Over the past two years, revolving credit card balances have grown more than 25% and are now above $1.2 trillion. Additionally, personal savings rates are stubbornly holding near 65-year lows, and combined with higher interest rates driving higher minimum payments, consumers are obviously feeling the stress. At the same time, delinquency rates on these higher balances have increased over 45%, putting significant strain on bank credit losses.
So what can lenders do? Let’s start by looking at what consumers want, and what outbound calling agents would like to see as well.
What do Customers Want? And What do Agents Want?
For businesses executing outbound call strategies and leveraging dialer technologies, the range of right party contact rates are anywhere from a struggling 0.5% to 4%. With these diminished returns of connection rates, calls become more expensive and less impactful.
It’s no secret that consumer preferences are changing rapidly and younger generations especially do not want to answer phone calls—and it’s important to keep in mind these younger borrowers will be the customers businesses will be servicing for the next 30 to 40 years, especially in a delinquent environment.
In general, consumers want to pay off their debts, but they want to be able to do so when it’s most convenient for them, which is often outside the “presumptively convenient times” between 8am and 9pm. In fact, 25% of payments come in after 9pm or before 8am. At TrueAccord, results show that more than 96% of customers resolve debts without any human interaction when digital options are offered.
But what does that mean for the humans dialing phones for traditional call-and-collect methods?
When businesses deploy an outbound call strategy before digital, often agents are shooting in the dark despite good intentions and dedicated efforts—which can affect outbound agent morale, making it a difficult environment to hire and retain top talent. And given today’s economic landscape, it’s challenging to call and collect from people who are behind on their bills or payments when so many other financial obligations are competing for dollars.
The key: let agents do what agents are good at—the human touch—but leverage digital as the first touchpoint. Let digital get the customer to understand where they are in delinquency. If and when they want to talk to a human, agents are there to do what agents do best: empathize and resolve any issues that digital cannot.
Agents are able to attend to higher-value inbound calls when digital, self-serve options are available for those who just want to make a payment—and it allows those customers to do so in a more convenient, preferred way.
Digital-First, Save More
Digital early stage solutions reduce collections costs for leading organizations across industries by making full-time employees (FTEs) more impactful (or even lowering FTE headcount) and reducing overall expenses while maximizing repayment rates.
Companies that do rely heavily on an outbound call strategy must realize how expensive each call becomes. The longer that an account is in delinquency, every call becomes more expensive because the likelihood or the propensity to pay diminishes as the debts get older in age. So being able to automate and find those right channels at the right time with a digital strategy will help those phone calls get better results.
Plus, the digital first strategy is infinitely scalable—it doesn’t matter how rapidly a business grows on the frontend for lending or on the backend with new accounts that fall into delinquency. This digital-first approach allows companies to mitigate against turnover or having to compete for talent in the market. And again, FTEs can now be more effective in the delinquency cycles where phone calls are preferable, especially as accounts get further into delinquency.
Making outbound phone calls absolutely serves a vital part of a business’s omnichannel strategy, but deploying digital first will make those calls more cost-effective. It also delivers a stronger connection rate by identifying those preferences through feedback from leveraging a digital-first communication strategy.
Think about how this data can help businesses not only from a performance and liquidation perspective, but by learning from which customers are opening communications versus which ones aren’t. Those that don’t respond to digital should go to the top of the call queue because the data points towards a probable preference for person-to-person calling.
Learning from these digital engagements is vital for optimization, but if an organization is new to digital communications or has only been sending mass-blast, one-size-fits-all emails, it can feel like an uphill trek to start getting insights to drive better results.
But by partnering with TrueAccord, who’s been mining consumer engagement data for over 10 years, businesses get plugged in and start benefiting from our data from the get-go. Being able to automate with TrueAccord allows your company to focus on inbound human interactions while simultaneously, TrueAccord’s first-party, client-labeled platform sends effective digital communications to all of your past-due accounts.
The bottom line benefits of working with TrueAccord:
Maximize the productivity of your business’s resources with a managed, digital-first approach that enhances the efforts of your FTEs and overall collections operations. Start with a consultation today!
Reaching consumers can feel harder than ever these days, so struggling to engage delinquent customers can leave some businesses ready to accept losses as just another “cost of doing business.” With 75% of Americans reporting that they will never answer calls from unknown numbers, even the most targeted scoring model for calling has low chances of recovering funds.
But the omnichannel approach—utilizing a combination of calling, emailing, text messaging, and even self-serve online portals—is the preferred experience for 9 out of 10 customers, according to a study conducted by UC Today. And it’s not just beneficial for consumers. The omnichannel approach has been shown to increase payment arrangements by as much as 40%!
So integrating an intelligent digital communication strategy with traditional call-and-collect or letters sounds like a smart plan, but why is it more important now than ever before?
Let’s look at why today’s economic landscape makes omnichannel engagement critical for collections and how your business can get there.
Delinquencies are Rising—And Call Centers Can’t Keep Up
The first quarter of the year revealed that Americans have almost reached $1 trillion in credit card debt, breaking a record set in 2019. Fueled by inflation and higher interest rates among other economic factors, some card issuers’ charge-off and delinquency rates are also rising back up to their pre-pandemic levels.
So we know that delinquencies are on the rise in addition to new compliance regulations that have put greater restrictions on calling (such as the inconvenient times rule, 7-in-7 rule, among others), which put greater limitations on the reach call centers can actually have. Even using scoring models to focus on those who have the highest propensity to pay, consumer preferences have moved away from engaging through (or even answering) the phone.
Even if you know which delinquent accounts are primed for repayment, old school methods will never be able to reach them all efficiently in comparison to digital engagement.
On top of that, consumers are typically already carrying out financial transactions online—so why would a business expect their preferences to shift offline when it comes to handling another financial interaction? When a customer defaults on their account, it is a disruption to their lives to suddenly receive phone calls and letters regarding an account for which they previously only communicated via digital channels.
