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January/February Feature Stories

Debt Buying Leaders Forecast 2019 Economy Perched On the Edge of a Knife

The debt buying industry has found itself in the spotlight in recent years leading to numerous changes and a fair share of uncertainty. This climate has let only agencies with the most steadfast of temperaments and industry-tested of business strategy remain successful.

When asked for the recent industry-changing occurrences, Matthew Maloney, President and Chief Investment Officer of the FFAM360 Group of Companies and First Financial Asset Management, saw multiple.

maloney matthew“With respect to ‘one of the biggest recent occurrences in debt buying,’ there seems to be several events or trends that could qualify for this: regulatory trends, technology trends, legal trends, capital-market trends, economy, etc,” said Maloney. “But from my perspective, the unexpected ‘exit’ of various debt buyers (some notable, others not as much) seems to be having significant ‘influence’ on the current state-of-affairs in today’s debt buying market as we head into the end of 2018/beginning of 2019. While various factors have played a role in why so many debt buyers have ceased to exist in the last 24 months (e.g. (1) foreclosed on by their lenders, (2) shut down by regulators, or (3) simply sold-off their business/assets to pursue other interests outside of debt buying, the common thread amongst each situation is that the debt buyer(s) were running their businesses at unsustainable (unprofitable) levels, an intrinsic consequence of portfolio acquisition pricing far exceeding the appropriate quantitative value(s), which ultimately led to financial stress and caused those debt buyers to “exit” the market.

“It’s affected the landscape in various ways, most of which seems to express a favorable influence. For example, deal-flow in certain segments of the marketplace has Matthew Maloney increased, and pricing in those same segments has adjusted into risk-appropriate valuation ranges that are more sustainable for the debt-buyer(s) risk-adjusted returns for these types of accounts receivable assets. In one specific instance, I had a creditor contact me to work thru what they called a 'long-range economic partnership' that both parties could rely on (versus their prior objectives of chasing a single buyer with the highest bid). I have seen this in both the performing and non-performing (charged off) segments of the auto-loan, healthcare, consumer loan, and card sectors. Ultimately, a balanced and fair valuation for these types of assets, with contractual terms that are well balanced will allow for the marketplace to have a sustainable life cycle for the future.”

Mark Naiman, President of Absolute Resolutions Corporation (ARC), also noted fewer participants in the market citing the CFPB and new regulations for originating creditors.

naiman mark“After the rise of the CFPB (now BCFP), many of the smaller players dependent on resale had to shift their models almost overnight,” said Naiman. “The ones that could, either changed to a contingency-based model, or sought out similar players and through M&As, many smaller companies chose to merge with peers forming a larger more substantial market presence. Admittedly, the newer regulations and scrutiny facing originating creditors was a tremendous burden on companies of any size, especially since the compliance requirements were reciprocal.”

To adjust to these changes in the debt buying landscape, some professionals have taken to using internally developed tools to improve their data analytics, enhance performance and improve the consumer experience. This is the strategy that has worked for The Bureaus, Inc. according to its Vice President, Marian Sangalang. Sangalang also stated she has seen changes in what issuers are looking for in a legitimate debt buyer.

“We are seeing some issuers taking a different approach to vendor oversight and are showing more interest in association certifications to work in conjunction with their existing review program,” said Sangalang.

sangalang marianRegarding how that affects the debt buying landscape today, Sangalang said, “The level of oversight the issuers of credit are required to perform is understood by our industry, the opportunity to provide credible association certification in conjunction with the issuers requirements will provide a more seamless and streamlined review process for the debt buyer and the issuer.”

Naiman noted the changing landscape as well and emphasized the importance of adaptability by making sure the accounts being worked align with the environment at large.

“ARC’s philosophy has changed in parallel with the environment, yet our strategy has remained focused on finding portfolios that make sense within the ever-changing regulatory whirlwind,” said Naiman. “Being dynamic, while simultaneously looking at asset classes that fall outside of standard credit card and installment loan markets allows us to maintain a fluid and adaptable presence in a market that is overwhelming dominated by large players. Maintaining a medium presence in the industry allows us to be both more patient and adaptable in times of economic uncertainty.”

Fortunately, the debt purchasing landscape may be on the verge of more stability as regulation may soon find additional footing. Sangalang hopes upcoming developments will bring issuers back to the table.

“We believe that there will finally be some clarity provided for our industry with the Notice of Proposed Rulemaking expected in March 2019,” said Sangalang, referring to the CFPB’s recent announcement in the Spring 2018 rulemaking agenda. “Many issuers have been hesitant to come back to the market until such clarity was provided. We are hopeful that this will provide the level of clarification needed for those issuers to once again enter into the debt sales market providing additional markets for all debt buyers.”

