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
The financial landscape for both consumers and businesses is particularly uncertain right now. Many new fintechs and neobanks are experiencing their first delinquency surge and others soon to follow. This year, the challenges of managing delinquencies and navigating an uncertain economy will compound, making it imperative for companies to critically think about their strategy to collect from consumers in debt.
But from the perspective of a seasoned veteran of the financial services industry, what are we really seeing in consumer credit trends today? And what should businesses really be preparing for tomorrow?
What are we seeing in consumer credit trends today?
OHAD SAMET, TrueAccord co-founder: I think we all notice that we’re dealing with a lot of lagging indicators in terms of consumer capacity to pay. Of course, one leading indicator is demand for credit. But in terms of what consumers are able to do—meaning their sentiment—are they willing to pay? Are they able to pay? Do they have enough disposable income? So many of these numbers are trailing indicators.
However, consumer net worth is still high. Why is that? It’s because stocks in primary, the value of primary residences, is calculated in the net worth of consumers. And so if you believe there was a bubble or just a run up in prices because of a lot of demand and very low supply, then that would artificially inflate the net value or net assets of consumers, and we will only discover how consumers are faring realistically in a few months.
Even if from a trailing indicator perspective, meaning delinquencies, net worth and so on, we are not seeing a drop yet. We’re only seeing banks increase their loss reserves in anticipation for losses.
We are definitely seeing a change in consumer sentiment. It can be because they’re running out of money. It can be because of general sentiment in the market. Inflation is up, risk is up, consumers start saving more—but we are definitely seeing that. And that, to me, is a leading indicator that we all need to be aware of.
TrueAccord’s Chief Growth Officer, Sheila Monroe, was recently featured in the New Standard in Debt Collection panel as part of the Beyond Digital: The Next Era in Collections summit. Having held numerous executive-level positions at TrueAccord on top of a multi-decade career in collections, Monroe is uniquely qualified to recount the historical practices of the collections industry from her point of view. In this blog post, Sheila shares her perspective on where the collections industry is heading in 2021 and beyond.
Much has changed since I started in the collections industry in 1986 and not just in the types of communication channels used, but also in the collection strategies employed. For example, the first real meaningful change was a move from a one size fits all strategy to a much more sophisticated segmentation of consumers.
That means “customer A” gets a very different experience than “customer B” based on their individual repayment behaviors while in collections. This type of segmentation helped companies decide calling intensity and their letter strategy: Is it a reminder letter? How frequently do we call? When do we call?
Once organizations mastered segmentation, operational efficiency (deploying and optimizing tools aimed at reducing the amount of calling) helped the industry start down a path of reduced staffing requirements and operational effort. Collection dialers have been around for years but with the new effort towards efficiency, agencies realized that customers were willing to make commitments and payments in the interactive voice response (IVR) system. Agencies started using interactive voice messaging (IVM) to automate outbound calling journeys as much as possible. Sophisticated skiptrace waterfalls became automated as companies got smarter about data management to increase contact rates.
The industry is still largely phone based but most collection businesses are now starting to adopt digital channels, like email and SMS. Though digital channels still only make up a small percentage of total outbound activity across the industry, we’ve seen regulators respond to these modern communication platforms with the introduction of Regulation F. As a company that is leaps and bounds ahead of the industry average when it comes to digital communications, we’re excited at TrueAccord about the new legislation. What Reg F says is, “all that disruptive phone calling that is happening, it’s not what consumers want. It’s not a great experience for consumers.” It’s clarified and given a strong nod toward using digital channels. When I think about that shift toward digital, a lot of players in the industry are just doing it for efficiency and some, frankly, out of survival because of Reg F.
The CFPB is doing a good job recognizing that consumers want a change, so they are forcing collection companies to innovate or get out. They understand that consumers want to communicate in more convenient, less disruptive channels and they want to feel safe communicating on their terms. The reality is that most consumers want to pay their debts. If there is respectful personalized communication and a simple way to sign up for a repayment plan, they likely will.
That brings me to where we are today and this continuing shift of behavior. When it comes to innovation and segmentation, changes have been about making things more streamlined for contact centers. All of that innovation has been focused inward to figure out how the company can optimize to get more for less. There’s been little attention paid to the consumer and their preferences. How can engagement with a consumer about a really sensitive topic be done in a way that meets their needs? How can we simplify the process for the consumer? How can we start to remove that stigma from the conversation? In most industries, you design with the consumer in mind and the money will follow.
