Collections & Debt Recovery

By: Maria Moynihan Reduced budgets, quickly evolving technologies, a weakened economy and resource constraints are clearly impacting the Public Sector, but it’s not all doom and gloom. Always with new challenges, come new opportunities. Government agencies must still effectively run programs, optimize processes and find growth in revenue streams.   Below you will find the top 5 business challenges facing the Public Sector and municipal utilities today and ways to overcome them: 1.  Difficulty finding debtors When asked to name the top challenge to their debt collection processes, governments most often indicate the difficulty in locating debtors whose whereabouts don’t in fact match information they have on hand. Skip tracing with right party contact data is key to finding people or businesses for collections and there are several cost effective ways to do this - either through industry leading tools or by tapping into available sources like voter registration information. 2.  Difficulty in prioritizing debt collection efforts When resources are limited, it is critical to not only focus efforts by size, but by likelihood to make contact and access debtors with an ability to pay.  Credit and demographic data elements like income, assets, past payment behavior, and age can all be brought together to better identify areas of greater ROI over others. 3.  Lack of data available By simply incorporating third-party data and analytics into an established infrastructure, agencies can immediately gain improved insight for efficient decision making. Leverage on-hand data sources to improve understandings of individuals or businesses. 4.  Difficulty of incorporating tools to improve debt recovery Governments too often attempt to reduce backlogs by simply trying to accelerate processes that are suboptimal to start with. This is both expensive and unlikely to produce the desired result. In the case of debt collection, success is driven by the tools and processes that allow for refined monitoring, segmentation and prioritization of accounts for improved decisioning. 5.  Difficulty in determining to outsource or continue to internally collect While outsourcing to debt collection agencies is always an option, it may not be the most resourceful one, or in some cases, even necessary.  Cost to value considerations per effort need to be made by agencies and often, the most effective strategy is to perform minimal efforts internally and to outsource older or skip accounts to third party agencies. What is your agency’s biggest business challenge? See what industry experts suggest as best practices for Public Sector collections or download Experian’s guide to Maximizing Revenue Potential in the Public Sector to learn more.

All skip tracing data is the same, right? Not exactly. While there are many sources of consumer contact data available to debt collectors, the quality, freshness, depth and breadth can vary significantly. Just as importantly, what you ultimately do or don't do with the data depends on several factors such as: Whether or not the debt is worth your while to pursue How deep and fresh the data is What if no skip data is available, and, What happens if there is no new information available when you go to your skip-tracing vendor requesting new leads? So what's the best way for your company to locate debtors? What data sources are right for you? Check out my recent article in Collections and Credit Risk for some helpful advice, and be sure to check out our other debt collection industry blog posts for best practices, tips and tricks on ways to recover more debt, faster. What data sources do you find most beneficial to your business and why? Let us know by commenting below.

Six states are the top producers of turkeys: Minnesota at 46 million, North Carolina at 36 million, Arkansas at 29 million, Missouri at 17.5 million, Virginia at 17 million and Indiana at 16.5 million. This accounts for nearly two-thirds of turkeys produced in the United States as of September 2012. The average wholesale price for frozen whole turkey during fourth-quarter 2012 is projected to range from $1.10 to $1.14 per pound -- similar to the 2011 fourth-quarter average price of $1.11 per pound. The average retail price for whole frozen turkeys in September 2012 was $1.62, about 6 cents lower than the average retail price for whole frozen turkeys in September 2011. Source: National Agricultural Statistics Service (NASS), Agricultural Statistics Board and United States Department of Agriculture (USDA).