History and its tendency to repeat itself may provide some insight into the future of debt buying as well. Naiman sees indicators in the economy that suggest a continued increase in the number of accounts in default.

“The abundance of product is a direct correlation to the amount of household debt, and synonymously the amount in default,” said Naiman. “We head into 2019 with more debt default than prior to the last recession, and a wage gap and unemployment rate that are once again ‘almost touching.’ If the past is any indication of the future, we know that the economy is perched on the edge of a knife, and 2019 should be a very interesting year.”

Top Technology Partners Reveal Latest Technology - Part II

In a continuation from last issue, technology leaders present their ideas to benefit the accounts receivable process based on their area of expertise and the impact of consumers having more money each paycheck due to recent tax changes.

gies paulPaul Gies, President of VoApps said, “Timing is the best it has been in the past few years for agencies who have been afraid of technology to try it with better ways to communicate with customers. Finding the ways they like to communicate empowers the consumer. It gives them choices about how and when to respond. Clients today like to be contacted differently. “The current administration is pro business. The message is, if you are a good actor you have nothing to fear. Non-intrusive delivery into a voice mailbox does not interrupt their day. They are calling you back on their timeframe, which changes the tone of the conversation. It results in a better conversation. The response is based on the age and type of the paper. Generally it is a 20% increase in contacts. The quality of the call is better because they are calling back to get resolution. It empowers consumers, which leads to better interactions.”

campbell chrisChris Campbell, CEO of Simplicity Collection Software said, “It is better for the software to identify the debtors who are going to make payments and are going to continue to stay on a payment plan. On the legal collection side the payment plans are usually signed documents with incentive to pay or the amount goes up with alerts if they miss the eCheck or an ACH. Legal has the advantage of filing suit and getting a face-to-face meeting. Sign a plan or get agreement which enables them to get a judgement where they get garnishment or a levy on tax refunds.”

 

roberts chrisChris J. Roberts, President/Chief Operating Officer of Sentinel Development Solutions, Inc. (eCollections) said, “The next generation prefers to address their obligations in a different way. They may receive a letter or email and take care of it without getting a call from a collector. “Time is of the essence; get your processes in place so when the account moves to collection status, because who knows how long this [economy] can last. Additionally there is a more favorable environment like changes in CFPB. Collections is an easy issue for politicians to speak about.”

Stars of Compliance

The big ball in Times Square has dropped, 2019 has arrived and it looks like uncertainty in regulation is here to stay a while longer. However, the fight for meaning and clarity continues as professionals across the accounts receivable industry band together. When the question is what path to take on a phone call, letter or data management, there is always a star professional who has taken the correct path and is willing to share it. This list compiles such compliance professionals as nominated by their peers and asks them where to find such information and which of it they have found to be most useful. When in question, look to the stars.

Question: What is something accounts receivable professionals can do to continually improve their compliance with regulation?

nilsen barbaraBarbara Nilsen
Partner/CCO Blitt and Gaines, P.C.

Accounts receivable professionals need to remember that compliance is fluid and the requirements are constantly changing which requires versatility. It is important to keep current on the latest consent orders, lawsuit theories, case law and pending changes to regulations. This information should be analyzed against current business practices, policies and procedures to ensure up to date compliance. The second part to any type of improvement is training. Training must include examples of the regulation that make it relative to a certain task or department within the organization in order for employees to truly understand how a regulation applies to them. The third part to improvement is controls. You can have the best policies, procedures and training program, but you have to set up controls to identify potential issues for remediation before they become a regulatory violation.

kaminski davidDavid J. Kaminski, ESQ.
Partner and Chair of the Financial Services and Class Action Group Carlson & Messer LLP

Routine audit of your systems to determine compliance performance is key. Running analytics to see what your collectors are saying to consumers during live conversations, and analyzing the codes agents use and the entries they make in your collection software may help isolate problems a company never knew existed.

ciskey debra jDebra J. Ciskey, IFCCE, CCCO
Chief Compliance Officer Wakefield and Associates Inc.

Read everything published by the BCFP — blogs, press releases and official publications such as Supervisory Highlights, reports and enforcement actions, even if they are not actions against ARM firms. While the current administration appears to have softened the previous administration’s approach that, “everything applies to everybody,” these documents are very instructional at least, if read with an attitude of “What can I learn from this that might help me in my compliance work at my company?” While state regulators are not as prolific, reading their publications and public enforcement actions is also extremely useful.

barton dennisDennis J. Barton III
Managing Attorney The Barton Law Group, LLC

Companies can improve all aspects of their business, including compliance, with a holistic view of employment. An employee’s compliance failure is often symptomatic of a company’s inability to properly recruit, hire, train, and/or motivate employees. Management should continually review and update its policies and procedures used to (1) attract and hire quality employees, (2) create and provide initial training, (3) measure skills and performance over time, (4) develop and deliver additional training and (5) tie compensation and bonuses to compliance.

bedard johnJohn H. Bedard, Jr.
Managing Attorney Bedard Law Group, P.C.

