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The Changing Landscape of Commercial Collectors

  • Written by Bob Ingold

ingold bobI started in this field in 1979, those were known as the glory years. Plenty of business and all creditors wanted was money collected and manual written reports explaining circumstances of the debtor. We would spend Monday through Thursday calling customers and Friday reporting on our portfolio. As for legal accounts, costs were small, credit managers would invest years trying to collect $1,200 through the legal system. Rates were non-negotiable. 25/20 was the norm and usually 50% for small balances. As for legal matters, the Commercial Law League Rates were the gold standard. Very seldom did a client ask for rate reduction and 10% non-contingent suit fees were the norm. How things have changed.

1) Rates – In the ‘90s they became fair game to all agencies and rates as low as single digits were being offered on request for proposals. Margins were cut razor thin.

2) Technology took over – Collection systems meant to drive activity, dialer programs, statistical data that was never available became the standard. Email reporting and instant cash through ACH, etc., became the norm. Suddenly, creditors wanted and received instant information. Online access went one step further allowing creditors real-time access on their accounts.

3) While balances climbed steadily, the cost to sue went up even faster. Clients were less likely to invest in litigation on the medium-size balances. At the same time, technology allowed attorneys to handle the entire state shrinking the competition and availability of attorneys.

4) The recession of 2008 shrank the collection opportunities and many creditors learned to manage without the “sell at all odds” mentality that existed prior to that. Credit cards, shortened distribution times and on-line purchasing have changed the commercial collection industry drastically.

5) The above factors caused consolidation of many agencies and put further pressure on rates.

So how do we cope in 2018? By hiring remote employees, training, measuring results and retention.

Hiring

With the full employment market of this time and competition for the best and brightest, hiring has become a true challenge. Technology has shown us the answer – remote hiring. With on-line access, VoIP phones, etc., remote employment is a way to hire the best. No longer is access to the office essential. Employees can work in any location and feel as close as the next office over. Some considerations must be explored – are they a self starter? Do they have Internet access? At CCC of NY, 25% of our staff operates remotely and are measured by the same standards as working in the office. The same qualities are required for hire whether in the office or remote.

Training

It is important to train your staff. International Association of Commercial Collectors Inc. has an excellent commercial collection training program which all our collectors are required to complete in addition to FDCPA training and email literacy. CCC of NY has introduced a CCC University and all employees are reviewed for skill upgrades including collectors. On-site webinars and trade organizations are excellent resources.

Measure

Success is only determined by results. Measuring how many calls, how long on the phone, how many priority payments, how much money collected and what fees earned are just some of the numbers to be looked at. There is an expression: train up or train out. Formal training and measurements of performance lead to this conclusion.

Retention

The key to a successful collection department is employee retention. So much of what we do is relationship management and continuity is important. Some ideas on retention are fair bonus structure and opportunity for promotion and recognition. This could be an entire article unto itself.

Our industry has changed drastically over the past 25 years and the companies willing to change with it have been successful. Companies like ABC-Amega, Caine & Weiner and CCC of NY have continually reinvented themselves and thrive in an era of change.


Bob Ingold is the CEO of Commercial Collection Corp of NY Inc, a commercial ARM company. He has served on board of governors for CLLA and is a past president of the IACC.

Brighter Days for M&As in Debt Buying

  • Written by Michael Lamm

lamm michaelThe year 2017 might be the year mergers and acquisitions (M&A) activity finally returns to the beleaguered and overregulated debt buying industry. In 2014, both Encore Capital Group and Portfolio Recovery Associates (PRA Group) made multi-million dollar acquisitions. There was some M&A and recapitalization activity in both the United States and Europe in 2016. PRA Group acquired certain assets from Recovery Management Systems Corp., which complements its insolvency and bankruptcy businesses. In Europe, Lowell GFKL acquired Tesch Inkasso, which follows a previous acquisition of IS Inkasso, a large Austrian ARM firm. In addition, doBank announced it was acquiring Italfondiario SpA, both of which are leading ARM firms in Italy.

However, forecasts for additional growth remain limited. PRA Group CEO Steve Fredrickson noted, “Without a pickup in bankruptcy sales volume in the U.S. or an even larger increase in U.S. core and European portfolio sales, we’ll have to adjust downward our long-term internal growth rate goals.”