From our own experience, many of TrueAccord’s creditor-clients prefer a seamless transition to debt collection, and will even go so far as to prohibit TrueAccord from making any outbound calls or sending letters on their accounts because their customers have only ever interacted digitally.
It can even stifle the flow of information that helps consumers make informed decisions about their finances. According to the Pew Research Center, “reliance on smartphones for online access is especially common among younger adults, lower-income Americans and those with a high school education or less.” In fact, 87% of TrueAccord consumers visit our web portal from their mobile devices and tablets, not their desktop computers. Choosing not to engage via digital methods can hurt vulnerable populations of consumers who primarily conduct most of their affairs digitally.
But the answer to this challenge isn’t going 100% all-in on digital communications necessarily. There’s a better way to reach past-due customers and collect more, faster (and from happier people).
Enter the Omnichannel Approach
We’ve seen that call-and-collect operations have proven less successful over time, even using propensity to pay scoring models, but there is a time and a place for those traditional methods in an omnichannel strategy. Adding different technologies to your debt collection operation like email, SMS, and even self-serve online portals can actually enhance the hard work your call centers are already doing and make it overall more effective.
Why is the use of different channels—and more importantly a customer’s preferred channel—so critical for today’s debt collection efforts? The numbers speak for themselves:
46% of consumers expect to communicate through preferred channels
Initiating contact with delinquent customers through their preferred channels can lead to a more than 10% increase in payments
Some banks have found digital communication channels can increase payment rates of customers in late delinquency by 30%
Lenders that have implemented digital-first solutions have seen their cost of collections fall by at least 15%
Traditional outreach methods like outbound calling elicited 18% fewer responses from customers with accounts 30 days past due who prefer digital communications.
The key takeaways from these studies go beyond just “going digital”—to see improvements in engagement rates, repayments, and operational costs you must communicate through the consumer’s preferred channels.
At TrueAccord, we’ve seen this approach’s success time and time again for our own clients and their customers.
Statistics and Stories from the TrueAccord Omnichannel Strategy
Almost all TrueAccord communications with consumers (93%) happen electronically with no agent interaction. The remaining 7% of consumers who do interact with an agent, send an inbound email or make a phone call to our inbound call center where any of our customer care agents are prepared to assist with their request. This is a more cost-effective and efficient use of agents’ time versus making outbound calls, which benefits both businesses and their customers, as one consumer told us on June 1, 2022:
“Thank you for not calling a million times and texting me and allowing me to pay this when I could.”
As described above, TrueAccord primarily sends digital communications to help consumers navigate and take actions at their convenience online, as this consumer told us on January 18, 2023:
“I like how you explain everything in detail by email and easy payment plans for people to regain their credit scores and to get back on their feet.”
In fact, more than 21% of consumers resolve their accounts outside of typical business hours (before 8am and after 9pm) when it is presumed inconvenient to contact consumers under the federal Fair Debt Collection Practices Act (FDCPA). If we relied solely on reaching consumers during a call center’s business hours, that is almost a quarter of consumers who wouldn’t engage and take the next steps in their repayment process.
Our omnichannel approach is compelling for our clients as well—and it’s proven to pay off. As Todd Johnsen, Senior Manager of Collections Vendors for Snap Finance, explained:
“This audience [consumers in debt] may have already had experiences with incessant collection phone calls, and they are used to avoiding them. I wanted to find an agency that was doing things differently. I knew that TrueAccord was using technology and digital channels in a way that other providers weren’t. What we saw was almost 25-35% better performance with TrueAccord, compared to the accounts we placed with traditional agencies.”
See what other clients and consumers had to say about their debt recovery experiences with TrueAccord in our case studies and resources here»»
The Recovery Opportunities are Ripe with the Omnichannel Approach
Omnichannel targeting is a more effective way of maximizing repayment and conversation rates by offering a level of service and personalization that customers have come to expect from companies in the digital age.
With this holistic communication strategy, you can engage with every single account while call center agents still deliver the human touchpoint that can never fully be replaced. Reach customers with the right message, through the right channel, at the right time that works best for them—whether through email, text, or with a real person ready to guide customers back to financial health.
More than 20 million US households are behind on their utility bills, according to the National Energy Assistance Directors Association (NEADA), which described it as the worst crisis it has ever documented. Delinquencies are rising across all industries, but utility debt specifically has doubled from pre-pandemic levels, and as moratoriums ended customers faced the onslaught of unpaid bills.
So how can utility providers (or any company facing a rise in delinquencies) collect on past-due balances while still helping struggling customers get back on their feet since the moratoriums lifted?
It starts with understanding today’s financial landscape and refining your debt recovery outreach to meet customers when, where, and how they can best get back on the path to financial stability. Let’s look at how serious the current situation is for utility debt and the recovery strategies to keep bad debt from rolling into uncollectible write-offs.
A Historic Situation for Utility Providers and Consumers
Having customers behind on payments is nothing new for utility providers: before Covid-19 Americans had about $8 billion in utility debt, but today this number has doubled to $16 billion with high energy prices and pandemic-related job loss as major contributing factors to the jump.
In March 2022, overall energy prices increased 32% over the previous 12 months, according to the NEADA. The Bureau of Labor Statistics broke this down even further, finding the price for natural gas rose 21.6%, electricity up 11.1%, and heating oil and propane up 70.1% within the same timeframe.
Utility providers across the country are seeing the effects of this multifaceted issue:
California’s PG&E Corp. reported more than a 40% jump in the number of residential customers behind on payments since February 2020
Minnesota’s CenterPoint Energy and Xcel Energy experienced more than 246,000 customers behind on their bills in February 2022
New Jersey’s Public Service Enterprise Group saw the total of customers at least 90 days late rose more than 30% since February 2020
And in New York more than one million households have fallen delinquent with at least $1.7 billion owed in unpaid energy and utility bills since the start of the pandemic
Facing this historic situation for both residents and utility providers, what can companies do to both recover the overdue balances and ease some of the stress on consumers?