If it moves – measure it! A great way to continually improve compliance processes is to be identifying, measuring, monitoring, and controlling risk. Measuring behavior is one of the most important pieces of the compliance puzzle. If collectors are not measuring and documenting behavior in a structured way (versus capturing unstructured data i.e. a natural language text field), then analyzing that data becomes difficult and inhibits full understanding of a company’s risk profile.

mcnamara johnJohn McNamara
Assistant Director, Consumer Lending, Reporting, and Collections Markets Division of Research, Markets Regulations Bureau of Consumer Financial Protection

I have always favored a black box like analysis of failures. Failure could be a complaint, a lawsuit, a substandard audit or other suboptimal outcome. By black box, I mean that you retrace the chain of events that eventually led to the undesired outcome, collecting data along the way. It’s easy to get defensive, and certainly that has place when you’re facing a lawsuit. That said I maintained a team whose job was not to get defensive but rather to get dirty with details and perform root cause analysis (RCA). Their job was to find the point or points where we could have altered the outcome. This same process created a great deal of data, and that data was used to look for trends and commonality in complaints. We could look at complaints by date, client, collector, unit, stage of collections, trainer, time of day, number of calls attempted, number of contacts, etc. We even added a recruiter to see if it was possible managers charged with staffing might cut corners and increase compliance risk.

We performed RCA on every complaint, looking for a point where we could have avoided the bad outcome or at least minimized it. Since we had data, we were able to draw conclusions, finding faulty training, culture issues, or even lead us back to the trainer, or the recruiter involved in collectors who generated complaints. The team got really good at this, and drove what they learned through the organization, so each failure improved the organization.

knepper stephens kellyKelly Knepper-Stephens
VP Legal & Compliance TrueAccord

Take advantage of all the industry continuing education initiatives both at conferences or through online trainings and hot topic courses. Participate in benchmarking groups either formal or informal where you can share best practices and solve problems. Read all the industry publications (sign up for the daily news), listen to the industry blogs, and join the industry list-serves.

bohling ladonnaLaDonna Bohling
VP Special OPS Contract Callers, Inc.

Join an industry association that will provide you with regulatory updates and offer opportunities to network with peers to share best practices. Police yourself to ensure compliance with regulations by developing a robust internal auditing process to measure your performance against regulatory requirements. Use the data to make changes to mitigate risks and incorporate process improvements.

bender leslie2Leslie C. Bender
Chief Strategy Officer & General Counsel BCA Financial Services, Inc.

There are few things an accounts receivable professional can do to continually improve their compliance with regulation that is more important than reading and listening to each and every communication from the regulator or law enforcer responsible for a particular regulation. Oftentimes regulators clarify their positions or interpretations of regulation in enforcement actions, public meetings and speeches, reports and presentations to elected officials, and in other types of bulletins or commentaries. All of these communications help an accounts receivable professional know what is important about particular regulations, pitfalls to avoid, and some practical insight into how to apply or scale a regulation to your own circumstances.

kohn mavisMavis Kohn, CCCO
Vice President of Compliance Diversified Consultants, Inc.

Stay involved. From grass root efforts to national involvement, it is vital that agencies stay aware of ongoing changes and any potential new regulations. Whether you choose to do this as part of a local unit, an annual national visit to the capitol, or on your own, make an effort to meet with your local lawmakers and legislators. A thirty-minute meeting once a year to let them know who you are, how many jobs you create and what you bring to the community can go a long way when a bill is presented to them. You can also invite them to visit your offices when it’s close to re-election time. This gives them a few minutes of face time with their constituents and allows you to discuss any concerning legislation.

bevel mikeMike Bevel
Director of Education insideARM LLC

Challenge assumptions. I facilitate monthly peer calls with compliance professionals and where we’ve done our best is when we’ve put aside a lot of received wisdom – anything that starts with “we’ve always done it this way” – and look at compliance and operations questions with fresh eyes. This new perspective will absolutely help when the new debt collection rules are published in 2019. (By the way: that assumption that rules will be published in early 2019 is also one that should be challenged because we’ve been waiting on rules since I was a child.) I think it’s also important to widen your perspective. There are a lot of pro-industry resources with compliance info, and of course those should referenced regularly. But it can’t hurt to throw in some consumer-focused sites too. Perspective can build better processes. (And if you can stomach it, scrolling through consumer message boards where they swap info on how to challenge the collection process can also strengthen your compliance practices. Forewarned being forearmed, etc.)

