Category: Industry Insights

Q3 Industry Insights: Preparing for Credit Card Bills, Student Loans and Holiday Spending

By on October 10th, 2023 in Industry Insights

We’re approaching the end of the year and fall is in the air – along with consumer financial uncertainty. Economic stressors persist and are likely contributing to many consumers relying on credit to cover expenses, while the resumption of student loan payments adds another financial obligation to the mix. For consumers, the conundrum of balancing finances continues as the holiday spending season sneaks up. If you’re a creditor or collector working with financially distressed borrowers, considering consumer situations and preferences when collecting is critical to your success.

Read on for our take on what’s impacting consumer finances and our industry, how consumers are reacting, and why employing digital strategies to boost engagement is more important than ever for debt collection in 2023 and beyond.

What’s Impacting Consumers and the Industry?

People are watching inflation and interest rates like hawks as effects from previous rate hikes slowly set in. The PCE price index excluding food and energy increased 0.1% in August, lower than the expected 0.2% gain. On a 12-month basis, the annual increase for core PCE was 3.9%, matching the forecast and coming in as the smallest monthly increase since November 2020.

While recent indicators suggest that economic activity has been expanding and the U.S. banking system seems sound, inflation remains elevated. Tighter credit conditions will likely impact economic activity, hiring and inflation, but the extent of these effects is unpredictable. While the Fed’s latest move in September was to maintain the existing rate of 5.25-5.5%, the end goal is maximum employment and inflation at the rate of 2% and they are closely watching indicators to determine future rate changes.

Since April 1, more than 7 million Americans have lost Medicaid coverage since the forced hiatus of cancellations during the pandemic ended. Many people lost their coverage because their income is now too high to qualify for Medicaid, but a larger share have been terminated for procedural reasons and states are now seeing increased appeals and complicated legal processes.

After three years of relief from payments on $1.6 trillion in student debt under the CARES Act,  student loan payments resume this month. 40+ million borrowers who paid $200 to $299 on average each month in 2019 will soon face the resumption of a bill that is often one of the largest line items in their household budgets. For a deeper, data-driven analysis of how student loans impact consumers with debt in collections, read our report, “Consumer Finances, Student Loans and Debt Repayment in 2023”. 

Meanwhile, the Consumer Financial Protection Bureau (CFPB) has been looking at lending practices, advanced technology considerations and credit reporting that impact consumers. Of note for lenders, it issued guidance about certain legal requirements for specific and accurate reasons when taking adverse actions against consumers that lenders must adhere to when using artificial intelligence and other complex models. Bottom line: “the algorithm said so” doesn’t qualify as a reason.

The CFPB also started the process of issuing a rule barring reporting medical debt collections through the credit reporting system. The CFPB’s rulemaking would block credit reporting agencies from including medical debts on consumer reports that are used in making underwriting decisions. The proposal would not stop creditors from medical bill information for other purposes such as verifying the need for loan forbearance or evaluating loan applications for medical services.

Key Indicators and Consumer Spending

According to the New York Fed’s Quarterly Report on Household Debt and Credit, total household debt increased in the second quarter of 2023 by $16 billion (0.1%) to $17.06 trillion. Credit card balances increased by $45 billion from Q1 2023 to a series high of $1.03 trillion in Q2, a 4.6% quarterly increase. Other balances, including retail credit cards and other consumer loans, and auto loans also increased by $15 billion and $20 billion, respectively. 

With increased balances, delinquency remains a concern as it simultaneously continues to rise regardless of product type. Experian’s Ascend Market Insights for August reports overall delinquency (30+ DPD) rose in August, with a 2.81% increase in delinquent units and an increase of 3.11% in delinquent balances month over month. Serious delinquency (90+ DPD), which has been rising for all products, now exceeds pre-pandemic levels for auto loans and unsecured personal loans and is approaching pre-pandemic rates for bankcards, retail cards and secured personal loans. 

In August, the Fed reported that at the 100 largest banks, charge-off rates have been rising, most notably with credit cards. The charge-off rate for all consumer loans was 2% at the end of the second quarter, up from 1.1% a year ago. As for credit card debt, the charge-off rates stood at 3% in the second quarter, up from 2.75% in the first quarter, and up from 1.7% a year ago. Putting this in perspective, amid the Great Recession the overall charge-off rate hovered near 8% while the rate for credit cards hit 9%. While comparatively the situation may not seem as dire, the increasing trend on charge-offs is worth watching.

After bottoming out in September 2021, analysts at Goldman Sachs report that since Q1 2022, credit card companies are seeing an increasing rate of losses at the fastest pace in almost 30 years, on par with the 2008 recession. Losses currently stand at 3.63%, up 1.5% from the bottom, and Goldman sees them rising up to 4.93%.

Also in August, Americans’ $2 trillion in pandemic savings was nearly exhausted, with the current remainder of $190 billion projected to be spent down by the end of the third quarter. This has started showing up as roughly 114,000 consumers had a bankruptcy notation added to their credit reports in Q2, slightly more than in the previous quarter. And approximately 4.6% of consumers had a 3rd party collection account on their credit report, with an average balance of $1,555, up from $1,316 in Q1.

Elevated inflation continues to strain budgets – the level of inflation in July meant families spent $709 more per month than two years ago. Battling the current economic challenges, consumers still have to make essential purchases and pay bills. According to PYMNTS, 43% of Gen Z consumers have been using their credit cards more often, and 66% of this segment lives paycheck to paycheck, up from 57% last year. Upon the resumption of student loan repayments in October, this group could lose as much as 4.3% of discretionary spending power, leaving less money on hand to pay back debt. 

Gen Z isn’t alone – Gen X borrowers with federal student loans on the books could see their discretionary income decrease by as much as 8.8%. With a similar proportion of this cohort living paycheck to paycheck, 71% of Gen Xers reported actively using credit, with 26% reportedly using credit more often than normal for everyday purchases. And according to a recent report from PYMNTS, this group has started embracing Buy Now, Pay Later (BNPL) as a strategic tool to manage spending and cashflow. 14% of Gen Xers said they had used BNPL – that’s more than the amount of Baby Boomers, less than millennials (20%), and roughly the same as Gen Z.

Consumer Sentiment on Financial Outlook Deteriorates

As more consumers are turned down for much-needed loans due to financial tightening and using more credit options for everyday expenses, the general sentiments around financial wellbeing aren’t very positive. According to Deloitte’s State of the Consumer Tracker, 38% of Americans feel their financial situation worsened over the last year and less than half feel they can afford spending on things that bring them joy. A similar 48% are concerned about their level of savings and only 44% feel they can afford a large, unexpected expense.

The Federal Reserve Bank of New York concurs – in its August 2023 Survey of Consumer Expectations, income growth perceptions declined that month, and job loss expectations rose sharply to its highest level since April 2021. Sentiments are down across the board: Perceptions about current credit conditions and expectations about future conditions both deteriorated, and households’ perceptions about their current financial situations and expectations for the future both also deteriorated.

The key takeaway: many consumers are feeling stressed about finances and are uncertain about their financial future, which will impact their payment decisions and willingness or ability to engage with debt collectors.