The onerous regulatory environment is largely to blame for this slowdown. Much of the current regulatory regime was borne out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the formation of the CFPB. However, President Trump and the Republican-controlled Congress will most likely severely limit or dismantle these anti-competitive regulations. And once that happens, M&A activity and debt portfolio purchases will become more robust.

Donald Trump and the Republicans: Will We See the Oft-Promised Deregulation?

Trump’s famous campaign promise to “Make America Great Again” is partially rooted in a major overhaul of expansive federal regulations. One of the major targets is the Dodd-Frank Act, which was the aggressive legislative response to the Great Recession of 2008. This also produced the CFPB, which is the primary federal regulator and enforcement agency in the consumer finance sphere.

Executive authority over the CFPB was greatly expanded by the ruling in PHH v. CFPB, where the D.C. Circuit held the CFPB is not an independent agency and is therefore considered to be under the authority of the executive branch. This ruling essentially allows Trump to replace CFPB Director Richard Cordray. In fact, Senators Ben Sasse and Mike Lee recently sent Vice President Mike Pence a letter encouraging Trump to fire Cordray.

These regulations have had a direct financial impact on leading firms. In 2015, both Encore and PRA Group were fined $18 million by the CFPB, ordered to stop collecting on more than $125 million in debts, and refund approximately $61 million to consumers. While the charges were expansive, it is likely this aggressive enforcement regime will dissipate.

M&A Activity In 2017 and Beyond

It is expected to be a robust year for overall M&A activity in the United States. According to a recent Moody’s survey of executives, “75% of respondents expect deal activity to increase. And transactions may be bigger, with 64% of survey respondents expecting deal sizes to increase.”

The debt buying industry will likely experience an increase in volume as well. Deregulation is going to have the greatest impact on this increase. Regulations that extend liability to loan originators for the actions of third party debt collectors as well as a significant narrowing in permitted activities in debt collection have had a serious, chilling effect on deals.

2017 is going to be the year of change for all this. Trump is retaining fellow New Yorker, investor Carl Icahn, as a special economic advisor to identify and possibly eliminate federal regulations that impede business growth and economic development. And Dodd- Frank is in those cross hairs.

As many of the excessive regulations that overburden the ARM industry are brought to a more pro-competitive level, companies like credit card issuers will likely start selling greater volumes of debt. And since they account for approximately 70% of the debt buying market, improvement in this market will ripple through the entire industry. Another segment that will likely experience growth is FinTech and online lending. As millennials begin to take up more of the workforce and business owners, there will be a transition to mobile apps and alternative forms of lending. And this will create new areas of business for M&A activity.

These industry improvements may not be fully realized in 2017, and it might take more than a year to repeal the regulations developed over the years. However, as the Trump administration proceeds with its promised deregulation, it will become easier to operate and M&A activity will improve.


Michael Lamm, a co-Founder of CAS, oversees the firm’s M&A, consulting, valuation, compliance and regulatory practices.

Municipal Collector Serves the City

  • Written by Joshua Fluegel

Municipal collections can be many agencies’ first foray in collecting for government. This kind of collection can have some particular attributes, some are positive while some are down right challenging. One of the positive attributes Alicia Sundstorm, president of Financial Credit Network, describes is the clients making the necessary documentation a priority.

sunsdtrom alicia“Most, if not all of our cities, have no issues at all providing back up documentation to support why someone owes them money,” said Sundstrom. “Typically, the easier to collect are the types of debt the customer signed up for or requested. The more difficult are the fines, like DUI fees, citations and tickets that don’t have something like their driver’s license tied up.”

As with every type of debt collection, there are challenges depending on the type of clients with which an agency works. Sometimes this includes filling the gaps in a client’s infrastructure adjusting to their speed of processing.

“Municipal clients tend to be very limited in staffing resources as well as IT resources,” said Sundstrom. “Collection agencies typically can assist them by making their jobs easier with our IT resources and adequate staffing. Also, patience is what comes to mind. It isn’t always a very fast paced type of client but once established tends to be extremely loyal and a pleasure to work with.”

Among the unique aspects of municipal collections, many aspects are the same. Despite municipal clients generally maintaining all the necessary paperwork and information, the hindrance of a lack of the information will still occasionally rear its head according to Sundstrom. The difficulty of collection is only amplified when a client does not require indentifying information such as a social security number.