frost mikeMike Frost
Chief Compliance, Sales Officer & General Counsel CBE Companies

Continuous improvement with operational and compliance efforts is a real testament to the compliance and operational departments of a given organization. Consistent review of case law, enacted as well as proposed legislation at the federal, state and municipal levels is the best way to ensure continuous improvement in compliance. It is also essential to maintain working relationships with other collection agencies’ compliance departments to seek and share assistance with one another. It is always best to collaborate with peers to ensure nothing is overlooked.

jarman nick 2018Nick Jarman
Owner The RightAway

Staying on top of the compliance trends that tend to sway on a consistent basis. There are numerous resources available through industry trade associations along with news sites that continually provide the latest information and insight. Making a habit of monitoring these resources and articles on a daily basis will assist in staying on top of the ever-changing trends.

perr rickRick Perr
Partner Chair, Financial Services Practices Group Fineman Krekstein & Harris, P.C.

Stay up to date on a daily basis. A day doesn’t go by without a new case, a new regulation or a new outcome in a financial services matter. It is imperative that these situations be digested by every company, lawyer and compliance professional and disseminated throughout the company. The law can change daily. One cannot afford to be behind – regulators and plaintiff’s attorneys surely are not.

koskovics timTim Koskovics
CEO USA Meridian Int’l Inc.

I believe the best way to improve on compliance is to be a part of a group, i.e. Eagle Group XX, that specializes in compliance. Eagle Group has regularly scheduled compliance training plus yearly face to face training. The group enable me to have a culture of compliance in my company.

How the Top Agencies Foster Innovation

Last issue of Collection Advisor the leaders of the Top 10 Innovative Agencies let us know what they had innovated to improve their collection practice. As the New Year is upon us and many are making their resolutions for the year, we asked them how does your agency create an environment of innovation. Dive in, take notes, implement in your office and make 2019 your best year yet!

Question: How does your agency foster an environment of innovation?

American Profit Recovery
Jeff DiMatteo President

dimatteo jeff2Communication is key to our innovation. We are constantly involving our employees in not only mission–critical but also community service initiatives which fosters trust and collaboration. There is constant teamwork between departments, management and our software professionals to encourage best practices and to improve experiences for all. A major part of our culture is to be constantly thinking “How can we do it better?”


Americollect
Kenlyn T. Gretz President and CEO

gretz kenlynWe have built an internal department of project analytics from the ground up. If you are a front-line collector and want to help build new tools to make us faster and nicer to the consumer, we have a career path to help you do that. We teach you report writing, project management and small amounts of programming. We also have our own staff of software developers.


CACi
Roger D. Weiss President

weiss rogerI believe the best way to foster an environment of innovation is to look, study, watch, listen, network, and collaborate. Remain a student of the game. Talk to companies both inside the collections space, and those having nothing to do with collections to get a completely diff erent paradigm of ideas. I’m a big advocate of attending the industry trade shows as well. ACA International off ers tremendous opportunities to learn about new products and to network with those using them.


CBC, LLC
Marc A. Carter President

carter marcAn environment of innovation can best be fostered through the constant questioning of existing processes and the desire for improvement either through automation or consolidation of workfl ows. Similarly, a technologically inclined under-40 team member encourages thinking outside existing business boundaries while utilizing available technology and applying “why can’t we” to the equation.



CBE Companies, Inc.
Tom Penaluna Chairman and CEO

penaluna tomActually “innovation” is one of our core values that we talk about often. Employees would all tell you our tag line, “Defi ning the future of debt collection,” which keeps innovation front and center to our work. We invest more dollars in IT solutions than the industry average to accommodate innovation. We have self-identifi ed and defi ned problems the collection industry has been experiencing, and then we design and innovate solutions to many of those problems.


Credit Bureau Services, LLC
Debbie Frank CEO

frank debbieOur G.R.O.W. program is changing the way our account representatives interact with consumers, by training them to help consumers. G.R.O.W. stands for Gaining Resources, Opportunities and Wealth. The program assists consumers with fi nding employment, connecting them with local resources, and helping them build wealth. We know that life happens and we want consumers to G.R.O.W. through it! The Bureau is doing work that matters!