Preparing for Debt Collection in Q4 and Beyond

As we approach the end of the year and enter the holiday spending season, businesses should prepare for the possibility of increased delinquencies as consumers reach a tipping point in savings and expenses. Last year marked a particular surge in consumers putting seasonal spending on credit, with 41% of Americans putting more than 90% of their holiday expenses on their credit cards, and nearly 42% anticipated going into debt—understandable as the average US shopper took on more than $1,500 in holiday debt in 2022. 

Compound the holiday expenses with resumed student loan payments, persistent inflation and high interest rates and the consumer financial outlook appears fragile. So what’s the best way forward in engaging customers in debt collection who are balancing a delicate financial situation? Any or all of these best practices can help:

  1. Go digital with communications. The numbers speak for themselves: 59.5% of consumers prefer email as their first choice for financial communication compared to only 14.2% who prefer to receive a phone call. Factor in working hour considerations and it becomes even more difficult to engage consumers via phone. Further, contacting first through a consumer’s preferred channel can lead to a more than 10% increase in payments.
  2. And digitize payments, too. Consumers have long been transacting online for purchases, and now three in five Americans expect all payments to be digital. The benefits of online payment options range from customer ease-of-use and adoption to operational cost reduction while offering increased payment volume to boot – 14% of bill-payers prioritize payments to billers that offer lower-friction payment experiences.
  1. Stay top of mind, respectfully. There’s a lot on consumers’ minds in today’s economy, and your bill may not be at the top of their priority list. When engaging delinquent customers, there are strategies to getting your message across that are better for maintaining customer relationships while effectively collecting debt. It’s important for both your customer relationships and compliance considerations to keep in mind the tone and content of your messages along with the cadence of your communications.

Top KPIs for Your Recovery Operations

By on September 27th, 2023 in Customer Experience, Industry Insights

The goal of a recovery operation is to maximize profitability by efficiently recovering money lent to consumers—while maintaining consumer loyalty. This means that measuring the success of a recovery strategy goes beyond just dollars and cents and into consumer-centric metrics as well.

But how do teams measure overall portfolio performance, and what are the most important portfolio-level key performance metrics (KPIs)? Let’s take a look at a few of the top KPIs and how they can be categorized.

Key Collections Metrics

Key performance indicators for debt collection and recovery efforts:

  • Accounts per Employee (APE) or Accounts to Creditor Ratio (ACR): the number of delinquent accounts that can be serviced by an individual recovery agent
  • Net Loss Rate or Net Charge Off Rate: measures the total percent of dollars loaned that ended up getting written off as a loss
  • Delinquency Rate: total dollars that are in delinquency (starting as soon as a borrower misses a payment on a loan) as a percentage of total outstanding loans – often an early warning sign on the total volume of delinquent debt
  • Promise to Pay Rate: the percentage of delinquent accounts that make a verbal or digital commitment to pay
  • Promise to Pay Kept Rate: the percentage of delinquent accounts that maintain a stated commitment to pay
  • Roll Rate: the percentage of delinquent dollars that “roll” from one delinquency bucket to the next over a given period of time – provides visibility into the velocity with which debts are heading into charge off

Metrics like net loss rate are the north star of a recovery program, while metrics like delinquency rate and roll rate are leading indicators of future portfolio performance. But just as critical as these traditional KPIs, today’s collection operations need to focus on implementing and measuring digital engagement.

Digital Engagement Metrics

A range of KPIs that capture how effectively digital channels are reaching and engaging consumers:

  • Coverage: the percentage of users for whom we have digital contact information
  • Deliverability: the percentage of digital messages that are actually reaching consumers
  • Digital Opt-In: the percentage of users who have consented to receive digital communications in a particular channel
  • Open Rate, Clickthrough Rate: the percentage of users who are actually opening and clicking digital communications

Following key collection and digital engagement metrics are all well and good, but how do recovery teams move the needle on those critical KPIs?

Operational metrics are the KPIs that collectively drive overall portfolio-level performance. They represent the “levers” available to change the economics of a recovery model.

Operational Metrics 

Metrics that create simple framework to explain the profitability of a recovery operation: 

  • Profitability of a Collections Operation Formula: R x ResF x E
  • R [Reach]: percentage of consumers in delinquency can you actually reach
  • ResF [Resolution Funnel]: how effectively you can convert initial contact with a consumer into a commitment to pay – and ultimately, a payment promise kept (see Promise to Pay Rate and Promise to Pay Kept Rate)
  • E [Efficiency]: calculation of what the “unit economics” of your collection are and how much it costs, on average, for every account that you rehabilitate

In the hyper-competitive financial services space, consumer experience is a source of competitive advantage. That’s why it stands to reason that alongside the “traditional” metrics of recovery economics, forward-looking businesses have pioneered a new set of KPIs that measure the value of consumer experience.

Consumer-Centric Metrics 

A new set of KPIs that measure the value of consumer experience:

  • Net Promoter Score (NPS): how likely a consumer is to recommend a given brand after an experience with a brand’s collection organization
  • Customer Retention Rate: how likely a consumer is to be reacquired by a given brand after his or her delinquent account is rehabilitated

Keep a Close Watch on These KPIs for Collection

As payment-driven organizations across verticals focus further into the world of recovery, it is safe to anticipate that digital engagement and consumer-centric KPIs like the ones we covered above will become even more deeply woven into the fabric of the organization.

Ready to evaluate your debt recovery operations using more sophisticated KPIs? Schedule a consultation to get started today»»

Q2 Industry Insights: Higher Monthly Expenses for Consumers, Regulatory Guidance for Financial Institutions

By on July 13th, 2023 in Industry Insights

With tumult in the banking industry in Q2 and inflation and economic stressors persisting, the financial outlook for American consumers remains uncertain. The ending of various pandemic-era benefits including the pause on student loan payments will impact consumers in the coming months. Student loan holders hoping for financial relief were disappointed in a Supreme Court decision that rejected President Biden’s plan to cancel more than $400 billion in student loan debt for millions of borrowers. Lawmakers are looking for other relief options, but in the meantime, many consumers will face higher monthly scheduled payments than they can cover, leading to delinquencies across credit types. If you’re a creditor or collector working with financially distressed borrowers, considering consumer situations and preferences when attempting to collect and employing digital strategies to boost engagement are more important than ever. 

Read on for our take on what’s impacting consumer finances and our industry, how consumers are reacting, and what else you should be considering as it relates to debt collection in 2023.

What’s Impacting Consumers and the Industry?

High inflation and interest rates hung around in the second quarter of 2023. Inflation continued to ease month over month in May, landing at 4%, which is still double the Federal Reserve’s target of 2%. The CPI rose 0.2% in June on a seasonally adjusted basis, after increasing 0.1% in May, according to the U.S. Bureau of Labor Statistics. The index for shelter accounted for more than 70% of the increase, with the index for motor vehicle insurance also contributing. 

In June, after 10 straight rate hikes, the Federal Reserve left the policy rate unchanged at the 5%-5.25% range, to allow time to see impacts from previous rate hikes. But “a strong majority” of Fed policymakers expect they will need to raise interest rates at least two more times by the end of 2023. Showing unexpected resilience despite higher interest rates, a late-June Commerce Department report showed the U.S. economy grew at a 2% annual pace from January through March as consumers spent at the fastest pace in nearly two years despite ever-rising borrowing costs.