How to Help Customers and Collect More in the Process—A Real World Example with Real Results
While overdue and unpaid bills are not unexpected, there was no way any company could predict the unprecedented toll from the pandemic: the average balance owed has climbed 97% since 2019, according to NEADA.
But the pandemic did illuminate how well customers respond to digital communications and self-serve options for their utilities. One of our TrueAccord clients, a national leader in electric utility systems, realized this firsthand after the moratoriums began to lift—and after making the switch from traditional collection practices to a digital-first omnichannel approach, the utility provider recovered over $17 million with TrueAccord’s intelligent client-labeled early-stage recovery platform.
Historically, this electric utility provider relied on direct mail and an in-house call center to contact customers with overdue accounts. But during Covid, the provider saw engagement and revenue decline using these old methods, due in part to changing customer behavior. It was time to find a new effective and customer-friendly way to collect on growing delinquent utility bills.
The electric utility provider had already observed that its customers were becoming more digital, from engaging with its distribution companies’ mobile apps to using online outage maps and bill pay tools—and the trend only seemed to be picking up during the pandemic.
The utility provider decided to deploy a digital outreach strategy to drive customer engagement and resolution through TrueAccord’s early-stage collections platform. Every email goes out under the provider’s brand name, but under the hood, HeartBeat—TrueAccord’s patented machine learning engine—dynamically optimizes every digital touchpoint in real-time based on signals of engagement. It also helped the provider boost the efficiency of their call center: instead of trying to get delinquent customers on the phone through outbound dialing, contact center agents can work as productive inbound solutions specialists.
And the utility company saw a transformational financial impact:
Recovered over $17 million
Collected over 63,000 payments
$300,000 of delinquent funds collected daily
44% paid in full rate
24% overall collections rate
Ultimately, TrueAccord enabled the company to deliver an effective and empathetic approach to collections—one that is sure to transform the utility provider’s relationships with its customers.
Effective, Efficient, Empathetic—Keys to Better Collections in Utilities
Both providers and their customers are facing another wave of unprecedented conditions when it comes to utility debt, but new digital-first omnichannel collection strategies can hold the keys to better recovery.
Businesses and consumers are buckling up for a bumpy economic road in 2023, but your company doesn’t have to accept that these recovery roadblocks spell inevitable losses. With the right digital communication strategy you can turn challenges into opportunities and engagement into recovered revenue.
Let’s look at the roadblocks—and uncover the opportunities.
The Roadblocks Between Your Business and Better Recovery
Delinquencies have been rising (and show no signs of slowing down). According to the latest Experian’s Ascend Market Insights report released in January 2023:
Overall balance delinquency rates increased 6.88% in December
30+ day past due accounts showed a 3.94% increase month over month
Month over month views of roll rates show 1.05% of consumer accounts rolled into higher stages of delinquency in December 2022
And looking ahead, TransUnion forecasts serious delinquency rates of 2.6% on credit cards by the end of 2023, up from 2.1% at the end of 2022.
Additionally, it’s no secret that consumer preferences have changed. It’s becoming nearly impossible to reach consumers through traditional methods like outbound calling and letters.
49.5% of consumers take no action after a collections phone call
But now “going digital” isn’t enough—consumers expect self-service, a dynamically personalized experience, and continuous optimization that helps them resolve debt on their own terms and according to their own preferences.
46% of consumers expect to communicate through preferred channels
72% of consumers say they only engage with personalized communications
90% of customers globally expect brands or organizations to have an online self-service support portal
Turning Roadblocks into Omnichannel Opportunities
These ongoing trends could be perceived as challenges, and as a result, many businesses accept losses as a “cost of doing business”—but with the right strategy these roadblocks can actually be opportunities to drive optimization and better engagement.
If your business has been relying on only call center operations, it’s time to shift gears and move to an omnichannel approach—a more effective way of maximizing repayment and conversion rates by offering a level of service and personalization that customers have come to expect from companies in the digital age. An omnichannel strategy facilitates engagement with customers and enables them to self-serve while freeing up agents to talk to customers that need more assistance.
McKinsey found in a study of 1,000 delinquent customers that digital channels such as emails and text messaging drove higher repayment action rates vs traditional channels, like outbound calling. In some cases, traditional outreach methods elicited 18% fewer responses from customers with accounts 30 days past due who prefer digital communications.
And the benefits of communicating with consumers digitally continues:
65% of consumers open at least one email
35% click at least one link in an email
25% visit links after 9PM and before 8AM “presumptively inconvenient times”
And predictions show that 61% of total interactions with a brand will be through messaging by the end of 2023
At TrueAccord, we’ve found that 96% of consumers who resolve their debt with us do so via digital self-service, without any human interaction. But don’t just take our word for it:
“This audience [consumers in debt] may have already had experiences with incessant collection phone calls, and they are used to avoiding them. I wanted to find an agency that was doing things differently. I knew that TrueAccord was using technology and digital channels in a way that other providers weren’t. What we saw was almost 25-35% better performance with TrueAccord, compared to the accounts we placed with traditional agencies.”
Navigate 2023’s Roadblocks with Your Roadmap to Better Recovery
While the economic landscape may seem like there’s a rocky road ahead, consumers aren’t taking an entirely negative outlook. According to TransUnion’s Consumer Pulse study, 52% of U.S. consumers said they are optimistic about their financial future during the next 12 months.
When it comes to New Year’s resolutions, improving personal finances isn’t anything new. But as we look ahead to 2023, we see more and more Americans adding serious financial goals to their list. A recent Ascent survey found 66% of Americans plan on making a financial resolution.