It comes as no surprise to anyone that cell phone usage continues to rise, while at the same time the usage of wire lines, or what used to be affectionately known as POTS (Plain Old Telephone Service), continues to decline. Some recent statistics, supplied by the CDC show that: 34% of all households are now wireless only 25 states have rates of primary wireless exceeding 50% Landline only households is now down to only 10.2% When you couple that with churn rates for cell phones that can exceed 40% a year, it becomes paramount to find a good source for cell numbers if you are trying to contact an existing customer or collect on an overdue bill. But where can debt collectors go to find reliable cell phone numbers? The cell phone providers won’t sell you a database, there is no such thing as 411 for cell phones, nor is it likely there will be one in the near future with the aforementioned 40%+ churn rates. Each cell phone service provider will continue to protect their customer base. There are a few large compilers of cell phone numbers; they mostly harvest these numbers from surveys and sources that capture the numbers as a part of an online service—think ringtones here! These numbers can be good, at least initially, if they came with an address which enables you to search for them. The challenge is that these numbers can grow stale relatively quickly. Companies that maintain recurring transactions with consumers have a better shot at having current cell numbers. Utilities and credit bureaus offer an opportunity to capture these self-reported numbers. At our company, over 40% of self-reported phones are cell phones. However, in most cases, you must have a defined purpose as governed by Gramm Leach Bliley (GLB) in order to access them. Of course, the defined purpose also goes hand in hand with the Telephone Consumer Protection Act (TCPA), which restricts use of automatic dialers and prohibits unsolicited calls via a cell phone. Conclusion? If you are trying to find someone’s cell number for debt collection purposes, I recommend using a resource more likely to receive updates on the owner of a cell over that of compilers who are working with one time event data. In today’s world, obtaining an accurate good cell number is a challenge and will continue to be. What cell phone number resources have been most effective for you?

By: Kyle Aiman Let’s face it, debt collectors often get a bad rap.  Sure, some of it is deserved, but the majority of the nation’s estimated 157,000 collectors strive to do their job in a way that will satisfy both their employer and the debtor.  One way to improve collector/debtor interaction is for the collector to be trained in consumer credit and counseling. In a recent article published on Collectionsandcreditrisk.com, Trevor Carone, Vice President of Portfolio and Collection Solutions at Experian, explored the concept of using credit education to help debt collectors function more like advisors instead of accusers.  If collectors gain a better understanding of consumer credit – how to read a credit report, how items may affect a credit score, how a credit score is compiled and what factors influence the score – perhaps they can offer suggestions for improvement. Will providing past-due consumers with a plan to help improve their credit increase payments?  Read the article and let us know what you think!

By: Maria Moynihan State and local governments responsible for growth may be missing out on an immediate and sizeable revenue opportunity if their data and processes for collections are not up to par. The Experian Public Sector team recently partnered with Governing Magazine to conduct a nationwide survey with state and local government professionals to better understand how their debt collections efforts are helping to address current revenue gaps. Interestingly enough, 81% stated that the economic climate has negatively impacted their collections efforts, either through reduced staff or reduced budgets, while 30% of respondents are actively looking for new technologies to aid in their debt collections processes. New technologies are always a worthwhile investment. Operational efficiencies will ultimately ensue, but those government organizations who are coupling this investment with improved data and analytics are even better positioned to optimize collections processes and benefit from growth in revenue streams. No longer does the public sector need to lag behind the private sector in debt recovery. With the total outstanding debt among the 50 states reaching an astounding size of approximately $631 billion dollars, why delay? Check out Experian's guide to improving debt collections efforts in the public sector. What is your agency doing to capitalize on revenue from overdue obligations?

By: Kyle Aiman For more than 20 years, creditors have been using scores in their lending operations.  They use risk models such as the VantageScore® credit score, FICO or others to predict what kind of risk to expect before making credit-granting decisions. Risk models like these do a great job of separating the “goods” from the “bads.” Debt recovery models are built differently-their job is to predict who is likely to pay once they have already become delinquent. While recovery models have not been around as long as risk models, recent improvements in analytics are producing great results.  In fact, the latest generation of recovery models can even predict who will pay the most. Hopefully, you are not using a risk model in your debt collection operations.  If you are, or if you are not using a model at all, here are five reasons to start using a recovery model: Increase debt recovery rates – Segmenting and prioritizing your portfolios will help increase recovery rates by allowing you to place emphasis on those accounts most likely to pay. Manage and reduce debt recovery costs – Develop treatment strategies of varying costs and apply appropriately. Do not waste time and money on uncollectible accounts. Outsource accounts to third party collection agencies – If you use outside agencies, use recovery scoring to identify accounts best suited for assignment; take the cream off the top to keep in house. Send accounts to legal – Identify accounts that would be better served using a legal strategy versus spending time and money using traditional treatments. Price accounts appropriately for sale – If you are in a position to sell accounts, recovery scoring can help you develop a pricing strategy based on expected collectibility. What recovery scoring tools are you using to optimize your company's debt collection efforts? Feel free to ask questions or share your thoughts below.   VantageScore® is a registered trademark of VantageScore Solutions, LLC.