In Q2, the pandemic-era benefit around Medicaid came to an end and has impacted more than 1.5 million Americans who lost health insurance coverage in April, May and June. Because only 26 states and the District of Columbia had publicly reported this data as of June 27, the actual number of people who lost coverage through the government’s main health insurance program for low-income people and people with certain disabilities, is undoubtedly much higher. The federal government has projected that about 15 million people will lose coverage, including nearly seven million people who are expected to be dropped despite still being eligible.

On the regulatory front, data protection is making headlines. Updates to the Gramm-Leach-Bliley Act (GLBA), the Safeguards Rule, provide financial institutions, including those in the accounts receivable management industry, with requirements on how to safeguard customer information, went into effect on June 9. The amendments lay out a more prescriptive recipe for the safeguards financial institutions must have in place around collecting, storing and transmitting consumer information. Several states have actively been considering and passing new legislation requiring additional policies, controls, and practices not only in the data security space but also for data privacy and data breaches.

Meanwhile, the Consumer Financial Protection Bureau (CFPB) published a Small Entity Compliance Guide covering the amendments to the Equal Credit Opportunity Act and Regulation B, requiring that financial institutions compile and report certain data regarding certain business credit applications, including examples that explain how the requirements should be applied. 

There were also a couple of notable court decisions impacting debt collectors last quarter. First, the 6th circuit court of appeals determined that one phone call under the Telephone Consumer Protection Act (TCPA) is enough to establish standing, meaning the suit is based on an actual or imminent alleged injury that is concrete and particularized and, for the plaintiff in Ward v. NPAS, Inc., to establish a concrete injury. 

Second, and in a victory for TrueAccord, the Northern District of Illinois showcased the benefits of digital collection as the court found that receiving an email about a debt is less intrusive to consumers than receiving a phone call. In the Branham v. TrueAccord opinion, the court found that unlike telephone calls, two unwanted emails are insufficient to confer standing and wouldn’t be “highly offensive” to the reasonable person.

Key Indicators and the Student Loan Predicament

According to the New York Fed’s Quarterly Report on Household Debt and Credit, total household debt increased in the first quarter of 2023 by $148 billion (.9%) to $17.05 trillion. Debt increases showed up across almost all categories, with larger balances for mortgages, home equity lines of credit, auto loans, student loans, retail cards and other consumer loans. Looking like an outlier, credit card balances were flat at $986 billion during Q1, but reading between the lines, this is the first time in more than 20 years that there hasn’t been a seasonal outright decline in that category.

And demand for more credit continues, which will drive household debt balances up farther. According to Experian’s June Ascend Market Insights report, new account originations were up 3.5% month over month with related balances up 7.7%. Breaking this down, auto loan account originations were up 0.7%, first mortgages were up 18.2%, while personal loans, HELOCs and second mortgages all grew significantly as well.

Indicators show that delinquency is here to stay. Experian reports that overall 30+ days past due (DPD) accounts showed a 0.4% increase month over month in May. While unsecured personal loan delinquency, which grew quickly in 2021 and 2022, has fallen for the fourth month in a row, this may be due to accounts progressing through delinquency – collections and charge-off rates for unsecured personal loans have grown to nearly 8% of balances. Auto loans, and particularly those in the subprime category, are seeing delinquency rates surpassing levels last seen during the Great Recession, coming in at 1.69% for 60+ DPD in Q1 2023.

Experian also reports that 1% of all consumer accounts rolled into higher stages of delinquency in April, which is in line with pre-pandemic norms and significantly higher than it was during the pandemic. Notably, 0.29% of accounts rolled into a lower delinquency status during May, a sign of collection effectiveness and of the relative financial health of delinquent consumers. This metric is still far below its historic norms and will be an important metric to watch as millions of consumers face higher monthly scheduled payments later this year tied to student loans.

After three years of relief from payments on $1.6 trillion in student debt under the CARES Act,  student loan debt is scheduled to begin accruing interest in September 2023, with payments due starting in October. 40+ million borrowers who paid $200 to $299 on average each month in 2019 will soon face the resumption of a bill that is often one of the largest line items in their household budgets. 

What’s more, research shows that student loan borrowers used extra space in their budgets during the pause to increase their leverage. Rather than paying down other debts, those eligible for the pause increased their leverage by 3% on average, or $1,200, compared with ineligible borrowers. According to the CFPB, as of September 2022, 46% of student loan borrowers had scheduled monthly payments for all credit products (excluding student loans and mortgages) that increased 10% or more relative to the start of the pandemic. 

The CFPB also reports that approximately 2.5 million student loan borrowers already had a delinquency on a non-student loan as of March 2023. That’s an increase of around 200,000 borrowers since September 2022, and that’s still without a monthly student loan payment obligation. This signals that many borrowers aren’t or won’t be in a financial position to repay or will face delinquencies on other loans in order to do so. For a data-driven look into this topic, read our report, “Consumer Finances, Student Loans and Debt Repayment in 2023”. 

Consumers Feel a Pinch but Remain Optimistic

As daily life continues to be more expensive for everyone, PYMNTS’ research finds that 61% of consumers lived paycheck to paycheck in April 2023, similar to the year prior. And the data shows that consumers in urban centers are especially feeling the financial crunch, likely due to a connection to cost of living, with 7 in 10 living paycheck to paycheck. Wealthier consumers comprise a growing portion of the paycheck-to-paycheck cohort, with the share of consumers annually earning more than $100,000 who live paycheck to paycheck increasing 7% from April 2022.

The US personal savings rate hovered at 4.6% in May, which is double last year’s record lows but still down significantly from pre-pandemic averages. Easing inflation seems to be improving consumers’ financial outlook, with fewer respondents citing concerns around savings levels, delaying large purchases, and worsening personal financial situations. However, the number of consumers feeling anxious about their job or employment situation steadily increased to 25% in May, up from 18% in February. 

According to the Federal Reserve Bank of New York’s May 2023 Survey of Consumer Expectations, the average perceived probability of missing a minimum debt payment over the next three months increased by 0.7% to 11.3% in May. The increase was largest for respondents below the age of 40 with no more than a high school education, and those with a household income below $50k. Additionally, households’ perceptions and expectations for credit conditions and their own financial situations all deteriorated slightly.

For Debt Collection, Digital is Now a Must-Have

While consumers balance budgets amid high costs of living, more and more are using streamlined, digital payment methods. New studies show consumers are embracing the convenience of digital payments via payment portals even for healthcare bills, noting how it can minimize pain points in the payments process. Today, 9 out of 10 customers want an omnichannel experience with seamless service between communication methods, and transacting where it’s convenient for them, on mobile devices, is even better.

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. 

If your business has been relying on calling alone for customer communications, it’s time to shift gears to a more effective way of maximizing repayment and conversion rates in a challenging financial environment. For lenders or collectors engaging with distressed borrowers, here are ways digital can boost your efforts:

1. Cost-effective customer communications at scale. When almost all communications with consumers can happen electronically via email and SMS with no human interaction, the cost of agents, who now only manage inbound emails or calls from already engaged customers, is reduced. Lenders that have implemented digital-first solutions have seen their cost of collections fall by at least 15%.