And your business should be paying attention to the New Year goals of consumers: it’s the ideal time to support your customers to pay off debt (one of the most common financial resolutions for 2023) by meeting them where they are—with the right message, right channel, and right time.
Let’s take a look at why now is one of the best times to start engaging with consumers in a more flexible way to recover more in 2023.
Financial Resolutions Rise, Along with Delinquency Rates
As we mentioned above, financial resolutions aren’t new, but the number of Americans making them is rising (which might have something to do with rising delinquency rates). For 2022, it is estimated that more than 92 million Americans made financial new year’s resolutions, compared to only 60 million who reported making a financial resolution in 2021. And surveys found that 41% of respondents expressed a strong desire to prioritize paying down debt in 2022—a trend that will continue into 2023 for good reason.
For six consecutive months there have been increases in the 30+ days past due delinquency rates, with those accounts showing a 3.28% increase month over month in October, according to Experian’s November Ascend Market Insights. Looking ahead, TransUnion predicts delinquency rates could rise to 2.6% at the end of 2023 from 2.1% by year-end, which would represent a 20.3% year-over-year increase in delinquent accounts if the projections prove accurate.
Regardless of consumers’ personal financial goals, these delinquency rates and predicted trends are a sign that if you’re not already tailoring your collections communications to today’s consumer preferences, then a better engagement strategy needs to be your organization’s resolution for 2023.
New Year, New You, New Collection Strategy
Meeting consumer preferences is about more than just boosting your bottom line (although that is a bonus)—showing empathy as delinquencies continue to rise can help retain customers even during their often stressful experience of being in debt. An early December survey from U.S. News & World Report shows that 81.6% of Americans who have credit card debt are experiencing anywhere from a little to a lot of anxiety about it. Among respondents to the Ascent survey who plan to make financial New Year’s resolutions for 2023, only 20% are optimistic about keeping them, with 63% predicting it’ll be too expensive to do so.
Help your customers keep their resolutions by making it easier for them to engage on their own terms with the right message through the right channel at the right time, and recover more in 2023.
Let’s look at how to do it:
Right Message As all these recent surveys have shown, consumers are literally telling us that they want to pay down debt in the new year. But treating them in a one-size-fits-all approach can fall flat when trying to engage an individual, especially when it comes to sensitive financial situations or delinquent accounts. In fact, 72% of consumers say they only engage with personalized communications, so don’t miss the opportunity to communicate in a way that resonates with them. Learn more in our Buyer’s Guide to Digitally Engage Your Past-Due Customers here»
Right Channel Engage with consumers through their preferred channels, whether it’s by email, SMS, or traditional calling. Research shows that 46% of consumers already expect to communicate through preferred channels. By using advanced machine learning (like TrueAccord’s patented decision engine, HeartBeat), your business can identify the ideal way to reach the customer and pivot in realtime based on reactions or engagements. Learn more about how to Elevate Your Collection Strategy with Machine Learning and HeartBeat here»
Right Time Minimize unnecessary communication efforts and reach consumers at a productive time—which can be easier said than done if your business is still relying solely on call-and-collect methods. To meet compliance regulations, the FDCPA prohibits communication through any channel at known inconvenient times for consumers, presumed to be inconvenient between 8AM to 9PM, but often customers choose to pay their bills and resolve their accounts outside the presumptively inconvenient hours as long as they can access online account portals that allow them to see account information and take actions to resolve their account. Learn more about it in our State of Compliance & Collections report here»
Just as technology has evolved leaps and bounds, so have consumer communication preferences with that technology, especially when it comes to debt collection. So in 2021, the Consumer Financial Protection Bureau (CFPB) rolled out Regulation F under the existing Fair Debt Collection Practices Act (FDCPA). Regulation F seeks to provide additional clarity around the key FDCPA prohibitions covering everything from harassment, such as the 7-in-7 call caps, to sample language for the initial communication with enhanced disclosures and information to help consumers identify their accounts.
Now, one year after Regulation F has gone into effect, some organizations and lenders still have questions about these new rules and how they can impact their business overall.
To help elucidate the matter, TrueAccord’s Chief Compliance Officer and General Counsel, Kelly Knepper-Stephens, sat down with the CBANC Network to discuss Using Regulation F to Maximize Recovery.
Below are just a few highlights from the in-depth discussion, but we encourage you to watch the full on-demand webinar to learn more about:
Safe Harbors in Regulation F (and if they are worth it)
Social Media communication best practices
Rules on contacting consumers including from other laws like the TRACED Act
State and municipal laws applicable to debt collection
Highlights from “Using Regulation F to Maximize Recovery” with Kelly Knepper-Stephens*
We have found at TrueAccord that maintaining strong compliance with Regulation F doesn’t decrease your ability to recover defaulted debts from consumers. We know that consumers like digital collections, because we primarily communicate using digital channels.
At TrueAccord, we find that 65% of consumers are opening at least one email—and 35% click on the link in the email that directs the customer to the webpages with information about the account settlement offers and payment plans, how to dispute, et cetera. For TrueAccord, 96% of consumers resolve their account without any human interaction whatsoever because they find the information that they need through the self-serve platform.
The regulators understand the growing preference for digital and self-service methods, and have acknowledged in Regulation F that it is permissible for a debt collector to communicate with consumers via these digital channels, including adding rules about how to use social media in debt collection.
TrueAccord was very active in the CFPB’s Regulation F rulemaking process for this reason. We served on the small entity review board business panel in order to provide feedback as to the potential impacts of the draft proposal on our small business. We also provided a lot of data and information on how we designed our digital communications, such as having unsubscribe links in all email communications. This was important because at the time TrueAccord was one of the only companies in the industry using digital. The end result actually mimicked some of our best-practices practices.
Engaging the consumer is the fastest path to resolution, so no matter the channel—email, text message, phone calls, et cetera—using all channels compliantly to identify the right time, right channel, right message to engage the consumer is the ticket to success.