Now, we’re in the age of the consumer. Today’s consumers crave simplicity, convenience and personalization. We live in a world in which we can listen to whatever music we want to hear, stream the content we want to see, connect with friends from around the world, get a ride, and have food delivered to our doorstep all with a couple of clicks. All those apps which we know and love, pay attention to our preferences to make it even easier the next time we open them to stream or watch or buy.
Effort is a thing of the past. Effort is reserved for things we want to do now: play a sport, take a hike, or go to our kid’s recital. So now, financial services, and yes, the collection process, which touches millions of consumers each year, needs to become simple, convenient, intuitive, personalized and ultimately, low effort.
This content originally appeared as part of the Beyond Digital: The Next Era in Collections summit. Watch the entire summit here.
Halfway through 2021, e-commerce and consumer spending continue to see the impact of government stimulus payments while consumers look for new ways to invest and leverage their money. Simultaneously, all sectors of fintech grew during the pandemic, and this growth has not shown signs of stopping. Investment and lending platforms have grown in users by the highest percentage during the pandemic — with increases of 23 and 25 percent, respectively (McKinsey).
With the digitization of banking and financial services now firmly part of our new normal, is “disruption” still possible in fintech in 2021? TrueAccord co-founder and CEO, Ohad Samet, recently sat down with Julie VerHage-Greenberg of Fintech Today to discuss what the next horizon of fintech disruption will look like — and how financial institutions of all types can stay ahead of the curve and create groundbreaking solutions this year.
Solving “structural problems”: Fintechs, unlike many traditional financial services companies, are not just putting old products online and calling them digital, but rethinking the approach to existing problems and building new, better solutions.
Digitization for customer experience: While many companies have focused on digitizing the customer experience, those that haven’t may begin to feel the pressure to adapt. With digitization increasingly being driven by consumer demand and expectation, financial service providers that don’t integrate the consumer experience into their offerings will lose out to those that do.
Affordable financial services: With so many new fintech players in the industry, competition and innovation continue to spur more efficient and affordable services for consumers. Old products will be replaced with new banks, payment options and wage access, and more will focus on credit care and access to cater to consumers.
In our second installment of “Between Two FinTechs,” an interview series with leaders in financial technology, we have Hunter Walk, co-founder and partner of seed stage venture fund Homebrew. Previously at YouTube and Google, Hunter uses his startup and scaling expertise to help founders articulate their product/market fit, recruit stellar teams and build well-defined cultures. In this conversation with our CEO Ohad Samet, Hunter shares how he started his venture fund, his thoughts on major developments in fintech and his investment philosophy.
Ohad Samet: Hunter Walk is one of the early believers in our company and one of the most outspoken leaders in the venture capital community, so we’re really excited to have you, Hunter. Can you start us off by telling us about the beginnings of Homebrew?
Hunter Walk: Thanks so much for having me!
Homebrew came out of a partnership with my co-founder. Satya Patel and I had worked together at Google and always wanted to work together again. At the end of 2012, I was thinking about leaving Google after almost a decade, most recently having run the Product team at YouTube. Satya had recently left Twitter where he had been running Product, so we finally started to talk about what we wanted to do together.
“We didn’t assume we were relevant just because we’d been around the Valley for awhile and had the ability to write checks.”
We didn’t assume we were relevant just because we’d been around the Valley for awhile and had the ability to write checks. We wanted to make sure we were committing to a relatively small number of companies that we would get up every morning and put sweat and reputation behind them, not just capital. My objective is to be able to look back and think about the impact the people we backed made.
We think about who we’re going to be proud to be associated with—and TrueAccord checks off those boxes.
OS: You recently tweeted that your team is “big on banking as a service.” Can you tell us more about how you’re thinking about that sector?
HW: When we started Homebrew in 2013, we believed industries would experience innovation from how data that used to be siloed can now be pooled. Data analysis that used to be impossible or expensive had become more open and available for companies of all sizes.
Despite having no specific background in financial services, we were fascinated by the potential there as a tremendously large industry where its consumers didn’t feel empowered by them. We realized there were people taking a very low net promoter score industry to create something that was thought of more positively by its customers. We knew there would be very tough challenges. It’s hard as a startup to navigate around regulations. The incumbents have spent a ton of lobbying dollars. Old technology platforms are difficult to work with, and you essentially have to figure out how to partner with them or route around them. But the people who could do it successfully would build incredibly durable, important, and valuable businesses.
We’ve invested in and continue to invest in that sector. It’s an industry where depth of knowledge will really help you in a lot of areas. We’re always happy to bet on first time entrepreneurs, but no entrepreneur should underestimate the complexity that you encounter in this sector. That type of knowledge, mentality and accrued experience, makes a competitive moat as well.