2. Online payment portals. When consumers can make payments online when it’s convenient for them, they’re more likely to repay. Add options like payment plans and flexible payment days to appeal to distressed borrowers and see repayment and liquidation rates improve.

3. Code-based compliance. When compliance is coded into an algorithm that helps make decisions on customer engagement in debt collection, you can ensure that all digital communications fall within federal and state laws and regulations. Compliance built into the code can help prevent costly mistakes especially with the complex patchwork of regulations.

Data Protection is Critical in Debt Collection: GLBA, Consumer Trust, and Best Practices to Protect Your Business

By on June 29th, 2023 in Compliance, Industry Insights

In today’s financial landscape, regulators at both the federal and state level are driving accountability for companies when it comes to data protection and security. We see that with the express requirement in the Gramm-Leach-Bliley Act, or GLBA, Safeguards Rule—which went into effect on June 9, 2023—that organizations have one qualified individual to oversee the information security program, and that the qualified individual provides regular reports to the highest governing body of an organization.
This underscores the importance of protecting customer information in a digital age where information has its own intrinsic value.

Let’s take a look at how the new updates to GLBA Safeguards Rule, how these security policies are important specifically for debt collection, and what best practices your business should follow to protect consumers’ data.

 The GLBA Data Protection Law

The Gramm-Leach-Bliley Act, or GLBA, is a federal regulation to control how financial institutions collect, store, and transmit consumer information. GLBA was enacted by the Federal Trade Commission (FTC) in 1999 and recently rolled out new amendments to the Standards for Safeguarding Customer Information, known as the “Safeguards Rule,” that went into effect on June 9, 2023, in effort to continue protecting consumer data in an ever-evolving digital environment. 

A few of the updates to GLBA’s Safeguards Rule include:

  • Provides covered financial institutions with more guidance on how to develop and implement specific aspects of an overall information security program
  • Improves the accountability of these security programs, such as requiring financial institutions to designate a qualified individual responsible for overseeing, implementing and enforcing the program

Data Protection is Critical in Debt Collection

To attract clients today a debt collector must demonstrate the implementation of a full suite of information security practices covering physical, technical, and administrative safeguards, including a comprehensive employee information security training. Failure to implement these best practices can result in a security incident or worse, a data breach. Not only are data breaches costly because of the notification provisions, including providing credit bureau monitoring, it can be difficult for a company to survive after a breach. It is not unusual for a company to file bankruptcy after a data breach.

Reputation and Customer Retention

Although complying with federal and state regulations helps companies avoid costly—even criminal—penalties, consumer trust that their financial data is being protected is critical to maintaining a positive reputation and retaining customers (even if they fall into delinquency).

Data protection policies can often be treated as a set-it-and-forget-it, or even treated as a luxury of lower priority due to limited resources, expertise, or familiarity. But for today’s consumers, data security is a top priority.

A recent study by MAGNA Media Trials and Ketch, showed across every age group74% of people rank data privacy as one of their top values—consistently rank data privacy as their top concern. And on the flip-side, the study showed nearly 9 out of 10 consumers report strong data privacy practices positively impact their relationship with a company.

Keeping Up With Compliance

Along with federal regulations, individual states are also issuing new laws focused on consumer data protection. California, Utah, Colorado, Connecticut and Virginia all passed data privacy laws over the past several years that take effect in 2023. This past March, Iowa passed a Data Privacy Law that takes effect on January 1, 2025 that is very similar to both Virginia and Colorado’s laws affording consumers a right to know and right to request deletion. Pennsylvania amended its Breach of Personal Information Notification Act, by among other things, expanding the definition of “personal information” to include medical and health information, and a username or e-mail address in combination login credentials. Several more states have draft privacy and security laws in draft.

Although GLBA and other data protection and privacy laws are the hot topic when it comes to compliance today, it isn’t the only federal privacy regulations lenders and debt collectors need to follow and monitor for changes—or face the consequences of non-compliance. Here are some recent laws and amendments impacting the industry:

  • The Fair Credit Reporting Act: Credit reporting companies and users of credit reports have specific obligations to protect the public’s data privacy, with potential criminal liability for certain misconduct.
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act: Established a new Consumer Financial Protection Bureau with the authority to supervise and regulate entities that offer or provide consumer financial products or services.
  • Health Insurance Portability and Accountability Act (HIPAA): Two part rule for privacy and security of personal health information that applies to covered entities (doctors, hospitals, pharmacies, insurers, and their vendors). PHI – is defined broadly to include any information provided to the covered entity by the patient.

Consumer Data Protection is Not a Luxury

Having good security practices in place is not only beneficial for both consumers and businesses, but also critical to stay compliant with all the new laws and amendments being introduced. Here are some of the best privacy and security practices to implement to protect customers, companies, and stay compliant:

  • Practice data minimization.
  • Know where personal information lives at all times by creating a data map of where the data goes and is stored throughout your systems, which includes knowing your vendor’s data security and privacy practices and controls.
  • Know who has access to personal information and routinely examine if that access is necessary to complete that job function.
  • Be intentional with how data is organized and stored so it can be easily segmented and treated differently if need be (think network segmentation).
  • Have a public facing Privacy Notice–and make sure it accurately reflects your practices for use, collection, deletion and correction.
  • Conduct an annual data security risk assessment to continually reassess areas for improvement and where you may need additional controls.
  • Ensure contracts with parties whom you receive and/or give personal information to specifically address each parties’ obligations and restrictions for how personal information is used, shared, disclosed, stored, and sold (if permitted).

The TrueAccord Approach

At TrueAccord, empathy towards the consumer is a core part of our company mission: we enable businesses to collect more, faster, and from happier customers.

Ready to collect more, faster from happier customers? Learn how TrueAccord weaves compliance and data security into debt recovery by scheduling a consultation today»»

A Closer Look at the Gramm-Leach-Bliley Act (GLBA): Updates to the Safeguards Rule

By on June 6th, 2023 in Compliance, Industry Insights

Protecting personal and financial information is critical in today’s digital age. Where data has its own intrinsic value and where data breaches and cyberattacks are a risk for every business, the Safeguards Rule under the Gramm-Leach-Bliley Act (GLBA) provides financial institutions, including those in the accounts receivable management industry, with guidance on how to safeguard customer information.

The existing Safeguards Rule provided financial institutions with much flexibility and discretion when determining what kinds of safeguards were best for their organizations and risks. With the amendments which go into effect on June 9, 2023 financial institutions now have a more prescriptive recipe for what those safeguards need to be.

What is the Gramm-Leach-Bliley Act (GLBA)?

The Gramm-Leach-Bliley Act, or GLBA, is a federal regulation to control how financial institutions collect, store, and transmit consumer information. Although GLBA was enacted by the Federal Trade Commission (FTC) in 1999, changes have been anticipated for the last few years.

In October 2021, the FTC announced new amendments coming to the Standards for Safeguarding Customer Information, known as the “Safeguards Rule,” and an issuance of a final rule, referred to simply as the “Final Rule.” Originally set to go into effect in 2022, financial institutions—a designation that has also been updated—now need to prepare for the changes or risk non-compliance and its consequences before they go into effect on June 9, 2023.

What is the Safeguards Rule?

