The regulatory nightmare simply gets worse for the nation’s debt collectors. That is, if they can even fall asleep to endure those bad dreams. We can’t blame them if instead of counting sheep, they lie awake worrying about complying with new regulations.
The regulatory environment has never been so adverse for the accounts receivable industry. One mistake, such as using a wrong turn of phrase in a letter or calling a cell phone listed on an application for credit, can launch a costly and time-consuming legal battle.
In this environment, it promises to get worse. When a centralized cell phone directory listing isn’t available to collectors, how can they reliably determine if a phone number is a cell phone?
The Consumer Financial Protection Bureau proposed in February that it will supervise the large collectors - those that net more than $10 million annually in collections (see story). Meanwhile, the Federal Trade Commission (FTC) is policing smaller operations they consider to be “rogues.”
In addition, last year some fresh requirements that collectors must follow went into effect. It’s the consumer-protection laws within the federal Dodd-Frank Act that initiated this latest regulatory push. A 20% rise in 2011 in consumer complaints against collectors that followed a 17% jump in 2010 hasn’t helped matters.
So, while lawmakers and consumers complain about them, collectors must overcome a growing number of obstacles just to harvest a debt.
Technology To The Rescue
Fortunately, technology advances are emerging that help collectors do their job without excessive worrying about noncompliance. Consider that under the rules they must obey, collectors, among other things, must validate that they are collecting debt from the right person.
They can contact a person only between 8 a.m. and 9 p.m., they must send a written statement indicating how much money is owed within five days of first contacting a customer, and they can’t access consumers’ cell phones without their consent. That’s a growing problem, since 25% of American adults now live in homes with no traditional landlines. That percentage is more than half for younger adults.
Clear guidelines don’t even exist for contacting debtors by email or text message. Under new FTC rules on collecting a deceased person’s debt, a collector can’t use the word “debts” when trying to identify someone authorized to pay the debt. Furthermore, under the Servicemembers Civil Relief Act, collectors are prevented from collecting or getting a judgment from active military personnel who are delinquent on their debt.
Collectors sincerely desire to follow these guidelines, but it’s difficult to know a consumer’s status before establishing contact. Simply attempting to collect a debt on a bankrupt or military person can cause fines to be issued. Knowing this information ahead of time is critical.
For debt collectors, the real challenge is to identify the sources of information they can trust, gather it, load it into their systems and do that all efficiently while still collecting debt. That’s why breakthroughs in information technology are critical.
What’s needed to help collectors are new data-filtering tools that identify one of these protected statuses by searching a variety of information sources and bringing everything together in one product or service. These tools reduce regulatory risk of noncompliance, as well as streamline workflow and lower costs.
As an industry, we must do a better job of making this information available to collectors so they can do their jobs efficiently and meet the burdens placed upon them.
Why Tech Advances Are Important
Accounts receivable companies underscore the importance of these tools.
“To meet the increasing regulatory requirements on our business, we must obtain a wide variety of information about consumers,” said Mike Cushing, Executive Vice President of Business Development for Fourscore Resource Capital. The tech advances help his company and others avoid noncompliance, he added.
Today’s regulatory pressures aren’t a small matter. Fines against debt collection agencies are rising. In late January, the FTC levied a $2.5 million penalty against Asset Acceptance (see story), a subsidiary of Asset Acceptance Capital Corp., for making “a range of misrepresentations when trying to collect old debts.”
In March 2011, West Asset Management Inc. agreed to pay a $2.8 million civil penalty (see story) - the largest such penalty ever obtained by the FTC in a debt collection case - for what the agency considered various violations. Under the Fair Debt Collection Practices Act, collectors can be sued for damages of up to $500,000 or 1% of a debt collector’s net.
New technology products and services can help accounts receivable departments ensure compliance - and perhaps also help collectors sleep better.
David Ingram is Senior Director of Marketing at Experian.