When conversing with a consumer the collection agency’s reputation is on the line. The effects of a collection call are especially important when working for a municipal client. Hurting the reputation of a city can leave some lasting damage on the city and the collection agency as well.

“I think the worst thing an agency could do is not be aware of the fact you are collecting from the citizens of any given city,” said Sundstrom. “Customer service and public relations are very important to our municipal clients. You can guarantee failure by mistreating the citizens or by not providing excellent customer service.”

The journey of a thousand miles begins with one single step. So is the philosophy of incorporating municipal accounts into an agency’s portfolio. The key is to eliminate as many unknowns as possible by taking advantage of what the collection professionals do know; the area they are in for example.

“Start with what you know,” said Sundstrom. “Our first city client, Visalia, California, is where our headquarters is located. Beyond that, be prepared to be flexible and provide excellent customer service. It really isn’t that different than any other debt that is owed.”

It is no secret that the CFPB has made great waves and forced many agencies to adjust how and, in many situations, where they do business. However, it appears great change could be on the horizon for municipal collections. New requirements in credit reporting championed by Equifax, Experian, TransUnion and New York Attorney General Eric Schneiderman has a deadline for compliance that is fast approaching.

“We are anticipating changes that will greatly impact our credit reporting privileges due to strict requirements imposed by the National Consumer Assistance Plan,” said Sundstrom. “The National Consumer Assistance Plan prohibits the credit reporting of debt not arising from a contract or other agreement by the consumer to pay such as: traffic and parking tickets, government fines, library fines and ordinance fines to mention a few. The deadline to be compliant is June 2016. All credit reporting bureaus are strictly complying with the expectations of the National Consumer Assistance Plan. This may impact the liquidity of some of the already more difficult to collect portfolios.”

Collecting municipal debt will likely see change in the future but so is the way of most things in life. The main similarities municipal collections will continue to have with others is change and collection professionals preparing for it.

Government Collections: Great Work if You Can Get It

  • Written by Joshua Fluegel

Building a collection agency’s portfolio can be challenging, but indeed, a key component to growing an agency’s success. In no vertical is this more challenging than government collections. Not only is it difficult to land a government contract but the rules and stipulations of the contract are numerous. Marc Chibnik, CEO of Harvard Collection Services notes several challenges involved with not only obtaining a government contract but collecting the debt as well.

chibnik marc“There are quite a few substantial challenges specific to collecting government debt,” said Chibnik. “First of all, there are several types of governmental debt at several levels including: federal, state, county and municipal. For example, before you may even begin to consider participating on the federal level, more often than not the agency must be registered with the GSA (General Services Administration), and on SAM (System for Award Management). This entails having both a FEIN and a DUNS number as well as an E-Verify number, not to mention licensing and bonding in all 50 states. Additionally, after work is secured, there is a considerable amount of administrative burden such as reporting requirements and compliance audits when collecting on a government debt contract. Lastly, there are fixed procurement cycles from one to five years, so a firm needs to be involved in new procurements in order to retain the work.”

Before an agency may even approach such a challenge, however, they must first meet an even larger one: becoming eligible to collect government debt. It is best if this monumental task is taken in small steps all the way to capitol hill.

“This is not an easy task,” said Chibnik. “Usually in order to successfully bid on government collection work, an agency has to have experience in that vertical, which is a bit of a catch-22. One way around that is to hire individuals with government experience and expertise. A firm may try to enter the vertical using a local nexus: pursuing local state, county and municipal work. Also, they may try to take advantage of small, woman or disadvantaged owned business set-asides. Often times states give “in-state preference” to firms in the state or in a state that reciprocates on preference. So looking locally, starting small and, of course, writing a good proposal all definitely help.”

Collection professionals are well acquainted with the optimal dynamic to maintain when working with consumers. However, as is the nature of government collections, the dynamic is different when approaching a consumer in the name of Uncle Sam. Unlike the majority of rules created in recent years to “improve” the collection industry, those particular to government collection work in the collection professional’s favor.

“The handling of statute of limitations does come into play while performing government collections, but in a positive way for the agency,” said Chibnik. “Some examples of this are: there is no statute of limitations on federal obligations, there are often differing or extended statute of limitations on state debt. This puts the agency in a good position because neither the agency nor the client has the ability to change the statute of limitations because it is legislated.”

