There has been much discussion lately about financial transparency within the financial services industry. Assuring that all consumers have access to credit and have the full story relating to their financial institution is a necessary part of commerce. But how does financial transparency trickle down to the back-end of the credit lifecycle… collections?
By first understanding what financial transparency means to front-end lending, we may be in a better position to understand how it may impact debt collections.
Financial transparency, according to the Financial Dictionary (http://financial- dictionary.thefreedictionary.com), is defined as “The state in which all relevant information is fully and freely available to the public.” Simply put, it means the financial institution is not hiding anything; it is being honest about their performance, even when it’s not perfect. Financial transparency allows for investors to make wise investments in a company and it allows consumers to make the right choice for them when obtaining credit.
Without financial transparency in the lending industry, consumers could not make well-informed choices about from whom to obtain a mortgage, auto loan, student loan, credit card or any other type of financial product.
So how does this flow down to the collection of a past due account? Financial transparency flows through to collections in the way in which you provide an open line of communication to consumers, providing them with the documentation they request to prove the balance and ownership of the accounts. Collectors need to be clear on who they are and who is the original creditor. They must be clear on what options are available to consumer, and what actions the collection agency can legally take to collect the debt.
“The majority of consumers in collections are good people who have hit a rough spot. Most people want to pay, but circumstances are such that they just can’t,” explained Thomas C. Brown, senior vice president, U.S. Commercial Markets and Global Market Development, LexisNexis Risk Solutions.
“Bringing them back into commerce is a good thing for everyone involved and the economy as a whole. To do that, though, banks and/or collectors need to make the environment of collections transparent by stating their intent in communications and touch-points with the consumer,” stated Brown who has been in the credit and collections industry for 28 years. “Transparency is key to thriving in the current highly regulated collections industry, it not only keeps you in line with the regulator’s expectations, but it is also fair to the consumer,” said Brown.
The CFPB has made it very clear that one of their goals is to improve fairness and transparency in the debt collection market. On the Compliance & Guidance page of their website, the first thing they say is, “Our goal is to issue regulations that protect consumers and promote fair, transparent, and competitive markets.” In July 2016, a blog post titled “We’re working to improve fairness and transparency in the debt collection market for you” appeared in the CFPB’s blog1 as an explanation to consumers about the release of the proposed collections rulemaking the CFPB announced that month.
The CPFB has always been very clear in their settlements and rulings with collection agencies that being transparent is an expectation, not a suggestion.
In the CFPB’s Fall 2016 Supervisory Highlights2, the CFPB cites several violations that could have been avoided with complete transparency to consumers:
• Collectors telling consumers that the ability to settle the collection account was revoked or would expire when in fact the consumers still had the ability to settle.
• Collectors had impersonated consumers while using the relevant creditors’ consumer-facing automated telephone system to obtain information about the consumer’s debt.
• Collectors purported to assess consumers’ creditworthiness, credit scores, or credit reports, which were misleading because collectors could not assess overall borrower creditworthiness.
As you can see, transparency is critical in all phases of the consumer’s financial lifecycle. From up-front lending practices, to back-end collection practices, being transparent with consumers is not only the ethical thing to do, but it may also help to keep you out of hot water with the regulators.
Linda Straub Jones is Director of Collections Compliance at LexisNexis Risk Solutions.