“[Fintech] is an industry where depth of knowledge will really help you in a lot of areas. We’re always happy to bet on first time entrepreneurs, but no entrepreneur should underestimate the complexity that you encounter in this sector. That type of knowledge, mentality and accrued experience, makes a competitive moat as well.”
We also look for that little crazy gleam in the founder’s eye that says “Oh, if we can do this, then we can do that.” I call those iceberg startups. The 10% that’s above the water looks impressive, but then you realize there’s another 90% below the surface. Maybe the metaphor is that the ship is the incumbent, and the startup is the iceberg. And that’s utterly horrifying if you’re a ship. I don’t know what makes the investor. Maybe like a happy penguin on the iceberg!
OS: That’s a really interesting point. How do you feel about companies expanding into new businesses? How do you think about balancing the legacy business, expanding that, doubling down, and then working on value-added services as a way to expand the product?
HW: Sometimes people assume that as companies grow, they’re de-risking themselves. And I actually don’t think that’s true of the best startups. I think the best startups choose to re-risk their business at various milestones because they know that they have the opportunity to expand the set of services or products they offer against a consistent mission.
During my decade at Google, I saw that if you are a successful company, in the near term it is always worth putting more resources on your core business and not in new opportunities because you already know that the ROI will be positive. But the reality is that that’s actually the right time to start placing those next bets because you have the stability of something that’s working. And so you say, “Well, what does that put us in a position to do next?” Is expanding into this new service aligned with the mission? Is it consistent with the capabilities and brand of the company? And is it a big enough problem worth solving?
OS: What’s your take on “lending as a service” type companies?
HW: It’s a very interesting and obviously a tremendous area. There are definitely challenges for companies trying to break into that. I think some of those horizontal plays and those essential infrastructure plays are interesting, but you have to figure out how to run a very lean, tight ship because it’s only going to make sense if you can get to a certain scale. You need to decide what sort of risk you’re taking on, what sort of value you add, and if that value actually catalyzes the underlying business of your partners. But looking at the Affirm’s and so forth of the world, it’s clear that there are very smart people in this space who can get and preserve some margin because they’re doing something their partners probably can’t do for themselves, and increase revenue by taking on some of that processing risk. We think it’s one of those businesses where value is going to accrue to a very small number of players.
We’ve seen some other areas that we think are less competitive that are more emerging in the infrastructure space of banking, insurance pricing, and reinsurance. When it’s an area like this, I get really excited when I hear somebody with a contrarian take. If that person is right, they are going to potentially have an outsized result versus a bunch of people who are like, “Oh, I’m going to do Square credit for influencers, or I’m going to do credit for Patreon.” I don’t think those are, by themselves, interesting, discernible big businesses. They don’t have the same vision mission objective that, for example, TrueAccord does. Sometimes if you build the right platform, what other people are calling companies, you can call features and products.
“Sometimes if you build the right platform, what other people are calling companies, you can call features and products.”
OS: Can you tell us more about your investment philosophy and what’s next for Homebrew: How do you balance pattern recognition and Diversity & Inclusion when making early stage investments?
HW: We believe it really starts by being accessible—we respond to every cold email, work to meet new people and communities that weren’t just based on our own work histories, and bring a ‘pay it forward’ attitude to working with underrepresented segments in tech. That said, there’s still plenty of work to be done—while we’ve historically invested in female-founded companies at a rate 4-5x the industry average, I don’t believe our portfolio is yet representative of our ambitions when it comes to other underrepresented segments such as Black founders. Hopefully I’ll update this a year from now and we’ll have more to say there!
Perspectives from Melissa Guzy, Co-founder and Managing Partner of Arbor Ventures
At TrueAccord, we are motivated by how our work impacts consumer finance through technology. Given how broad the landscape is for fintech products and services, we’re excited to introduce a new speaker series on our blog, called “Between Two FinTechs: A Chat Series with FinTech Industry Leaders.” Hosted by our Founder Ohad Samet, these conversations will provide unique industry insights and a chance to highlight notable players in this space.
For our inaugural interview, we’re honored to have Melissa Guzy, Co-founder and Managing Partner of Arbor Ventures, discuss her perspectives as an investor focused on fintech companies.
This transcript was edited and condensed for clarity.
Ohad Samet: We’re really excited to be launching this new series of virtual fireside chats. The goal of these chats is for us to meet with folks from across the industry, learn about the issues they care about, and gain new perspectives on the fintech space. Today, we have Melissa Guzy, general partner at Arbor Ventures, and board member at TrueAccord. Welcome Melissa!
To start, can you tell us a little bit about yourself?