*Kelly serves as TrueAccord’s Chief Compliance Officer and General Counsel. This blog is not legal advice. Legal advice must be tailored to the particular facts and circumstances of each unique matter.
Whether you’re a startup or an established organization, understanding the laws and regulations that apply to debt collection can be overwhelming. Compliance is always evolving as new laws and regulations are passed, new technology is introduced, consumer preferences shift, and court decisions or regulatory guidance suggest modifications to best practices. Fortunately, the knowledgeable team at TrueAccord is here to help break down some of the top questions around compliance in the collections industry.
What are the major regulations lenders need to know about?
What are the consequences of non-compliance?
What kinds of businesses need to comply with these regulations?
What are the top challenges that you see ahead for compliance in collection?
What keeps a legal or compliance professional in collections up at night?
We asked some of the TrueAccord compliance professionals to provide insight to these top questions.*
*This blog is not legal advice. Legal advice must be tailored to the particular facts and circumstances of each unique matter
1. What are the major laws and regulations lenders need to know that govern debt collection (and debt collection service providers)?
Steve Zahn [SZ]: Right off the bat, obviously the Fair Debt Collection Practices Act, or the FDCPA, is the major law lenders need to know about for debt collection. There are also some similar state laws, but the FDCPA is the big one that governs debt collection activity.
Kelly Knepper-Stephens [KKS]: The CFPB just finished a rulemaking in 2021 related to the FDCPA, referred to as Regulation F, in an effort to modernize and work through some of the issues that occurred and played out in the courts over the last 45 years since the FDCPA took effect. The TCPA—the Telephone Consumer Protection Act—is another law that impacts debt collection. It doesn’t just regulate phone calls. It also regulates text messaging and it regulates leaving pre-recorded messages for consumers. So it’s important to be aware of how that impacts the types of consumer communications that a business will be using.
Lauren Valenzuela [LV]: One of the most important laws that sometimes gets overlooked is the Dodd-Frank Wall Street Reform and Consumer Protection Act. This is what created the Consumer Financial Protection Bureau, the CFPB. It’s also what created what we know as UDAAP—Unfair, Deceptive, or Abusive Acts or Practices. The CFPB gets its UDAAP authority from that particular law, and it also gave the CFPB authority to interpret and make rules for the Fair Debt Collection Practices Act.There are other laws that impact our work as well, such as the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, Electronic Signatures in Global and National Commerce Act, known as the E-Sign Act, among others.
Leana Lares [LL]: Additionally, if a business is working with consumer personally identifiable information, private information, then they should definitely know about all of the different federal and state privacy and data security laws.
2. What are the consequences of non-compliance?
LV: Consequences of non-compliance are very vast. Non-compliance can lead to increased consumer complaints. It could also lead to enforcement by state or federal regulators, which could result in fines and penalties. It could result in consumer litigation. Non-compliance can also jeopardize an agency’s collection license and ability to conduct business in a particular state or locality. But most importantly, the consequences of non-compliance is erosion of consumer trust and also your client’s trust. So compliance is incredibly important for everybody and especially for us here at TrueAccord.
SZ: In litigation, penalties can include: (a) statutory damages, e.g., up to $1,000 for the FDCPA or $500-$1,500 per violation for TCPA; (b) actual damages, e.g., physical manifestations that are the result of emotional distress; and/or (c) punitive damages, if the conduct is so outrageous or intentional that it gives rise to addition damages designed to punish. In addition, the court or regulatory agency can award costs and attorney fees to the prevailing party and can also enter an order prohibiting or requiring certain conduct in the future. Finally, regulatory agencies have the ability to order disgorgement of funds collected and/or an award of damages to the agency itself.
3. What kinds of businesses need to comply with these regulations?
LV: Third party debt collectors need to comply with these laws and regulations, and sometimes so do servicers and first party debt collectors in some form or fashion.
For example, creditors are exempt from some of the laws, such as the federal FDCPA, and sometimes they’re not (such as the case with some state debt collection laws). So it really just depends on the specific law, but needless to say, everyone should really be aware of the laws and regulations that apply to this particular type of line of business. Because even if you don’t have to follow it, sometimes there’s a lot of best practices that can be found in these laws and regulations as well.
KKS: Not just debt collectors. It really depends on the type of work that a particular business conducts and whether or not a statute covers that conduct. For example, the TCPA governs entities making phone calls, sending text messages, or leaving pre-recorded messages for consumers, so it regulates any entity, public or private, using these forms of communication. For the FDCPA, it regulates the collection of a debt, so a business needs to look at what is the definition of “debt” and are these accounts “debts” under that definition. As well as, whether the activities of the business fall under the statute’s definition of a “debt collector” or any of the exemptions?
4. What are the top challenges that you see ahead for compliance in collection?
LL: Some of the top challenges that we see ahead in compliance definitely has to do with the ever-changing landscape of our industry. For example, consumer privacy laws are popping up everywhere. Here in the United States, many of the privacy laws borrow aspects of the GDPR. California adapted their privacy law, the California Consumer Privacy Act (CCPA), to mirror the concept of transparency and granting individuals new rights over their personal information. We are seeing many different states implement privacy laws and all the different states have different rules (e.g., California, Virginia, Utah, Colorado, Connecticut). Some of them parallel each other, some of them are drastically different. So it’s very important to keep up with all of these things, and TrueAccord does a great job of that.
LV: We’re seeing compliance professionals have to partner more and more with information security. It’s not a challenge so much as an area where I think compliance professionals in the industry are really going to have to increase their knowledge and competencies in the information security discipline. Also, making sure that they’re just staying ahead of the curve when it comes to best practices with cybersecurity and data privacy. We need information in order to conduct our business and to do it effectively;so making sure that you have all the necessary safeguards in place is of paramount importance.