The Safeguards Rule took effect January 10, 2021, and its requirements were first set to go into effect beginning December 9, 2022, but the FTC announced it would extend the deadline for financial institutions to develop, implement, and maintain a comprehensive information security program by June 9, 2023.

There are five overarching modifications to the existing Safeguards Rule:

  • Provides covered financial institutions with more guidance on how to develop and implement specific aspects of an overall information security program
  • Improves the accountability of these security programs, such as requiring financial institutions to designate a qualified individual responsible for overseeing, implementing and enforcing the program
  • Exempts financial institutions that collect information on fewer than 5,000 consumers from the requirements of a written risk assessment, incident response plan, and annual reporting to the board of directors
  • Expands the definition of “financial institution” within the scope of the Safeguards Rule – see the expanded definition in the next section below
  • Includes several other definitions and related examples in the amended Safeguards Rule itself in an effort to make it more self-contained and to enable readers to understand its requirements without referencing the FTC’s Privacy of Consumer Financial Information Rule

Along with these updates to the Safeguards Rule, let’s examine a few other specifications of the updates.

What are other updates to the Safeguards Rule?

The expanded scope of financial institutions that are subject to the Safeguards Rule is significant. Under the new Final Rule, “financial institutions” now include entities engaged in activities that the Federal Reserve Board determines to be incidental to financial activities, such as:

It is important to note that the Final Rule does not apply to national banks, savings and loan institutions, and federal credit unions, as these institutions are not subject to the FTC’s jurisdiction.

The Final Rule requires these covered financial institutions to comply with specific new requirements, such as:

  • Encrypt all customer information held or transmitted in transit over external networks and at rest
  • Multi-factor authentication for any individual accessing any information system, unless the use of reasonably equivalent or more secure access controls has been approved in writing by a qualified individual at the financial institution
  • Conduct periodic written risk assessments, and the results of such risk assessments should drive the information security program
  • Create procedures for evaluating, assessing or testing the security of externally developed applications used to transmit, access or store customer information
  • Set procedures for secure disposal of customer information no later than two years after the last date the information is used
  • Implement policies, procedures, and controls designed to monitor and log the activity of authorized users and detect unauthorized access or use of, or tampering with, customer information by such users
  • Provide personnel with security awareness training, and provide information security personnel with training to address relevant security risks; and that key information security personnel take steps to maintain knowledge of changing information security threats and countermeasures
  • Written incident response plan designed to promptly respond and recover from any security event affecting the confidentiality, integrity, or availability of customer information
  • Qualified individual to regularly, and at least annually, report in writing to an organization’s governing body (e.g., board of directors) regarding the status and material matters of the information security program
  • Regularly test or otherwise monitor the effectiveness of the safeguards’ key controls, and conduct required penetration testing annually and vulnerability assessments at least every six months and whenever there are material operational or business changes

Given the expanded definition of “financial institutions,” some of these organizations may be unfamiliar with the extent of these requirements, and even those familiar with GLBA previously must be ready to comply or face the consequences.

What are the penalties for non-compliance with GLBA?

Whether it’s GLBA, Regulation F, or any of the numerous state laws, companies can face serious penalties for compliance failures—monetary, reputational, and even criminal. When it comes to GLBA, non-compliance penalties include:

Section 5 of GLBA grants the FTC the authority to audit policies to ensure they are developed and applied fairly—all the more reason to follow the Safeguards Rule’s provisions of self-audits and testing. 

Learn More About Compliance and Collections

Now that you have the breakdown of the Gramm-Leach-Bliley Act updates to the Safeguards Rule, are you familiar with the other laws and regulations governing debt collection? Check out our Collections & Compliance resources to see what other regulatory guidelines may impact your business or schedule a consultation to get started»»

Call-and-Collect vs Digital-First Engagement for Debt Recovery

By on June 1st, 2023 in Compliance, Customer Experience, Industry Insights, Product and Technology, User Experience

Outbound calling has been the main mode of collections for decades, but the cost of a call center or in-house full-time employees (FTEs) making calls is no longer justifiable when most consumers simply don’t answer the phone, on top of the mounting compliance restrictions limiting opportunities to call in the first place.

But outbound dialing isn’t completely obsolete—digital-first omnichannel strategies can turn traditional call-and-collect operations around by integrating new digital channels into the communication mix.

Let’s compare traditional outbound calling methods versus a digital-first approach in three key areas impacting your business’s ability to collect more, faster:

  • COST
  • COMPLIANCE
  • CONSUMER PREFERENCES

Get even more statistics and data in our latest eBook — Why Evolve from Outbound Calling to Omnichannel Engagement? Cost, Compliance, & Consumer Preferences — available for download now»»

COST: Call-and-Collect

The cost to collect has been on the rise for traditional methods for years, whether you outsource to a call center or have FTEs dialing the phones.

One reason for this rise is based on the fact that many lenders still practice old strategies to prioritize contacting customers based on their risk profiles, balance, and average days delinquent—completely missing portions of their portfolios. Factoring in propensity to pay is important to successful engagement, but it means that agents’ time is focused on only a small portion of accounts, leaving potential repayments on the table.

Add in the overhead costs, inflation, and hiring challenges of using agents as first attempts at engagement and watch the expenses continue to climb past what you’re able to collect through outbound calling.

COST: Digital-First Omnichannel

Right off the bat, digital-first shows the cost of collections can fall by at least 15%.

Since digital is infinitely scalable, this communication tactic can touch every single account, regardless of scoring models—unlike human dialers who can only physically call a certain number of accounts on any given day. Going digital-first cuts down on the time billed for making repeated outbound calls that are never answered or returned, and it allows agents to interact with customers that want to speak directly to a person.

Overall, digital-first has shown to boost customer engagement by 5x, the first step towards repayment.

COMPLIANCE: Call-and-Collect

It’s no secret that it’s increasingly complicated to reach customers with all the legal communication restrictions.

While all debt collection communication is subject to compliance rules, outbound calling has specific laws and regulations that can carry costly penalties for non-compliance—and it’s only becoming more complex with new state-specific rules rolling out right and left. But no matter where your business is doing business, if you’re making collection calls you must follow these federal guidelines:

  • Inconvenient Time Rule: prohibits calling before 8am or after 9pm
  • Regulation F’s 7 and 7 Rule: Cannot call more than seven times within a seven-day period
  • Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act) tagging legitimate businesses as spam
  • FCC Orders further restrict dialing to landlines and include opt-out requirements for prerecorded voice messages

But there is a more streamlined way to ensure your collection communications are following all the rules: enter code-based compliance.

COMPLIANCE: Digital-First Omnichannel

Code-based compliance works by programing rules that ensure all communications fall within all federal and state laws and regulations, such as:

  • Frequency and harassment restrictions
  • Consent requirements*
  • Disclosure requirements

This digitally designed approach to compliance greatly reduces the opportunities for human error that are bound to occur in more manual processes. Additionally, the digital-first approach allows companies to continue to collect during times that calling would violate certain regulations, like the Inconvenient Time Rule. In fact, 25% of payments come in after 9pm or before 8am (the determined inconvenient times), since these hours can actually be more convenient for consumers to catch-up on digital communications they received throughout the workday.