Melissa Guzy: Thank you very much for having me. It’s really an honor to do this and to chat with everyone on the team.
My story is not that unusual. I did a startup in my 20s and it was a very colorful ride, both up and down—at one point, we even went public. After that, I joined VantagePoint Venture Partners as a partner. I spent 12 years there and then decided I really wanted to do something entrepreneurial again. So in 2013, I decided to start Arbor Ventures. It was very much like doing a startup all over again. We only invest in financial services, which is something that I’m tremendously passionate about.
OS: Why the focus on financial services?
MG: I always think you’re a better investor when you’re truly personally passionate about something than just thinking, “Hey, what’s the latest fad?” An early experience has made me very passionate about debt collection in particular.
When I first started my company, I had to put expenses on my personal credit card. which is what you do when you’re completely and insanely committed to something. Eventually we received funding but it was quite stressful for a period of time.
When I think about what TrueAccord is doing, I’m quite passionate about giving people a chance to get back on track There are so many unexpected events that have happened to all of us in our lives—including now during COVID. But that doesn’t mean you’re a bad person or that you’re a bad risk. It just means at some point, you needed more flexibility than what the system was offering you.
“When I think about what TrueAccord is doing, I’m quite passionate about giving people a chance to get back on the rails.”
So when the opportunity came up to invest in TrueAccord, I said, “Absolutely.” I think Ohad probably remembers we made a decision in two days. We never looked back and we’ve been fortunate to continue to invest in the company.
OS: Thank you, and likewise we’re lucky to have you! What are some more qualities you look for in a startup that you would invest in?
MG: It’s about the people. I always say your relationship with a team or your investment lasts longer than the average marriage in the United States. When you think about investing in a company, you need to think, “I’m going to be working with this person through ups and downs for a long period of time. Is this someone I want to work with and spend my time with?”
“Your relationship with a team or your investment lasts longer than the average marriage in the United States. You need to think ‘I’m going to be working with this person through ups and downs for a long period of time. Is this someone I want to work with and spend my time with?’”
The second thing, of course, is the idea, but what we have found is that really good entrepreneurs can learn to pivot and change. Every company will go through ups and downs. So it starts with people and from there it’s about industry and sector—what gets us excited.
OS: Based on your experience, why do startups fail? Can you differentiate those who fail quickly versus those who fizzle out later?
MG: That’s a great question. Startups never fail because of one issue. Startups fail by consistently making bad calls and judgments. We’ve been studying this for quite some time and usually it has to do with not wanting to deal with the core problem at any given point in time.
You don’t want to deal with a problem or a challenge because you’re fundraising, or you don’t want to make a change on engineering because it’ll slow something down. What happens is people start to put bandaids on decisions, and then all of a sudden, the next decision is based upon something you’ve already put a bandaid on, and that just keeps building. And to me, that’s absolutely a point of failure.
I think later startups fizzle out because people forget that you’ve got to innovate and iterate every single day. We live in a very competitive world that changes at hyper speed. Often, companies will reach a threshold and then stop growing because they actually stopped innovating. And they stopped innovating because they stopped taking risks.
OS: Why do you think some fintech companies become successful versus others?
MG: The most successful startups in fintech have not been technologically revolutionary. They’ve just solved something incredibly messy. Take Stripe as an example—a couple lines of code to be able to accept credit card payments on a website so an e-commerce company didn’t have to hire a payments team. That was really simple. It wasn’t rocket science. It was messy. What they solved first was very sticky, and then they were able to build around it.
“The most successful startups in fintech have not been technologically revolutionary. They’ve just solved something incredibly messy.”
If fintech companies start with something weaker, they’re not going to be able to build around it. I think that’s one of the benefits, again, of TrueAccord. We started with something really hard and now we can add everything around it to serve the consumer in the right way.
What’s so interesting is that many financial services are consumer-centric until someone’s late on a payment, and then they don’t like that consumer anymore. They fail to realize that it’s always going to be consumer-centric. As long as we understand that everything we do, at the end of the day, is to help the consumer, we will definitely succeed massively.
OS: How do you think COVID-19 is going to change funding and the overall startup environment?
MG: I think Silicon Valley has had a hold on being the startup capital for a long time that’s well-deserved. During the 2000 downturn in venture capital, VCs on the East Coast pulled back and got scared. The venture capitalists in Silicon Valley never did, and I think that’s why the Valley has the reputation it has. It’s part of the fabric of the community to take risks and to back entrepreneurs.
I think that’s going to change as more startups and more people are moving out of cities, especially with COVID, and we’ll see much more diffusion of startups across the United States —and across the world, for that matter.