Another top challenge for the collections industry at large is figuring out how to best use machine learning (a subset of AI)—not only learning how to use it, but also how to mature your compliance management system (CMS) so that it accounts for your use of it. If you’re using any type of analytics or algorithms, or if your service providers are using any type of analytics or algorithms, you need to evaluate your CMS to make sure you have proper oversight of that technology.
5. What keeps a legal or compliance professional in collections up at night?
KKS: Uncertainty with changing regulatory rules. It’s relatively easy to provide legal and compliance advice when you have clear rules of the road. But when there are statutes with different interpretations, regulators with different approaches, or a patchwork of differing court opinions on a given topic it is more challenging.
LV: The ability for a company to stay nimble while avoiding compliance fatigue. You have to be a cheerleader for compliance and keep up the energy, make sure everybody understands their compliance obligations so that they can adapt to it and operationalize it. Sometimes there can be ambiguity in the application of a certain law or a regulation to a particular set of facts or a particular technology or system. We often need to create clarity from ambiguity, while also doing what is best for consumers, what’s best for business, and lead the way in creating best practices when there may be ambiguity.
SZ: As an Associate General Counsel at TrueAccord, not much keeps me up at night. We have a tremendous system, compliance program, and corporate culture of compliance and striving to be polite and friendly with consumers.
Delivering communications to your customers has always been a compliance challenge with the plethora of laws, regulations, court decisions, and regulatory guidance in the debt collection space. Today with more communication channels available and regular communication from debt collection regulators—via consent orders, compliance bulletins, supervisory highlights, and even press releases—your compliance management systems and design must be flexible and easy to update.
To get expert insights on the newest compliance issues and opportunities that need to be front of mind when sending digital communications to effectively engage your customers, Associate General Counsel Lauren Valenzuela and Director of User Experience Shannon Brown teamed up to discuss the Future of Collections & Compliance in TrueAccord’s latest webinar.
Below are some of the key takeaways from their discussion, plus attendee poll results on top compliance questions.
*This blog is not legal advice. Legal advice must be tailored to the particular facts and circumstances of each unique matter.
The Current State of Compliance
Lauren Valenzuela [LV]: Needless to say, over the last 10 years the CFPB has fundamentally changed how we think about and approach compliance. That has really influenced our industry and how we think about communications in debt collection.
LV: Over the last decade the CFPB has taught us that compliance is an evolving thing. It’s not something that you can set and forget. It is something that is dynamic and that must constantly evolve and mature in order to be effective, because our environment is constantly changing.
Attendee Poll Question: What is the biggest compliance issue you face when trying to engage with your customers?
Changing Consumer Preferences for Collection Communications
LV: The CFPB recently published a blog and shared that it is a “mobile first” agency, meaning that most people who visit its website are using mobile devices or smartphones. Here at TrueAccord, what does our information show about mobile usage?
Shannon Brown [SB]: Consumer mobile use has skyrocketed. In 2016, about a quarter of our consumers were using their phones to read emails and visit our website—and that number has increased to consistently above 80%. We’ve put a lot of effort into making sure our emails and website are responsive to make sure we’re meeting the needs of our consumers who are overwhelmingly on mobile. We’ve made sure our pages are able to load faster for consumers that have less stable cell connections and really made sure our interactive elements are big and optimized for tapping with a finger instead of clicking with a mouse. As far as communications, our consumer research has really shown that most consumers don’t answer the phone and want to be contacted through digital channels—they want a multi-channel experience.
LV: So we’re seeing consumers increase use in mobile phones. Even the Bureau has seen that, and we’re seeing banks increase their use of digital technologies to communicate and facilitate transactions and engage with their consumers as well.
What’s the Role of the Legal Team in Your Collections Strategy?
LV: There needs to be a partnership between compliance and pretty much all core functions, and especially at a fintech company like TrueAccord where our technology and our digital communications platform are the center of what we do to help consumers. It’s really neat to see compliance interwoven, and I think that’s reflective of its compliance management system and company culture.
Compliance Management System Evolution
LV: Ten years ago, many collection agencies were likely in the undisciplined stage, where there was some type of compliance ongoing, but it didn’t have much structure—processes may be undocumented, potential exposure to vulnerabilities that expose themselves on lawsuits, for example.
The next iteration is reactive, meaning there is development of some policies and procedures, controls are identified, and the company is responding to issues and incidents reactively.
The next level is calculative. At this level, leadership is actively engaging the organization in compliance, risk assessment processes are maturing, corrective action plans are being developed and executed to remediate deficiencies.
This next level is proactive, meaning employees are trained and following clear policies and procedures, and such procedures have built in intentional redundancies. The organization is being proactive in identifying and responding to issues and incidents and is self-identifying deficiencies and essentially executing on comprehensive corrective action plans.
Generative means that there’s continuous improvement towards challenging goals, which are driven by data analysis. There’s critical evaluation of policies and procedures and controls, and risk is integrated in operations. Issues and incidents resolutions are driven by stakeholders and really enhanced controls.
Attendee Poll Question: Which category does your Compliance Management System (CMS) fall under today?
LV: So no matter where you’re at within your compliance management system and no matter what maturity level, the important thing to remember is that you don’t have to stay there—you can evolve. We can’t stress this enough. Compliance is an evolving and dynamic thing, and should be constantly evolving to stay effective in whatever environment it is in.
The fact that TrueAccord has a well-oiled compliance management system allows us to study that climate and then figure out how to translate it and make tangible improvements in our consumers’ experience. That’s something we encourage everyone to do: think about the consumer experience and the environment you’re collecting in, because it looks remarkably different than it did five years ago for example, and we should all be evolving.
The Product Perspective
LV: How has the CFPB influenced how we develop our products here at TrueAccord?