 

Credit Collection Partners
Rick Bonitzer President

bonitzer rick2Culture. Your management team must make it known that ideas and outside-the-box thinking in all areas of the business are encouraged and desired from everyone. Never accept the answer, “Well that’s the way we’ve always done it.” Never be satisfi ed with the status quo; always look for improvement. This philosophy needs to be disseminated in board meetings, executive management meetings, supervisor/manager/sales huddles, with company-wide staff meetings tying it all together.

 

MRS
Jeff Freedman and Saul Freedman CEO/Principal

freedman jefffreedman saulI think the most important aspects of fostering an innovative environment are: never being satisfi ed, constantly looking for ways to improve (even if something is not broken), encouraging everyone in the organization to question the status quo, being open to trying new things, not being afraid of failure, and finally, willingness to assume some risk.

 

Southern Oregon Credit Service
Brian Watkins President

watkins brian2You must want to innovate. It will not “just happen.” Your clients will not do it for you. Your company must make a decision to stay in the forefront of technology and not get left behind. I know of way too many agency owners who thought the world was not going to change, and they wake up one day very surprised their company is struggling to attract new clients.

 

State Collection Service, Inc.
Tom Haag Chairman and CEO

haag tomFostering an environment of innovation requires the freedom to think about solutions to the question, “How can we be better?” In fact, we believe so strongly in this that we dedicate offsite meetings to discussing innovation. Exploring leading-edge technologies like speech analytics, gamification, and advanced data science came from these meetings and our culture of communication that encourages staff to share solutions. We know that the “next big thing” is just a conversation away.

McNamara of CFPB Provides His Perspective On Collections

As many professionals will recall from the recent Fall Unified Agenda, March 2019 is heralded as the month the CFPB will release its Notice of Proposed Rule Making (NPRM). Professionals are speculating what the bureau will decide is fair for both collectors and consumers and if the rules will keep the needs of the industry in mind. Fortunately the CFPB does have subject matter experts who happen to be veterans of the collection floor and familiar with what must be done to keep the economy rolling. One such veteran is John McNamara, the CFPB’s assistant director, consumer lending, reporting and collections markets.

Years before he was working to find the balance between consumer rights and responsibilities, McNamara was a kid fresh out of college looking for a desk.

mcnamara john“I started as a collector trainee out of college,” said McNamara. “It’s funny. I think I took the job because they would have me… I didn’t even know what I was getting into. Found out I was pretty good at it. I did really well as a collector and rapidly moved up to collection manager. This was with American Creditors Bureau.

“Within about a year I was promoted to collection manager and then a couple years later I transferred to San Antonio [TX]. Within three years I was running the San Antonio site. Then I moved around with American Creditors Bureau to numerous sites, running them, typically taking over sites that were underperforming and fixing them. At one point I was promoted to operations manager which was the equivalent to a regional VP.”

Not only did McNamara flourish in the collection environment, he took pride particularly in his ability to educate fledgling collection professionals. In this instance he literally wrote the book.

“This is probably the thing I’m most proud of in the debt collection space,” said McNamara. “I moved over as the director of training and quality and rewrote our training programs. It was based on principles of adult learning. We typically hired folks who didn’t have prior collection experience. We just didn’t want to inherit any bad habits. One of the things we tried to do with this training was to get new hires to understand what it was like to be a debtor.”

“The other thing we did in this training program that I thought was really novel was we had the new hires create their own FDCPA. The hypothesis was much of the FDCPA was highly intuitive. If a new hire came up with their new guidelines for debt collection and they got them right then that would be internalized and they would never forget that.”

In 2006 McNamara took to entrepreneurialism and cofounded Fidelis Recovery Services. Eventually the opportunity to influence the industry arose again in July 2014 when McNamara leveraged his industry experience in accounts receivable to become a subject matter expert for the CFPB.

“When I heard that the Bureau was considering a debt collection rule I realized I had been subject to the FDCPA for almost my entire adult life and I would love to be part of that, to be a subject matter expert and help them be as informed as possible in the rule making,” said McNamara.

“A big part of the role is industry engagement. We try to translate government to industry and industry to government and that involves speaking at a lot of conferences trying to educate the industry on what is going on relative to compliance, relative to the BCFP. It’s a very fulfilling role.”

McNamara truly has a perspective on the industry that not many have. He has seen accounts receivable from the ground up and regulation from both sides of collector/debtor relationship. From this experience he encouraged others to seek out varying opinions and listen for the truth within.

“My personal opinion is it’s healthy for industry to listen to and engage with consumer advocates, to understand where they’re coming from and understand the kind of consumer harms they’re seeing,” said McNamara.

“I think most people are surprised at how willing the Bureau is to talk to individual players. We certainly value getting a steady diet of industry practices and understanding what problems the industry is trying to solve.”

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