The CFPB, the FTC and other regulatory authorities have been building up their presence in debt collections. Are you in the line of fire, or are you already prepared to effectively manage your riskiest accounts?  This year’s collections headlines show an increased need to manage account risk. Consumers have been filing suits for improper collections under the Fair Debt Collection Practices Act (FDCPA), the Servicemembers Civil Relief Act (SCRA), and the Telephone Consumer Protection Act (TCPA), to name a few. Agencies have already paid millions in fines due to increased agency scrutiny.   One collections mistake could cost thousands or even millions to your business—a cost any collector would hate to face. So, what can you do about better managing your regulatory risk?  1.       First of all, it is always important to understand and follow the collection regulations associated with your accounts. 2.       Secondly, follow the headlines and pay close attention to your regulatory authorities.  3.       Lastly, leverage data filtering tools to identify accounts in a protected status. The best solution to help you is a streamlined tool that includes filters to identify multiple types of regulatory risk in one place. At minimum, you should be able to identify the following types of risk associated with your accounts: Bankruptcy status and details Deceased indicator and dates Military indicator Cell phone type indicator Fraud indicators Litigious consumers Why wait? Start identifying and mitigating your risk as early in your collections efforts as possible. 

One of the most successful best practices for improving agency performance is the use of scorecards for assessing and rank ordering performance of agencies in competition with each other. Much like people, agencies thrive when they understand how they are evaluated, how to influence those factors that contribute to success, and the recognition and reward for top tier performance. Rather than a simple view of performance based upon a recovery rate as a percentage of total inventory, best practice suggests that performance is more accurately reflected in vintage batch liquidation and peer group comparisons to the liquidation curve. Why? In a nutshell, differences in inventory aging and the liquidation curve. Let’s explain this in greater detail. Historically, collection agencies would provide their clients with better performance reporting than their clients had available to them. Clients would know how much business was placed in aggregate, but not by specific vintage relating to the month or year of placement. Thus, when a monthly remittance was received, the client would be incapable of understanding whether this month’s recoveries were from accounts placed last month, this year, or three years ago. This made forecasting of future cash flows from recoveries difficult, in that you would have no insight into where the funds were coming from. We know that as a charged off debt ages, its future liquidation rate generally downward sloping (the exception is auto finance debt, as there is a delay between the time of charge-off and rehabilitation of the debtor, thus future flows are higher beyond the 12-24 month timeframe). How would you know how to predict future cash flows and liquidation rates without understanding the different vintages in the overall charged off population available for recovery? This lack of visibility into liquidation performance created another issue. How do you compare the performance of two different agencies without understanding the age of the inventory and how it is liquidating? An as example, let’s assume that Agency A has been handling your recovery placements for a few years, and has an inventory of $10,000,000 that spans 3+ years, of which $1,500,000 has been placed this year. We know from experience that placements from 3 years ago experienced their highest liquidation rate earlier in their lifecycle, and the remaining inventory from those early vintages are uncollectible or almost full liquidated. Agency A remits $130,000 this month, for a recovery rate of 1.3%. Agency B is a new agency just signed on this year, and has an inventory of $2,000,000 assigned to them. Agency B remits $150,000 this month, for a recovery rate of 7.5%. So, you might assume that Agency B outperformed Agency A by a whopping 6.2%. Right? Er … no. Here’s why. If we had better visibility of Agency A’s inventory, and from where their remittance of $130,000 was derived, we would have known that only a couple of small insignificant payments came from the older vintages of the $10,000,000 inventory, and that of the $130,000 remitted, over $120,000 came from current year inventory (the $1,500,000 in current year placements). Thus, when analyzed in context with a vintage batch liquidation basis, Agency A collected $120,000 against inventory placed in the current year, for a liquidation rate of 8.0%. The remaining remittance of $10,000 was derived from prior years’ inventory. So, when we compare Agency A with current year placements inventory of $1,500,000 and a recovery rate against those placements of 8.0% ($120,000) versus Agency B, with current year placements inventory of $2,000,000 and a recovery rate of 7.5% ($150,000), it’s clear that Agency A outperformed Agency B. This is why the vintage batch liquidation model is the clear-cut best practice for analysis and MI. By using a vintage batch liquidation model and analyzing performance against monthly batches, you can begin to interpret and define the liquidation curve. A