*Generally, there is no requirement in the federal law to send debt collection communications by email, though some states are more restrictive. This is not legal advice, please consult an attorney for guidance on your unique circumstance.

CONSUMER PREFERENCE: Call-and-Collect

46% of consumers want to be reached through their preferred channels—so what are today’s consumers’ preferences?

Here’s a hint: phone calls aren’t at the top of the list.

And today’s Right Party Contact rates show it, ranging between just 0.5% – 4.0%. And out of those that do answer the phone, 49.5% of consumers take no action after a collection call. The old call-and-collect tactic may actually do more harm than good if compliance rules are ignored: out of the communication tactic complaints received by the CFPB in 2020, over half complained of frequent or repeated calls.

CONSUMER PREFERENCE: Digital-First Omnichannel

So if phone calls aren’t consumers’ preferred method of communication, then what is? For 59.5% of consumers, email is their first preference when it comes to debt collection communications. This is especially important considering that first contacting a customer through their preferred channel can lead to a more than 10% increase in payments.

This digital preference isn’t surprising since nearly nine in ten Americans are now using some form of digital payments—why would they expect collections to be any different? 14% of bill-payers prioritize payments to billers that offer lower-friction payment experiences, and digital is often preferred because of it. Digital communications are easily controlled by consumers and are tightly managed by service providers with built in mechanisms to prevent harassment (like with code-based compliance), which we know has historically been a challenge for call-and-collect practitioners.

Digital-First is the Future of Collections

And it’s here today, working for TrueAccord clients and customers.

At TrueAccord, we find that more than 96% of customers resolve debts without any human interaction when digital options are offered—reducing costs associated with outbound calling, lowering risks with code-based compliance built in, and delivering an experience that consumers prefer.

Get even more statistics and data in our latest eBook — Why Evolve from Outbound Calling to Omnichannel Engagement? Cost, Compliance, & Consumer Preferences — available for download now»»

Ready to go digital-first with your debt recovery operations? Schedule a consultation to get started today!

Reduce Costs While Collecting More With Digital-First, Omnichannel Strategies

By on May 10th, 2023 in Customer Experience, Industry Insights, Industry Interviews, User Experience

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.

TrueAccord Difference

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!

Coast to Coast: the State of Privacy and Compliance in 2023

By on April 20th, 2023 in Compliance, Industry Insights, Webinars
Coast to Coast: The State of Privacy and Compliance in 2023

Disclaimer: The information provided in this blog post does not, and is not intended to, constitute legal advice. 

Protecting consumer privacy is not an unfamiliar concept in our industry and it’s something that should already be woven into our policies, procedures, and practices. With the rapid increase of state privacy laws across the United States, any company that collects, uses, transmits, or receives consumer data has to stay up-to-date on all related compliance issues.

In a previous webinar, Coast to Coast—the State of Privacy and Compliance in 2023, TrueAccord’s legal experts discussed the newest federal privacy laws and all the related compliance issues. Watch the full webinar on-demand now!

The passage of the FTC’s Safeguards Rule, amending the Gramm Leach Bliley Act (GLBA), has been a big topic in data security conversations across the financial services industry as businesses prepare to be in compliance on or before the extended effective date of June 9, 2023. Meanwhile, several states have actively been considering and passing new legislation requiring additional policies, controls, and practices not only in the data security space but also for data privacy and data breaches. It is important for Chief Information Security Officers, Privacy Officers, and Chief Compliance Officers to stay on top of this legislation, as well as Chief Executive Officers since we have seen many federal and state actions naming the CEO in their individual capacity for failing to properly secure and protect data or to properly delegate these responsibilities to the appropriate persons within their organizations. 

**Please note this article is not legal advice. This is not an exhaustive list of all laws. You should consult a lawyer if you have questions about federal and state data security, privacy or breach laws.

Data Breach Laws

All 50 states have data breach notification laws on the books. In 2022, 19 states considered enhancing their data breach laws.

Those states that passed revised data breach laws, tightened up notification timelines, added additional definitions of what constitutes personal information, and expanded the notification requirements to include additional state agencies. For example, Arizona’s law HB 2146, amending Arizona Revised Statutes section 18-552, not only requires that notification be made to consumers but also to the Director of Arizona’s Department of Homeland Security. If the breach impacts more than one thousand people, then the law requires the notification also be given to the three largest nationwide credit reporting agencies, the attorney general, and now the Director of Arizona’s Department of Homeland Security. 

While most states are shortening the time frame in which a consumer must be notified of a data breach to 45 days or less, some of these laws include exceptions or a short list of situations in which a delay in notification is permissible. For example, Indiana’s revised law, H.B. 1351, amending Indiana Code 24-4.9-3-3, limits a permissible delay in notification three circumstances: (1) when the integrity of the computer system must be restored, (2) when the scope of the breach must be discovered, or (3) when the attorney general or a law enforcement agency asked to delay disclosure because disclosure will impede a criminal or civil investigation, or jeopardize national security.

Both Maryland (H.B. 962, amending Maryland Personal Information Protection Act and section 14-3501 of the Annotated Code of Maryland)and Pennsylvania (S.B. 696, amending the Pennsylvania Breach of Personal Information Notification Act) expanded the definition of “personal information” to include medical and health information, including a definition of “genetic information” in Maryland’s law.

Since the webinar, Utah Governor Spencer Cox signed into law Senate Bill 127 on March 23, 2023, which amends the state’s data breach notification statutes. The amendments go into effect May 2, 2023.*

Along with updates to states’ laws, Federal regulators are also providing additional guidance too. For example, the Office of the Comptroller of the Currency (OCC) recently released more information regarding when banks need to know from their vendors about data breach including ransomware notifications.

Data Privacy Laws

In addition to creating and updating laws to help consumers in the event of a data breach, states have also been enacting laws dedicated to protecting consumer privacy. There are six states with comprehensive data privacy laws: California, Connecticut, Colorado, Iowa*, Virginia, and Utah. These laws give consumers various rights over their personal information, such as the right to know what information companies collect and use, a right to correct their information, a right to opt-out of the sale of such information, and a right to request deletion. 

In 2022, Congress introduced a federal privacy law, HR 8152, the American Data Privacy and Protection Act; however, it did not make it to the finish line despite having bipartisan support. It contained some preemption of state privacy and data protection laws, which would have been a relief to many companies navigating the existing patchwork of state laws.  As of January 2023, many states have introduced privacy-related bills and this is likely to continue throughout the years to come. 

California took the privacy law lead in passing the California’s Consumer Privacy Act of 2018 (CCPA) that went into effect in January of 2020 to protect the use and sharing of personal data. California recently expanded the CCPA with the California Privacy Rights Enforcement Act (CPRA) that took effect on January 1, 2023. The law created the new California Privacy Protection Agency and gave it the power, authority, and jurisdiction to implement and enforce CRPA. Additionally, businesses must regularly submit their risk assessment on the processing of personal information to this new agency. 

The four other states that followed suit have substantially similar laws with broad definitions of personal information. These laws typically apply to persons that conduct business in the state and processing a set minimum of consumer data records (typically 25,000 or more) or businesses who earn at least 50% of their revenue from the sale of consumer data. 

