and Collection Professionals has already outlined the blueprint for Modernizing Debt Collection that proposes the removal of barriers to effective communications between consumers and debt collectors. 

More than just collections

Using more tools is essential for the debt collection industry. But more than successfully collecting what businesses rightfully own, social media use can be your own way of making PR work. Quite a few times you would find a bunch of negative tweets on Twitter. Although you don’t really need to engage consumers, responding to one or two of their questions or bad comments can really make a difference. 

Reaching consumers through social media will also make communication more effective. It will allow consumers to know the accurate details about their debts and their options directly and fast. This could even help both parties reach agreements without having to go through tedious and more costly settlements.