SB: Compliance has been built into our product development life cycle. Besides frequent meetings with our compliance team for feedback and approvals throughout the life cycle, we’ve designed and built our product so we can be nimble in responding to regulatory changes, which we know happen a lot.
LV: There are numerous federal, state, and local laws. Can you give some insight into how we at TrueAccord keep up with all of that?
SB: One of the ways we efficiently keep up with the requirements is through our code-driven approach.
But what does that mean practically? It means, for example, that for any phone call coming in, our agent knows exactly what disclosures need to be given to that consumer via our system, and then gives them an opportunity to log it. It means that any email that goes out has all the necessary disclosures appended, such as out of statute disclosures, state disclosures, et cetera, and these are all kept in our code base. Not only does it take the guesswork out of the equation for our agents and our content team that’s sending communication, it reduces human error. It also means that anytime anything needs to be updated, for example, a wording in a disclosure or when a new disclosure needs to be added, we can do it in one place instead of across a variety of templates and areas of the website. We can do it in one place and then that change propagates throughout the system. This helps us to react to changes really quickly.
Our compliance team is involved in every aspect of the process. They start as educators for the whole product team—we’re all aware of regulatory considerations and know where and when we need to ask for feedback and approvals from our compliance team. So they aren’t just making sure that agents are acting compliantly, but that the product team has that knowledge as well.
And as a product team, we have this wonderful research function that’s constantly talking to consumers and trying to understand their needs and asking for feedback, which we share with our compliance team so that they can go and advocate for consumers when they are talking with regulators and legislators
Future Forecast: Where is Compliance Heading in the Collections Industry?
LV: The next iteration of compliance can be seen in some of the recent CFPB and FTC activity. Last year in 2021 for example, the CFPB published a new section of its supervision and examination manual, specifically an information technology focused compliance management review section. The Bureau is looking at any type of technologies that you may employ, like machine learning models, algorithms, or analytics.
If you’re using any kind of algorithms or machine learning to help inform any aspect of your collection strategy—or if any of your service providers are using any type of algorithms or machine learning to help provide a service to you—you must pay attention to this section of the manual because it’s incredibly informative. We’re seeing the CFPB and the FTC addressing companies’ use of data and technology, wanting to make sure that companies have proper governance and oversight of it.
All of this recent activity shows how compliance within any company, more than ever before, must really take a cross functional approach to its work in order to keep up with the evolving environment. The compliance function should not be siloed. It really needs to be in partnership with all different disciplines and functions within the organization. We’re seeing right here and now and into the future, your information technology professionals, your information security professionals, your product professionals, your engineers, your data scientists, anybody who looks, touches, thinks about data and technology should all be working with compliance
Attendee Poll Question: Which of the following are you most interested in for the future of compliance and collections?
Three Key Takeaways
LV: Compliance is more than a department, it’s more than a program, it’s more than a system. It should be part of an organization’s cultural DNA. So when you think about compliance, wherever you are within an organization, think about how you can make it part of your organization’s DNA.
SB: Concentrate on building your tools to be nimble to the regulatory changes. Things like the design systems and the component libraries that allow you to make those changes quickly and easily, and make sure that they’re made everywhere across the system so you don’t have those older disclosures hanging out somewhere that someone forgot to change. Build your tools so you can make changes in one place efficiently.
LV: As our environments get more sophisticated around us, compliance professionals need to collaborate cross functionally more and more with other disciplines within a company to be effective and stay ahead of the evolution.The more the industry uses data and technology, we have a responsibility to make sure that it is being used in accordance with the law and best practices.
Just as technology has evolved leaps and bounds, so have consumer communication preferences, especially when it comes to debt collection. The Consumer Financial Protection Bureau (CFPB) recognized in Regulation F—rules updating the Fair Debt Collection Practices Act (FDCPA)—that consumers in debt want to communicate with debt collectors through digital channels, like email and SMS.
Under the FDCPA, Regulation F, and other state laws, these digital channels have the same compliance requirements as calls, such as no harassment or abuse, no false or misleading representations, and no unfair practices. Even though these additional channels have the similar compliance requirements, businesses must still manage these requirements across all channels and have the capacity to update requirements as new laws are passed, new cases come out, and new guidance is released from regulators causing a need to change in a compliance practice. How can businesses ensure compliance through the evolving regulatory landscape?
Code-based compliance is a critical component for the debt collection industry.
We interviewed five key stakeholders in this process to get different perspectives on what code-based compliance is and how it benefits businesses, lenders, consumers, and auditors. Read below for insights from: Eric Nevels, Director Operational Excellence; Hal Eisen, VP Engineering; Kelly Knepper-Stephens, Chief Compliance Officer and General Counsel; Michael Lemoine, Director Client Success; and Milo Onken, Director Quality Assurance.
What is Code-Based Compliance?
Eric Nevels: When an algorithm is used to help make decisions on consumer communications in debt collection, a code-based compliance system would be coded into that algorithm or work side-by-side with the algorithm to ensure that all digital communications fall within federal and state laws and regulations.
Michael Lemoine: Here’s an analogy to help explain code-based compliance: You lace up your new running shoes. You scoured all the online reviews and this pair provides the best ankle support. You ate a light but fuel packed breakfast, no mid run slump for you. You eyed the weather app on your phone, all clear and perfect temp. Hydrated, check. Headphones, check. Mood, great! You’ve got this, everything is under control and accounted for. Off…you… go!
Even if you’re not a big runner this sounds like a safe and productive way to start a day. But what if instead of checking for rain and eating a little oatmeal to make sure you had a good jog, you had to manually complete a full body diagnostic and perform microsecond electrical and chemical adjustments to your body just so you didn’t become disabled or even die while getting a little exercise? Not so safe and productive now. Is the risk of immediate death worth the effort and small reward of a single run?