These laws give consumers various rights, such as the right to access their personal data, correct inaccurate personal data, delete personal data, in certain circumstances, obtain a copy of the personal data they previously provided to a controller, opt-out of the processing of their personal data if related to targeted advertising, sale of personal data or certain profiling activities, appeal a controller’s refusal to take action on a request, and submit a complaint to the attorney general if an appeal is denied. Interestingly, Colorado’s law makes clear that a consumer’s consent is not valid if obtained through the use of a “dark pattern.” 

These laws do not give consumers a private right of action but are enforced by the state’s attorney general with civil monetary fines calculated per violation. These laws also contain exemptions for data already protected by other laws, such as HIPAA, FCRA, and GLBA.

Virginia’s law took effect January 1, 2023. Both the Connecticut and Colorado Data Privacy Acts will go into effect July 1, 2023. The Utah Consumer Privacy Act takes effect December 31, 2023. The Iowa privacy bill (SF 262) was signed into law by Gov. Kim Reynolds on Tuesday, March 28, 2023. The legislation is set to take effect Jan. 1, 2025.*

Best Practices for the Future of Data Security & Privacy 

Having good security practices in place is not only beneficial for both consumers and businesses, but is absolutely critical to stay compliant with all the new laws and amendments being introduced. 

So what are some of the best privacy and security practices to implement to protect customers, companies, and stay compliant? 

  • Practice data minimization.
  • Know where personal information lives at all times by creating a data map of where the data goes and is stored throughout your systems, which includes knowing your vendor’s data security and privacy practices and controls. 
  • Know who has access to personal information and routinely examine if that access is necessary to complete that job function.
  • Be intentional with how data is organized and stored so it can be easily segmented and treated differently if need be (think network segmentation). 
  • Have a public facing Privacy Notice–and make sure it accurately reflects your practices for use, collection, deletion and correction.
  • Conduct an annual data security and privacy risk assessment to continually reassess areas for improvement and where you may need additional controls.
  • Ensure contracts with parties whom you receive and/or give personal information to specifically address each parties’ obligations and restrictions for how personal information is used, shared, disclosed, stored, and sold (if permitted).

Compliance with data privacy and data security requirements will continue to progress as new laws and regulations are passed. Best practices will continue to evolve as well, as we continue to learn more about the expectations from Federal and state legislators and regulators, and as companies navigate evolving threats and vulnerabilities. Watch the full Webinar: Coast to Coast— the State of Privacy and Compliance in 2023 here »»

Learn more in our Compliance & Collections Resource Center or schedule a consultation today! 

Footnotes: 

*The Iowa privacy bill (SF 262) was signed into law by Gov. Kim Reynolds on March 28, 2023 after TrueAccord’s Coast to Coast webinar. 

*The data breach law for Utah was passed on March 23, 2023 after TrueAccord’s Coast to Coast webinar

An email is less intrusive than a phone call, finds N.D. Illinois while granting TrueAccord’s motion to dismiss

By on April 12th, 2023 in Company News, Compliance, Customer Experience, Industry Insights, User Experience

By Katie Neill & Steve Zahn

A court victory by TrueAccord Corp. (TrueAccord) in the Northern District of Illinois continues to showcase the benefits of digital collection as the court found receiving an email about a debt is less intrusive to consumers than receiving a phone call. Messer Strickler Burnette represented TrueAccord and filed the briefing in the case.

In the Branham v. TrueAccord opinion, the court granted TrueAccord’s motion to dismiss finding that the alleged injuries claimed by the plaintiff—undue stress and anxiety, financial and monetary loss, uncertainty as to how to proceed about the debt, and a harm that “bears a close resemblance” to invasion of privacy—are insufficient to establish standing for a Fair Debt Collection Practices Act (FDCPA) claim.

Plaintiff’s Allegations

Plaintiff alleged that TrueAccord violated the FDCPA by contacting her twice by email after having received notice that she was represented by an attorney. TrueAccord had no record of receiving a notice of attorney representation from the plaintiff. However, when deciding on a motion to dismiss like this, the court must rely solely on the facts and allegations in the complaint and consider them as true, whether or not they are.

In the complaint, the plaintiff included a laundry list of alleged injuries suffered as a result of receiving the two emails from TrueAccord. These injuries included:

  • “Actual” financial and monetary loss without any specifics
  • Confusion on how to proceed with TrueAccord’s debt collection attempts due to “misleading statements”
  • Undue stress and anxiety as well as wasted time, annoyance, emotional distress, and informational injuries
  • A harm that “bears close resemblance to” invasion of privacy

Plaintiff Did Not Allege a Concrete, Particularized Injury

In its decision, the court shot down each of these alleged harms and found that the plaintiff failed to properly plead a concrete, particularized injury as the U.S. Supreme Court required in Spokeo, Inc., v. Robins. 

Specifically, the court found:

  1. Unlike telephone calls, two unwanted emails are insufficient to confer standing and wouldn’t be “highly offensive” to the reasonable person.
  2. Alleged physiological harms (e.g., emotional distress, anxiety, and stress) are abstract harms and not concrete enough to support standing without a physical manifestation of such harms.
  3. Vague and conclusory statements that the plaintiff suffered financial harm without any allegations of facts to support that alleged harm are insufficient.
  4. Attorney fees for bringing suit on a matter cannot be the sole basis of standing to bring the matter; to do otherwise would permit any plaintiff without standing to create it by retaining counsel.
  5. “Wasted time” is not a sufficient harm for standing where no facts are alleged to support the claim.
  6. The risk of an invasion of privacy without an actual invasion of privacy is too speculative and not sufficient to confer standing.

Sophisticated Omnichannel Communication Strategies

This decision is another step forward for the use of email in debt collection as the consumer-friendly way. It also showcases the need for mindfulness when implementing an omnichannel communication strategy. Notably, while the court found a couple of emails are less intrusive than a phone call, it also stated that text messages, voicemail, and calls are different as they “are sufficiently intrusive on an individual’s peace and quiet” to support standing. Using a sophisticated omnichannel strategy helps debt collectors reach consumers at times that are right for the consumer and through the right communication channel, which ultimately creates a non-intrusive consumer experience.

Schedule a consultation to learn more about how email and an omnichannel approach can help their business’s collection efforts today»»

Q1 Industry Insights: Economic Stressors Persist while Pandemic-era Benefits End

By on April 5th, 2023 in Industry Insights

It’s tax season again, which can mean tax refunds for consumers that have historically been leveraged to stabilize finances or pay down debt. But with inflation and economic stressors persisting into the new year, many consumers are conflicted on their financial outlook and spending behavior is hard to predict. With uncertainties about how the end of various pandemic-era benefits will impact consumers, it’s more important than ever for creditors and collectors to implement strategies that consider consumer situations and preferences when attempting to collect.

Read on for our take on what’s impacting consumer finances and our industry, how consumers are reacting, and what else you should be considering as it relates to debt collection in 2023.

What’s Impacting Consumers and the Industry?

High inflation and interest rates persisted in the first quarter of 2023. While inflation eased for an eighth straight month in February at 6%, price increases rose sharply again on a monthly basis – prices grew 0.4% following a 0.5% increase in January, driven by higher gasoline and rent prices. In response, the Federal Reserve continued its battle against high inflation in March by raising its key interest rate by another .25% despite concerns around the turmoil that has shaken the banking system, landing it at 4.75-5%.