liquidation curve plots monthly liquidation rates against a specific vintage, usually by month, and typically looks like this: Exhibit 1: Liquidation Curve Analysis                           Note that in Exhibit 1, the monthly liquidation rate as a percentage of the total vintage batch inventory appears on the y-axis, and the month of funds received appears on the x-axis. Thus, for each of the three vintage batches, we can track the monthly liquidation rates for each batch from its initial placement throughout the recovery lifecycle. Future monthly cash flow for each discrete vintage can be forecasted based upon past performance, and then aggregated to create a future recovery projection. The most sophisticated and up to date collections technology platforms, including Experian’s Tallyman™ and Tallyman Agency Management™ solutions provide vintage batch or laddered reporting. These reports can then be used to create scorecards for comparing and weighing performance results of competing agencies for market share competition and performance management. Scorecards As we develop an understanding of liquidation rates using the vintage batch liquidation curve example, we see the obvious opportunity to reward performance based upon targeted liquidation performance in time series from initial placement batch. Agencies have different strategies for managing client placements and balancing clients’ liquidation goals with agency profitability. The more aggressive the collections process aimed at creating cash flow, the greater the costs. Agencies understand the concept of unit yield and profitability; they seek to maximize the collection result at the lowest possible cost to create profitability. Thus, agencies will “job slope” clients’ projects to ensure that as the collectability of the placement is lower (driven by balance size, customer credit score, date of last payment, phone number availability, type of receivable, etc.) For utility companies and other credit grantors with smaller balance receivables, this presents a greater problem, as smaller balances create smaller unit yield. Job sloping involves reducing the frequency of collection efforts, employing lower cost collectors to perform some of the collection efforts, and where applicable, engaging offshore resources at lower cost to perform collection efforts. You can often see the impact of various collection strategies by comparing agency performance in monthly intervals from batch placement. Again, using a vintage batch placement analysis, we track performance of monthly batch placements assigned to competing agencies. We compare the liquidation results on these specific batches in monthly intervals, up until the receivables are recalled. Typical patterns emerge from this analysis that inform you of the collection strategy differences. Let’s look at an example of differences across agencies and how these strategy differences can have an impact on liquidation:                     As we examine the results across both the first and second 30-day phases, we are likely to find that Agency Y performed the highest of the three agencies, with the highest collection costs and its impact on profitability. Their collection effort was the most uniform over the two 30-day segments, using the dialer at 3-day intervals in the first 30-day segment, and then using a balance segmentation scheme to differentiate treatment at 2-day or 4-day intervals throughout the second 30-day phase. Their liquidation results would be the strongest in that liquidation rates would be sustained into the second 30-day interval. Agency X would likely come in third place in the first 30-day phase, due to a 14-day delay strategy followed by two outbound dialer calls at 5-day intervals. They would have a better performance in the second 30-day phase due to the tighter 4-day intervals for dialing, likely moving into second place in that phase, albeit at higher collection costs for them. Agency Z would come out of the gates in the first 30-day phase in first place, due to an aggressive daily dialing strategy, and their takeoff and early liquidation rate would seem to suggest top tier performance. However, in the second 30-day phase, their liquidation rate would fall off significantly due to the use of a less expensive IVR strategy, negating the gains from the first phase, and potentially reducing their over position over the two 30-day segments versus their peers. The point is that with a vintage batch liquidation analysis, we can isolate performance of a specific placement across multiple phases / months of collection efforts, without having that performance insight obscured by new business blended into the analysis. Had we used the more traditional current month remittance over inventory value, Agency Z might be put into a more favorable light, as each month, they collect new paper aggressively and generate strong liquidation results competitively, but then virtually stop collecting against non-responders, thus “creaming” the paper in the first phase and leaving a lot on the table. That said, how do we ensure that an Agency Z is not rewarded with market share? Using the vintage batch liquidation analysis, we develop a scorecard that weights the placement across the entire placement batch lifecycle, and summarizes points in each 30-day phase. To read Jeff's related posts on the topic of agency management, check out: Vendor auditing best practices that will help your organization succeed Agency managment, vendor scorecards, auditing and quality monitoring  