We will pull through, and we’ll be in a new norm, and there’ll be new opportunities. And you can be nothing but excited about the future.
New products in debt collection seek to solve decades-old problems with traditional collection strategies. Products and services seek to improve the collections process and aim to improve contact rates, liquidation rates, brand perception, and ease of access.
When you combine agile product development with its application in collections, you’ll see new solutions to old problems. I recently spoke with Parker Lyons, TrueAccord’s Product Director, about his personal product philosophy, how he and his team are approaching product development, and the challenges faced by new product offerings in the space.
Hi Parker! Thanks for joining me. I wanted to kick us off with an introduction. You’re fairly new to the collections industry. Can you walk me through what brought you to product development in debt collection?
Sure! When I finished college I started out in advertising for consumer packaged goods. I was living in Colorado at the time, so I was working on some ads for Coors Light and Polaris snowmobiles. I spent a few more years in advertising, but I ended up taking an interest in energy and renewables. I saw companies in the space with really impactful missions and the growth potential, so I went to school to get my Master’s [Degree] in Environmental Studies.
I ended up making my way out to California and started in solar. I met some people at Spruce Finance who are now working at TrueAccord, and had the chance to see the work TrueAccord is doing. I always had a very “Tony Soprano” view of debt collectors, but TrueAccord is something different. It’s a different type of mission, and we’re really helping people get back on their feet.
We’re happy to have you! How do you translate your product experience over from such a different industry?
Most recently I was with a company called BlueWave Solar that was a community solar business. Our product allowed consumers to subscribe to a percentage of a solar farm and apply the savings generated from that farm to their utility bill.
So we really were a servicing company. We had clients who were big banks and energy companies whose assets might differ from debt collectors managing portfolios, but the goal was the same: they wanted to keep accounts and cash flow moving.
And as you’ve started to consider meeting that goal for clients in debt collection, what are some things you’ve learned about the industry? Do you see consistent issues that you think need to be addressed?
Traditional debt collection platforms are using reliable systems. Call-and-collect methods have worked for a long time, but performance is waning and people aren’t picking up the phone anymore. A lot of the appeal though is that it’s a relatively simple model to get moving. You hire agents, you train them, and they start calling.
On the other side of that, we see some resistance to new technology, and I think that people are worried about it being too complex. So that falls on us. We have to meet clients where they are and focus on making integration easy. We have to maintain simplicity even though machine learning and digital tools can be very complex.
How do you go about making your product more easily digestible then? Where do you start when you’re trying to solve that problem?
It starts with knowing your user. Who are they? What’s their problem? You have to have a deep understanding of what makes them tick and their pain points because you then have to ask yourself “How do we solve that problem for them in a way that no one else can, or cheaper than someone else can?” In product management, we say that you’re responsible for creating a product that is valuable, usable, feasible, and viable. With those things in mind, you can turn your potential client’s issues into your value proposition and the capabilities of your company.
In product management, we say that you’re responsible for creating a product that is valuable, usable, feasible, and viable. With those things in mind, you can turn your potential client’s issues into your value proposition and the capabilities of your company.
As an example, we’re expanding with TrueAccord Retain, our product for first-party pre-charge-off solutions. We’ve scaled our capabilities with artificial intelligence and machine learning in late-stage collections, and early-stage is a natural extension of our growth and service value. In the age of COVID though, we’re seeing an increasing need for early-stage.
The major pain point we’ve seen is that it’s expensive to spin up and scale massive call centers quickly. We have a proven tech stack that can address the need to start quickly. Now it’s a matter of evaluating and understanding the unique challenges of collecting early-stage debts.
Are there projects outside of Retain that we’re currently working on that you’re allowed to share?
Our team is constantly asking “How do we bake all of our learnings into best practices?” One of our biggest projects right now is improving our own internal efficiencies. Everything that we’ve built so far has worked, but we need to—with higher account volume and higher growth rates—automate more of our own processes and move away from manual practices.
Another important piece of that is ensuring that processes are thoroughly documented. These growing pains are expected when an organization is growing quickly, and the more we grow, the more diverse our client base will get. We have to build on a foundation now that can accommodate that diversity consistently.
I’m also reflecting on what we know about our current users. We have to figure out the changes we hope to deliver for existing and future clients. Building a clear roadmap for that is huge which is why we’re working so closely on improving our internal organization. Improving our internal planning directly improves our product offering and client performance.
That’s really exciting to hear. I know how much the startup world prides itself on its ability to pivot quickly, but creating a more defined system makes that system scalable. We’re all incredibly excited to see what comes next!
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