At the beginning of March, the federal government ended pandemic-era payments for low-income families on the Supplemental Nutrition Assistance Program (SNAP), causing nearly 30 million Americans to lose increased food stamp benefits. The extended payment boost was credited with keeping 4.2 million people out of poverty, with the average household expected to lose upwards of $95 per month in benefits with the program’s end.

In early Q2, another pandemic-era benefit around Medicaid will come to an end that will impact millions of consumers over the coming months. An estimated 15 million low-income Americans who were able to keep Medicaid coverage during the pandemic without needing to renew coverage or despite no longer qualifying will find themselves without health insurance. The Department of Health and Human Services estimates that in the end, more than 5 million children will have lost Medicaid, and predicts that Latino and Black beneficiaries will be disproportionately removed.

On the regulatory front, the Consumer Financial Protection Bureau (CFPB) hit the ground running for 2023 with new guidance on subscription fees, proposed rulemaking on non-bank company terms and conditions, and issued an annual report sizing up the three credit reporting companies. Directly impacting creditors and debt collectors, a January ruling from the District Court of Puerto Rico found that sending debt collection communications prior to any knowledge of a debtor’s bankruptcy filing is not a violation of the Fair Debt Collection Practices Act (FDCPA).

For businesses using pre-recorded messages to contact consumers, the Federal Communications Commission (FCC) published a new rule specifying that to be exempt from the Telephone Consumer Protection Act’s (TCPA) consent requirements, callers are limited to three pre-recorded non-commercial, non-telemarketing, or non-profit calls per 30 days, and would need to include an opportunity to opt out of prerecorded calls as part of the message. The final amended rule will go into effect on July 20, 2023.

Meanwhile, eyes are on the Big Apple as the New York Department of Financial Services (DFS) and the New York City Department of Consumer and Worker Protection are simultaneously engaged in amending their consumer debt collection rules. The DFS amendments would be an overhaul of its existing regulations and would include new debt types, while both amendments would introduce new disclosure requirements and additional restrictions on communications – specifically extending the existing requirement for direct consent to send email and text messages.

Key Indicators and a Heavyweight Court Decision

According to the New York Fed’s Quarterly Report on Household Debt and Credit, total household debt increased in the fourth quarter of 2022 by $394 billion (2.4%) to $16.90 trillion. Balances now stand $2.75 trillion higher than at the end of 2019, before the pandemic. In the same time period, the Federal Reserve reported that household net worth rose 2% to $147.71 trillion, driven by the value of equities holdings increasing $2.7 trillion offsetting a drop in real estate values by about $100 billion.

Consumers trying to make ends meet have continued turning to credit cards and other credit types to bridge the income to expense gap. According to the Federal Reserve Bank of New York, U.S. consumer credit card debt has increased to nearly $1 trillion. Credit card balances jumped more than $60 billion over Q4 2022, lifting the total amount of U.S. credit card debt to an all-time high of $986 billion, the report found. Home equity loans and lines of credit continue to be an attractive option to homeowners, though high interest rates may make opening a new account less appealing in 2023.

Diving deeper into credit cards, Experian’s March Ascend Market Insights report found that credit card balances, while slowing slightly from previous months as seasonally expected, were up 18.8% year over year in February 2023. Additionally, the report found that there were 7.2% more open credit cards in February than there were a year prior. These balances and new cards coincide with an increase in interest rates, raising the stakes for delinquent accounts. According to a January 2023 Bankrate survey, 35% of Americans carry credit card debt from month to month, up 6% from 2022.

And delinquency is trending. Experian also reports that early-stage delinquency is nearing or exceeding pre-pandemic levels for most credit products, with exceptions for first and second mortgages, Home Equity Lines of Credit and student loans. 30+ day past due accounts showed a 2.12% increase month over month in February, while 90+ days past due unit delinquencies for auto loans and personal loans are higher than they were in 2019. Additionally, roll rates show 1.06% of consumer accounts rolled into higher stages of delinquency in February. Revolving credit utilization continues to slowly increase, as well. The same month, 63% of consumers had utilized 20% or less of their revolving limits, while 21% of consumers had utilization of 60% or more.

The student loan forgiveness debate continues into 2023 as the nearly 19% of Americans with student loans wait to see how the case shakes out with the Supreme Court. If successful, many consumers will see their overall debt burden decrease. If unsuccessful, those consumers will see no reduction in their debt and will be responsible for resuming payments that were deferred or went into forbearance during the pandemic. A ruling is expected sometime in Q2 2023.

While student loan delinquency rates have been almost nonexistent since payments were paused, the delinquencies in mortgages, auto loans and credit cards have been trending back to pre-pandemic levels, which doesn’t bode well for student loan holders with other debts. When student loan payments resume, consumers will have to prioritize debt repayment, leading to higher delinquency rates for other debt types. For a data-driven look into this topic, read our latest report, “Consumer Finances, Student Loans and Debt Repayment in 2023”. 

Consumers Sending Mixed Signals About Finances

As the cost of living remains high, 62% of Americans said they are living paycheck to paycheck in February, up from 60% the month prior, according to the latest Paycheck to Paycheck Report from PYMNTS.com and LendingClub. According to Deloitte’s State of the Consumer Tracker, consumers are feeling slightly more optimistic about their personal finances and the direction of the economy, but are also signaling stronger intentions to save versus spend. 

But Bankrate’s 2023 Annual Emergency Savings Report shows that growing debt is hurting consumers’ ability to save, with 36% of Americans reporting having more credit card debt than emergency savings, the highest on record since 2011. The report shows that consumer concern about finances is high, with 68% of people surveyed worried they wouldn’t be able to cover their living expenses for one month without their primary source of income, including 85% of Gen Zers — the most concerned of any generation. Unsurprisingly, 74% surveyed said economic factors, inflation and changes in income and employment are causing them to save less right now.

What Does This Mean for Debt Collection?

So far in 2023, the economic landscape isn’t cutting consumers any breaks. With persistently high inflation and interest rates, the impending threat of a recession and a number of pandemic-era benefits coming to an end, consumer finances will likely be impacted and stretched in myriad ways this year. For lenders or collectors engaging with distressed borrowers, here are a few things to keep in mind:

1. Meet consumers where they are, compliantly. While regulations and compliance impacted both phone calls and digital channels in some way in 2022, our takeaway is that a one-size-fits-all approach to debt collection communication won’t work at scale in 2023. By using an omnichannel approach, collectors are more likely to engage a customer on their preferred channel and open the door for engagement. For a closer look at what using an omnichannel approach means in debt collection, check out our latest eBook.

2. Give consumers agency to engage on their own time. What do emails and online payment portals have in common? Consumers get to decide when and where they use them. Just because a call center operates from 9-5, doesn’t mean consumers do. Remember that everyone’s situation is different, including when they can (or want) to address their debt. 

3. Give consumers flexibility on repayment time and terms. Higher monthly financial obligations make it harder for consumers to absorb unexpected expenses or carve out funds for debt repayment. Patience will be key in engaging distressed borrowers – give them payment plan options for when and how much they repay, which could mean smaller payments, shifting payments to align with their cash flow schedule or skipping a payment without penalty so they can get back on track.