Perhaps it is not all that surprising the government supplies extra legal fortitude to endeavors in which is has a financial interest. To that end, the government seems to be reaching for economic prosperity as many are after the recession of recent years.

“We foresee a bright future for government debt collection,” said Chibnik. “State and local governments are still ‘feeling the pinch’ as far as revenues are concerned, so they all continue to need our services. Additionally, with the Department of Education Student Loan collection contract out for bid and the possibility of the IRS outsourcing project being required to fire up once again, firms specializing in student loan and tax collections will have a lot of new potential opportunities in the near future.”

As with many things in life, both professional and personal, great effort must be made to reap great rewards. This is especially true in government collections.

Utility Collectors Must Change With the Weather

  • Written by Joshua Fluegel

The debt collection process is influenced by multiple factors such as regulation and consumer trends. Utility debt collection is further complicated by regional rules due to weather patterns and other factors unique to the field. Such volatility means day-to-day processes must possess the ability to adapt at the drop of a thermometer.

jonas karen“There are heating and cooling moratoriums during which time a consumer cannot be disconnected for non-payment,” said Karen Jonas, vice president national accounts – Utilities at I.C. System. “Generally, it is the utility’s responsibility to monitor, but collection agencies have to understand the impact and accommodate these. You really have to be able to change as fast as the weather. A good collection agency partner will be adaptable in tough or unforeseen situations by stopping the collection process to those affected areas, of course always in collaboration with their utility client.

“Profitability is a genuine challenge with utilities portfolios that are impacted by weather events. An agency with direct, relevant experience dealing with these events can make a difference in maintaining a long, mutually beneficial partnership between the utility and a collection agency.”


Other challenges specific to utility collections are no more predictable than the weather but slightly closer to the norm of collection challenges.

“Utilities collection projects bring unique challenges - including managing inconsistent placement volume due to client moratoriums, communicating reconnect requirements, linking new charges to existing accounts, and data sharing inconsistencies,” said Jonas. “While not all of these elements are specific to utility collections, in aggregate, they increase the complexity of utility portfolios.”

Given the number of moving parts in utility collections, special tools must be used. Not only does it seem these new tools are being implemented on the collection agency’s end but recently have been implemented on the utility client’s end as well.

“We are seeing a trend of utility clients implementing new structures and processes to manage their collection agency partners,” said Jonas. “Many are utilizing middleware vendors to help meet the needs of increasingly complex projects. Some examples include requirements for more organized and granular debt segmentation (primes, seconds, tertiary, etc.), submission strategies and requirements for champion/challenger competition among their vendors.”

There are several lynch pin items that if not properly addressed could guarantee failure in utility collections. Lacking an understanding of how to handle grace periods, government assistance and moratoriums can cause considerable damage to collection efforts according to Jonas. Relationships with clients and proper handling of their brand are also worth great consideration.

“Failure could also be guaranteed if the agency does not pay heed to brand sensitivity,” said Jonas. “A zero-complaint policy is critical to maintaining a great relationship with your utility client. Most recently, this includes understanding how to be compliant with TCPA legislation.”

Advances in technology, while generally good, do slowly give way to gaps between various clients and agencies depending
on the age of the tools they use.

“When we started working with utilities, we noticed how some had older, antiquated computing environments,” said Jonas. “As mergers and acquisitions took place, disparate systems needed to function together. Middleware vendors often allow utilities to share data that system constraints prevented. We have worked with a number of middleware companies for nearly a decade, and provide expansive expertise in this area. Having this experience reduces our new client onboarding to 30 days or less on average, which by some estimates is one third of the industry standard.”

Once all oddities associated with utility accounts are identified and addressed, a healthy collection process is what will bring efforts to a desired outcome. According to Jonas this process includes proper evaluation and handling of the accounts.

“Some of our best practices include smart segmentation of the number and length of collection tiers, the use of champion/challenger plans supported by scorecards, and generous usage of financial counselor (collector) bonus/incentive plans,” said Jonas. “So, my advice would be to take the time, and do the research to truly understand the unique elements required for utility collections.

“Experience can be tough to come by, but do not underestimate what you are already doing for clients in other markets, because they have some of the same concerns including the increasing brand sensitivity and need for compliant operating processes and procedures.”

Differences aside, the foundation of utility collections relies on what makes the best collection professionals successful: the understanding of client needs and the persistent legal means to meet those needs.