The economy is accelerating at a sluggish pace, and world headlines cause business leaders to swing between optimism and pessimism daily. Risk managers must look more closely and much more frequently at their customers' behavior to stay ahead of emerging credit problems. Some tips: Use all customer information when making decisions. Combining both internal and external data can paint a clearer picture of your customers. Identify the customer relationships that have value and should be retained. Apply resources accordingly. Implement daily triggers so you have the latest customer information around bankruptcy, repossession or loan delinquency, as well as positive information such as payments made to other financial institutions. Spend more time examining consumers who are delinquent on their home mortgage payments to determine their behavior on your portfolio. Use next-generation collections software to keep collectors up to date on account-level strategies. Download our white paper on how changes in the economy have impacted consumer credit behavior and what risk managers should analyze in order to determine portfolio strategies. Source: Experian News

The Consumer Financial Protection Bureau (CFPB) now has the ability to write and enforce 18 consumer protection laws that guide financial products and services. The new regulator has signaled the following issues as priorities: Clarity on how credit scores affect lender decisions: Beginning July 21, 2011, lenders were required to disclose the credit score that they used in all risk-based pricing notices and adverse action notices Shorter and simpler consumer disclosure forms: One of the first priorities is to make the terms and conditions associated with purchasing a mortgage or applying for a credit card shorter and clearer Enforcing the Fair Debt Collection Practices Act: The CFPB will enforce the Fair Debt Collection Practices Act and review current debt collector practices Learn more about the CFPB  

  Auditing provides the organization with assurance that all financial controls are in place to ensure that trust account funds are maintained, access to financial records at the vendor location is tightly controlled, customer data is secure, and that the vendor is in full compliance with contractual requirements (i.e., minimum account servicing requirements for issues such as vendor actions following initial placement, ongoing contact efforts, remittance processing, settlement authorizations, etc.). There are two basic auditing processes that occur from a best practices perspective. The first one is fairly common, and involves use of an on-site audit. Onsite Auditing The onsite audit is required to examine financial records involving customer transactions, accounting processes, trust accounts and remittances, IT and security for handling sensitive customer information and records, and documentation of the processes that have occurred towards customer communication, contact efforts and results. There are differences of opinion as to both the frequency of onsite audits, and whether they should be announced or unannounced. Frequency is primarily an issue of the size of the overall vendor relationship and the degree of financial risk associated with a default, typically involving the trust account and legal exposure to litigation and brand reputation risk. Most utilities should follow an annual onsite audit schedule due to size of portfolio and attendant financial exposure. While surprise audits have the advantage of reducing any opportunity by the vendor to potentially alter records to cover up what would normally be audit violations, it does result in a more time-consuming audit schedule onsite, as the vendor is unable to prepare and have documentation available. The use of substantial online documentation lessens this issue, but nonetheless, there is more work to do onsite when nothing has been captured for review in advance. The other issue is that key managers from the vendor may not be available on the dates of a surprise audit. One way in which organizations chose to resolve the issue of surprise versus planned audit is to conduct one pre-planned and announced audit annually, and a smaller scaled unannounced onsite audit annually at least 2 quarters separated from the planned audit. The use of remote auditing and monitoring lessens the requirements for onsite audits in certain areas, other than IT / Security, financial and compliance. Remote Auditing / Monitoring Remote auditing and monitoring of vendors is a stronger tool for credit grantors to improve performance of agencies, in that it combines some of the same auditing checks to ensure compliance and quality of collections with an added value of focus on performance. The best tool in the arsenal is the use of digital logging to capture the collection call between the vendor and customers. When digital logging technology first came into use, it was cost prohibitive for collection agencies, and not fully accepted by the industry due to its possible use in litigation against the agencies. Over the past decade, as the costs of deployment have lessened, and agencies became more attuned to customer satisfaction and full FDCPA compliance, more agencies have installed digital logging into their call centers. Most agencies that utilize digital logging capture every customer contact effort that results in either a right party contact, or third party contact for messages, etc. Many of those agencies will tag each of these voice records as to whether they were a right party contact or not. The intent is to be able to audit more frequently those calls that were right party contacts, so that collector skills can be assessed in terms of how they managed the customer, their ability to create and sell payment solution, and ability to negotiate successfully with the customer. Typically, an organization that is using digital logging will have an internal quality assurance team that will create a compliance audit process that establishes a number of right party and non-right party contacts per collector. These calls are typically evaluated using a scorecard approach, and used for training purposes. They might alter the frequencies of monitoring based upon the tenure of the collector, their performance levels, and the results of prior monitoring, such that sample sizes are affected. Utilities and other credit grantors should have access to the entire inventory of raw digital log files for their projects and randomly audit them remotely. These should not be “assembled” or pre-selected by the vendor, so that there is no undue influence in deciding which calls / collectors to review. If the vendor is using a QA monitoring / compliance program and separately maintains a scorecard driven monitoring process, the credit grantor should have access where those calls and evaluations related to their own customers and contacts. The intent of the process is to listen for both quality of the communication with the customer from the perspective of effectiveness, but also to ensure compliance with FDCPA and that the customer was treated with respect and appropriately. Typically, a credit grantor would establish a remote monitoring schedule where x calls across the agent pool handing their assigned portfolio are monitored and evaluated with a simple checklist. Ideally, the credit grantor should be listening to a range of 100-150 right party contacts per month, based upon overall inventory and activity, but typically no more than 1-2% of the total right party contacts per month on their customer accounts. The credit grantor should provide monthly feedback to the agency regarding the monitoring of quality and compliance, noting any compliance or policy violations, and any concerns relating to customer contact quality and performance. Other aspects of the remote auditing that occurs each month should include ensuring that all servicing requirements are met. As an example, we would expect that the agency should perform various external checks for bankruptcy, deceased, etc. before initiating contact once the file has been received from the credit grantor as a placement. These database checks should be performed within the first 24 hours once placed, and then a letter of representation should be sent to those not flagged. The initial call to the customer should also occur within 24-48 hours from placement by the credit grantor, subject to phone number availability. Skip trace processes should commence immediately on those without phone numbers. There are requirements for how often accounts are attempted for contact, and settlement authorizations. All of these requirements are subject to the remote monitoring that is performed to ensure these are met.    Coming soon...  Best practices for improving agency performance.

