I was recently driving down a rural road by my home in Northeast Pennsylvania after a day of severe storms. As I rounded a bend there was a sign in the middle of the road indicating, “Danger ahead. Do not enter.” It was clear to me that Mother Nature must have wreaked havoc on the roadway around the bend. I turned my truck around and headed in another direction. As a culture, we encounter warnings every day of our lives. Is third-party collections now encountering a danger sign?
A few days ago I received a disappointing and disturbing letter from a large regional bank that has been a client of my firm for over 15 years. It seems that due to increased regulations, oversight and mandates from the Consumer Financial Protection Bureau (CFPB) and assessment of organizational risk, management made the decision that it was too risky to continue outsourcing their bad debt to a third party collection firm. In their letter to my firm they underscored that they were, “very pleased with our relationship.”
We represented them professionally and successfully, but due to new regulations it was just too risky to continue using a third-party debt collection firm. The danger signs are erected and business is now being rerouted from our organizations. This is the type of fallout many have been predicting that will impact the smaller, more average-sized collection firms that don’t fall within the immediate scope of the CFPB examinations. Our industry, especially the third-party segment, is being painted in a very negative light and this is only the start of what will undoubtedly be a wave of similar risk decisions. We have the choice to ride the wave or be destroyed by it.
We cannot ultimately control the risk-related decisions of our clients but one thing is certain: every third-party debt collection firm must proactively reach out to their clients, demonstrate their knowledge of what is happening on the regulatory front and then bring their organizations to the cutting edge of policy development relative to data security, compliance and consumer centric cultures.
- Stating that your organization takes data security seriously isn’t enough.
- A yellowed, dog-eared policy manual created years ago and found in the Operations Director’s desk isn’t enough.
- Having your staff take part in one 60-minute annual webinar on compliance standards isn’t enough.
- Attesting to the fact that your employees understand and follow compliance guidelines without testing, auditing, scoring and quantifying isn’t enough.
What should you do? What are your progressive peers doing? Here are some recommendations:
What issues are central to the CFPB and other regulators? All agencies should now be registered with the CFPB complaint portal. Log on and review the kinds of complaints being raised against firms. Look at the actions being filed against firms by regulators and address similar weaknesses in your organization.
Create a Compliance Officer position (it can be another responsibility of a current staff member if you are a small organization). This person will coordinate a compliance assessment, policy revisions and effect thoughtful change in your organization.
Gather as much compliance information as you are able through associations like ACA International, industry publications such as Collection Advisor and industry vendors that specialize in compliance gap assessments and industry trends. Use this data to carve a pathway to change in your firm.
Staff members in your collection office have to adapt to new, more stringent, standards. Paperless desks are the norm today. Acquire small white boards, but do away with pen and paper. Cell phones on the collection floor are absolutely taboo. Staff should log off their computer each time they leave their desk and your system should automatically log off after a short period of time of inactivity.
The environment in which we operate will continue to change. It is up to each third-party operator to be proactive in order to protect their business and adapt to the ebbs and flows of compliance restructuring. Perhaps, together as an industry, we can create a new climate of trust as we forge into the next decade with proactivity instead of inactivity. Thoughtful change instead of reactive restructuring. I believe, with the passage of time, the warning signs directed at our industry will fade as we embrace new compliance cultures. We’ve survived much change over the decades and smart firms will survive these present day obstacles.
By Harry Strausser III