We started TrueAccord to make a difference in the debt collection industry, and that includes shining a light on practices that may not be illegal, but we think are either unethical or promote unethical behavior. We started by reviewing the downsides of quotas in debt collection, and today we’d like to touch on another burning issue: convenience fees.
Charging convenience fees for certain type of payments (card, electronic, or every payment that isn’t cash) is a common practice in debt collection. Even if the agency you’re working with aligns well with your values and expectations (a tough proposition in this fragmented market), you should be very careful about allowed convenience fees, for the following reasons:
- It may be illegal. Some states outright forbid fees, and others are silent but require that the underlying contract allow fees to be imposed. It’s very easy to make mistakes and irk regulators.
- It hurts your brand. Collection agencies are profit maximizers, and it’s obvious why a fee that goes straight to the bottom line is a lucrative opportunity for them. You, however, need the repeat business and can’t treat any customer, even a defaulted one, as a one time opportunity to make a few quick bucks. Take the long term view.
- It hurts your customer. Customers often reach debt collection because they are broke; on average, they owe money to 5 different creditors. Fees prevent them form spending their hard earned dollars in reducing their liabilities. In the long run, less companies get paid, more losses are written off, and customers are generally worse off since they remain in debt.
Don’t let your vendor charge fees that may be illegal, but are definitely on a shaky ethical ground. Treat the collection process as a relationship driven activity aimed at retention and off-boarding where appropriate. You may make less in the very short term, but much more longer term by reducing legal risk and increasing the life time value of your customers.