Organizations approach agency management from three perspectives: (1) the need to audit vendors to ensure that they are meeting contractual, financial and legal compliance requirements; (2) ensure that the organization’s clients are being treated fairly and ethically in order to limit brand reputation risk and maintain a customer-centric commitment; (3) maximize revenue opportunities through collection of write-offs through successful performance management of the vendor. Larger organizations manage this process often by embedding an agency manager into the vendor’s site, notably on early out / pre charge-off outsourcing projects. As many utilities leverage the services of outsourcers for managing pre-final bill collections, this becomes an important tool in managing quality and driving performance. The objective is to build a brand presence in the outsourcer’s site, and focusing its employees and management team on your customers and daily performance metrics and outcomes. This is particularly useful in vendor locations in which there are a number of high profile client projects with larger resource pools competing for attention and performance, as an embedded manager can ensure that the brand gets the right level of attention and focus. For post write off recovery collections in utility companies, embedding an agency manager becomes cost-prohibitive and less of an opportunity from an ROI perspective, due to the smaller inventories of receivables at any agency. We urge that clients not spread out their placements to many vendors where each project is potentially small, as the vendors will more likely focus on larger client projects and dilute the performance on your receivables. Still, creating a smaller pool of agency partners often does not provide a resource pool of >50-100 collectors at a vendor location to warrant an embedded agency management approach. Even without an embedded agency manager, organizations can use some of the techniques that are often used by onsite managers to ensure that the focus is on their projects, and maintain an ongoing quality review and performance management process. The tools are fairly common in today’s environment --- remote monitoring and quality reviews of customer contacts (i.e., digital logging), monthly publishing of competitive liquidation results to a competitive agency process with market share incentives, weekly updates of month-to-date competitive results to each vendor to promote competition, periodic “special” promotions / contests tied to performance where below target MTD, and monthly performance “kickers” for exceeding monthly liquidation targets at certain pre-determined levels. Agencies have selective memory, and so it’s vital to keep your projects on their radar. Remember, they have many more clients, all of whom want the same thing – performance. Some are less vocal and focused on results than others. Those that are always providing competitive feedback, quality reviews and feedback, contests, and market share opportunities are top of mind, and generally get the better selection of collectors, team /project managers, and overall vendor attention. The key is to maintain constant visibility and a competitive atmosphere. Over the next several weeks, we'll dive into more detail for each of these areas: Auditing and monitoring, onsite and remote Best practices for improving agency performance Scorecards and strategies Market share competition and scorecards

