Nearly 80,000 consumer debt collection complaints have been submitted to the Consumer Financial Protection Bureau (CFPB) since the complaints database has been established. Of these complaints, more than half involve relentless or excessively aggressive communication tactics, false statements, or threatening actions. With companies more focused than ever on fine-tuning every aspect of their CRM process, it’s troubling that there is still a place for collectors who use bully tactics and who flagrantly violate consumer protection laws in the industry.
So why do so many debt collectors still embrace these inappropriate and often illegal practices? A primary reason is the compensation strategy employed by debt collection agencies – most require that collectors meet a daily quota and only give bonuses on a performance-basis. Translation:collection agencies reward those who are bringing in the most money fromdebtors and give pink slips to those who aren’t.
This compensation strategy keeps collectors focused on recovering debts, but the boiler room pressure can also lead to unprofessional, aggressive efforts that push the legal limits with debtors. In conjunction with the fact that many debt collection agencies put Customer Service on the back burner, the intense pressure and barriers to financial incentives placed on debt collectors often fuels threats, humiliation, and harassment.
Several well-publicized lawsuits that involved collectors misleading and intimidating debtors have shed light on this growing problem. In 2013, the Federal Trade Commission shut down a group of California debt collectors who were accused of extortion and making false threats of lawsuits. The collectors worked under a variety of aliases to avoid law enforcement, and even illegally posed as process servers and law office employees when contacting debtors to strong-arm them into making payments.
While the media has brought attention to some of the most egregious cases involving debt collectors, there are thousands of others that are investigated each year by the CFPB. In many of these cases, debtors have been able to sue debt collectors and the creditors that hire them in court for monetary damages and injunctive remedies.
Automation and Compliancy Are Now Essential
With more consumers seeking assistance from their attorneys and the CFPB in cases related to questionable debt collection practices, it’s time to rethink how collectors are communicating with debtors and how they are being compensated.
Replacing risky, person-to-person phone communication with automated, CFPB-compliant and CRM-focused collection practices is the first step in a better recovery strategy. The dreaded debt collection call must become a relic of the past, leaving collectors – in their capacity as customer service or engagement specialists – to deal with the more complicated cases. In addition, having a system that both allows self-service for debtors as well as reacts to their actions intelligently is also a key component of this strategy.
With this type of automation and compliant communication, creditors drastically reduce their legal risk while maintaining a consistent level of service with late and non-paying customers. Data generated from the system can be leveraged to better track and monitor debtor responses and recovered amounts, as well as retain them for their future business when they bounce back.
The CFPB will introduce new debt collection rules in 2015, and thus, complaints, lawsuits and legal risk will be increasing. Collectors and creditors that continue to embrace unprofessional, aggressive, or illegal collection practices will only put themselves at greater legal risk. And, those that choose an automated debt recovery solution will be well positioned to boost their recovery rates and avoid costly, time-consuming lawsuits, bad customer service and lower yields.