Every second your body automatically, without thought or effort, reads your current condition and reviews thousands of risks and initiates controls, responses, and actions to keep you alive—called the autonomic nervous system. Code-based compliance is the autonomic nervous system of an organization’s risk and control program. Now, it’s not as dramatic as life and death, but code-based compliance can supercharge any compliance management system because once the code has been programmed and deployed the system always follows the programmed rules leading to consistency and accuracy.
How is Code-Based Compliance Different From More Traditional Approaches to Compliance?
Eric Nevels: In the absence of code, human beings would need to check against the various restrictions on communications. Anytime humans are involved, even with rules and procedures in place, it is possible for errors to occur. With a code-based system, it is impossible for that action to take place.
Kelly Knepper-Stephens: Certainly it’s better than manual compliance because with manual compliance you have an opportunity for human error. But it doesn’t mean that code-based compliance is “code it and forget it.” Your coders need a process to quality check the code. And your compliance team or a front line control team needs to monitor to make sure the coded compliance rules are working as you intended them to work.
How Does This Approach Benefit Collection Compliance Strategies?
Hal Eisen: Code-based compliance is great because it never gets tired or distracted and is not subject to any of the other human frailties. Done correctly, it can be efficiently applied to a wide range of software products without needing additional investment. Most compliance rules were written for the benefit of consumers. The better we comply, the safer consumers are. Consumers should have accurate disclosures, fewer annoying interactions and feel better about the whole experience.
Eric Nevels: Lowers operational risk and ensures compliance with regulations. Additionally, it is much easier to update the code when regulations are changed. It helps ensure that they are being treated within the bounds of the law, which is their benefit.
Milo Onken: The code-based approach ensures accuracy and tangible evidence for compliance audits. Collaboration with different internal teams and Legal ensures we check, implement, and follow industry compliance directives.
A Code-Driven Future for Debt Collection
Code-based compliance offers predictable and consistent collections methods when coupled with digital platforms. New technology can be mistaken as a risky investment, but digital debt collection systems offer more compliance security and more transparency—for consumers and creditors. Digital collection solutions not only evolve to meet consumer needs, but they can also continually adapt to changing regulations and quickly meet compliance requirements.
Beyond code-based compliance, what are compliance issues unique to collections that need to be front of mind when sending digital communications to effectively engage your customers?
Join us Thursday September 29th at 1pm ET for our interactive webinar, The Future of Collections & Compliance, hosted by TrueAccord Associate General Counsel Lauren Valenzuela and Director User Experience Shannon Brown.
Reserve your space now for an interactive discussion on:
Cutting edge digital collection compliance
The role of the legal team in creating a digital collection strategy
What is your core business? It probably isn’t chasing down delinquent accounts—and it shouldn’t be. Attention, resources, and bandwidth should be dedicated to what drives revenue and pushes your company’s goals forward.
But delinquencies are a reality for any business that handles payments. And when a customer misses a payment on the due date, you shouldn’t let their delinquency slide for too long, otherwise before you know it, that delinquent account will eventually get charged off and considered a loss.
While charge offs aren’t completely unavoidable, ineffective recovery efforts on those defaulted, post-charge off accounts (typically handled by a third-party partner) are completely avoidable. Effective pre-charge off (also known as first-party) collection efforts are just as important as well. For today’s consumers, that means engaging with them in more innovative ways outside the traditional call-and-collect methods and moving into a more digital approach.
But without a consumer-centric strategy for both pre- and post-charge off accounts, digital outreach can stumble just as easily as an inexperienced call center rep on their first day—ineffective or even damaging to customer relations.
So what do effective strategies look like for first-party and for third-party debt collection? Let’s first take a look at the nuances to consider between first-party and third-party collections.
First-Party vs Third-Party Collections—What’s the Difference?
First-Party First-party refers to using the creditor’s brand in customer communications. The focus is on remediation of newly delinquent accounts and getting the customer back on track. The communications address the part of the loan that is late, which is often not the whole amount, and refer the customers back to the creditor’s call center, payment portal, or online account system.
Third-Party Third-party refers to outsourcing collections through a third-party partner on the entire balance of the account. At this point, many creditors believe the customer relationship has been lost—but this does not have to be the case with the right digital strategy!
First or Third—Customer Engagement is Key to a Homerun in Collections For both first- and third-party collections, success hangs on reaching each customer with the right message, through the right channel at the right time. This can be no small feat for smaller in-house teams attempting to recoup pre-charge off debts. And how can you trust that your third-party partner is actually engaging with customers in the best way possible?
So Who’s on First and Who’s on Third for Your Debt Collection?
It may seem like a silly question: who is on top of your first-party, early delinquency collection communications? Many companies assume that they must handle pre-charge off collection efforts completely by themselves or by outsourcing with a first-party company, but there are communication alternatives such as TrueAccord’s Retain. Retain is the client-branded pre-charge off digital engagement product, directing customers back to you enabling your customers to choose the right time, place and channel to contact you. Improve your cash flow, reducing losses and allowing you to spend more time and energy on core business objectives.
While third-party, post-charge off collections may feel more “out of sight, out of mind” than first-party since organizations outsource to third-party vendors, it’s still crucial to have a comprehensive digital communication strategy that aligns with individual business standards. TrueAccord goes above and beyond with Recover, our late-stage collection solution that proves digital-first delivers: 96% of consumers who resolve with Recover do so using only self-serve digital tools.
TrueAccord’s mission to help organizations recover more (from happier consumers) is comprehensive for both first-party, pre-charge off and third-party, post-charge off, whether using one or both intelligent digital-first solutions together.
TrueAccord is a machine-learning and Al-driven 3rd-party debt collection company that is reinventing debt collection. We make debt collection empathetic and customer-focused and deliver a great user experience.
Our digital-first approach to debt collection creates a cycle of collections growth:
1. Improve the perception of the industry
2. Provide a personalized experience
3. Build brand equity and collect