When the Consumer Financial Protection Bureau (CFPB) takes authority on July 21, debt collectors and communications companies should pay close attention. If the CFPB has its way, the rules may be changing. Old laws, new technologies The rules governing consumer communications for debt collection haven’t seen a major update since they were written in 1977. While the FTC has enforcement power in this area, it can’t write rules—Congress must provide direction. Consequently, the rules guiding the debt collection industry have evolved based on decisions by the courts. In the meantime, technology has outpaced the law. Debt collectors have taken advantage of the latest available methods of communication, such as cell phones, autodialers and email, while the compliance requirements have largely remained murky. At the same time, complaints about debt collection practices to the FTC continue to rise. While the number is relatively low compared to the amount of overall activity, the FTC receives more complaints about debt collectors than any other industry. The agency has also raised concerns about how new communication tools, such as Facebook and Twitter, will impact the future of debt collection. Priorities for the CFPB While mortgages, credit cards and payday loans will be the early priorities for the CFPB, high on the list of to-do items will be to update the laws governing consumer communications for debt collection. Under the Dodd-Frank Act, the CFPB will be responsible not only for enforcing the Fair Debt Collection Practices Act (FDCPA), but it will also have a new ability to write the rules. This raises new issues, such as how new regulations will affect how debt collection companies can contact consumers. Even as lenders and communications companies have expressed concern about the CFPB writing the rules, the hope is that the agency will create a more predictable legal structure that covers new technologies and reduces the uncertainty around compliance. Faced with the prospect of clarifying the compliance requirements around debt collection, the ACA (Association of Collection and Credit Professionals) has started to get in front of the CFPB by putting together its own blueprint. Will the CFPB be ready by July 21? Over the last year, the CFPB has been busy building an organizational structure but still lacks a leader appointed by the President and confirmed by the Senate. (Elizabeth Warren is currently the unofficial director.) Without a permanent director in place, the agency will be unable to gain full regulatory authority on July 21 – the date set by the Treasury Department. Until then, the CFPB will be able to enforce existing laws but will be unable to write new regulations. Despite the political uncertainty, debt collectors and communications firms still need to be prepared. One way is to ensure you’re following industry best practices established by ACA. To help you be ready for any outcome, we’ll continue to follow this issue and keep you apprised of the CFPB’s direction. Let us know your thoughts and concerns in the comment section. Or feel free to contact your Experian rep directly with any questions you may have. Helpful links: Association of Credit and Collection Professionals Fair Debt Collection Practices Act (PDF) Consumer Financial Protection Bureau (CFPB)

Scoring is one of the fundamental ways to improve customer management and acquisitions in any business. Companies use scoring to predict what kind of risk they will be working with before granting credit. When those predictions turn out to be wrong and the accounts move into collections, scoring is crucial in determining which actions result in repayment. Many companies handle each past due account in the same manner. They make sure they have updated phone numbers and addresses; then send letters and make phone calls--all of which are important steps. However, treating each account the same is neither an effective nor efficient use of resources. When dealing with a large number of collection accounts and a staff that needs to do more with less, you need a segmentation strategy to determine which accounts are most collectible, and focus your efforts on those accounts. Scoring has been used in collection efforts for many years; however the economy has changed dramatically since recovery scores were developed so it’s time to start considering new recovery scoring technologies. The use of blended data, which combines account-level transactional data and credit data, and advanced analytics, are vital to producing the most predictive recovery results. Leveraging geographic-based summarized data provides another level of segmentation allowing decisions to be made based on such things as local jobless rates or localized wealth pockets where income is higher in certain areas. Today’s most profitable collections operations utilize segmentation strategies that consider the customer’s capacity to pay and probability of recovery. Corresponding treatment strategies are then aligned so that more money is spent on those customers that are more likely and willing to pay, while spending less money on those that are not likely and less willing to pay. Regardless of your company size, the interest in minimizing costs within collections operations and maximizing dollars recovered should be your goal.  Innovations in recovery modeling will undoubtedly help you reach that goal. For additional information on recovery modeling, click here.