Tag: Industry Insights

Q3 Industry Insights: Economic Challenges, Compliance Considerations and a Silver Lining

By on October 12th, 2022 in Industry Insights

As we roll toward the end of 2022, the economic landscape continues to weigh on consumers, and companies who lend to or service those consumers are preparing for what’s to come. Simultaneously, regulatory activity in the debt collection space has also been on a roll as organizations try to make sense of how technology can (and should) be used to innovate the industry.

Read on for our take on what’s impacting consumer finances, how consumers are reacting, and what else you should be considering as it relates to debt collection in 2022 and beyond.

What’s Impacting Consumers?

It’s a no-brainer that inflation and higher interest rates are hard on consumer finances, and unfortunately, we’re not seeing them come back down to earth very quickly. These two factors compound to make it more expensive to be a consumer and harder to acquire credit needed to make ends meet. A report by Bank of America found that a large majority of workers (71%) feel their pay is not keeping up with the cost of living.

And that cost keeps rising. The consumer price index rose 0.4% in September, up 8.2% from a year ago, driven by increases in food and shelter costs, and despite falling gas prices. This unrelenting upward-cost march brings the threat of financial instability to many Americans as their money doesn’t get them as far as it used to. According to a recent LendingClub report as of August, 60% of Americans were living paycheck to paycheck, up from 55% last year. 

Interest rates keep going up, and they haven’t hit the top yet. In September, the Federal Reserve announced the third consecutive rate hike of 75 basis points (the fifth rate hike of the year) and signaled additional aggressive hikes ahead, landing the federal interest rate at 3-3.25%. These interest rates can cause economic pain for millions of Americans by increasing the cost of borrowing for things like homes, cars and credit cards.

Household net worth, which was previously holding steady, proved to be a lagging indicator that has now corrected and caught up with the market. The value of equity holdings dropped $7.7 trillion and the value of real estate held by households only increased $1.4 trillion, softer than recent increases as ​​higher borrowing costs suppress demand. The Fed’s Financial Accounts data issued in September reflected the largest quarterly loss in household net worth ever at a staggering $6.1 trillion in the second quarter. This comes after falling $147 billion in the first quarter, but the second consecutive drop was much more telling.

According to the New York Fed’s Quarterly Report on Household Debt and Credit, total household debt increased by $312 billion (or 2%) during the second quarter of 2022, and balances are now more than $2 trillion higher than they were before the pandemic.

Indicators and a Silver Lining

With prices increasing faster than income can keep up, consumers are covering the delta by pulling money from savings or putting expenses on credit cards, and it’s showing – consumer debt, including credit cards, is at an all-time high for the bottom 90% of US households. Credit card balances saw their largest year-over-year percentage increase in more than 20 years, adding $46 billion in the second quarter. High interest rates make credit cards a slippery slope for debt balances, and the latest interest rates have been over 20% for those with “good” or “fair” credit (FICO labels “good” credit scores between 670-739 and “fair” between 580-669).

Rising credit card balances aren’t the only thing to watch. Looking at month over month delinquency rates shows that consumers’ ability to repay is diminishing and they may be losing control over their debt. According to Experian’s Ascend Market Insights Dashboard from August, the end of Q2 saw 0.91% of consumer accounts rolling into higher stages of delinquency in July 2022, an increase from the month prior. There was also an uptick in 30+ delinquency rates in July, with 30+ day past due accounts increasing 7.33% month over month. And, collections and charge off rates for auto leases, personal loans and bank cards are higher than pre-pandemic.

Amidst all the economic gloom, there was a silver lining for many borrowers in the form of student loan forgiveness. In August, President Biden announced a student loan forgiveness of up to $10,000 for borrowers (or up to $20,000 for Pell Grant recipients). The New York Fed estimated that forgiving $10,000 per borrower would eliminate student debt for 11.8 million borrowers, or 31% of the total number. 

While this forgiveness may impact those borrowers significantly through credit score increases or stronger balance sheets, it likely won’t have as much impact on borrowers with higher balances as monthly obligations will remain. This is an ongoing initiative that is subject to change, and in the meantime, the COVID-19 pandemic-related program that paused federal student loan payments will end at the end of this year. Any borrowers with remaining balances after debt forgiveness must start making payments again in January.

Increased Regulatory Activity

In addition to announcing that they are mobile-first to align with consumer use trends, the Consumer Financial Protection Bureau (CFPB) has been busy this quarter with initiatives to protect consumers including around the Unfair and Deceptive Acts and Practices Act (UDAAP), credit reporting, and a closer look at Buy Now, Pay Later (BNPL).

Data and tech are a key focus. In August, the CFPB first announced that digital marketers who are materially involved in developing content strategies for businesses subject to CFPB regulation can face UDAAP liability for unfair, deceptive acts or practices and other violations. The very same day, they took action against a financial company for using a faulty algorithm that caused consumers to overdraft their accounts – underscoring their interest in “black box” algorithm decisioning. The next day, the CFPB published a circular about requirements to safeguard consumer data, specifically citing practices that “are likely to cause” substantial injury like inadequate data security measures.

And data concerns extend into BNPL. After first opening an inquiry into BNPL in December 2021, the CFPB in September issued a report that identified several competitive benefits of BNPL loans over legacy credit products, but also identified potential consumer risks: discrete consumer harms (i.e., a requirement to use autopay), data harvesting (i.e., lenders’ use of consumer data to increase the likelihood of incremental sales), and borrower overextension.

While the CFPB supports innovation in financial services that benefits consumers, their recent announcements make it clear that organizations that do not protect consumer data and use it fairly will be in violation of the UDAAP. Lenders and debt collectors should keep an eye on this area as the CFPB continues to examine and form opinions on data and tech in consumer financial services.

Also noteworthy in debt collection regulations: In September, the U.S. Court of Appeals for the Eleventh Circuit dismissed the Hunstein opinion, which is big news for the industry. While debt collectors initially breathed a sigh of relief, there might be more to come here in state courts. Debt collectors should proceed cautiously when changing their policies, processes and procedures in light of this ruling.

What Can You Do?

So here we go into Q4, or as many consumers see it, the spending season. Will holiday spending take a huge blow from the challenging financial landscape? Will consumers rely even more on credit cards or BNPL to help cash flow and spend just as much? We’ll soon find out, but as a lender or collector, there are steps you can take to prepare:

Make sure your practices are compliant. Compliance in debt collection is a huge undertaking and will continue to evolve, and the patchwork of federal, state and regional guidelines may get messier. For a good snapshot of what compliance looks like today, check out our Collections & Compliance page.

Cater to the distressed borrower in collections. Cash-strapped consumers will need affordable options if you hope to recover past-due debt. This could be options for longer payment plans for more affordable installments, deeper settlements for payment plans, ability to “pay what you can” toward your debt, or removing minimum payment requirements.

Remember that consumers are humans. With feelings, problems, lives and a whole lot of other financial obligations. Engaging with distressed borrowers can be difficult, especially when they aren’t able to pay. Kindness, patience and understanding will go a long way in these efforts. Consider a humane, digital-first approach to align with their preferences. TrueAccord can show you how.

Q2 Industry Insights: TL;DR – Prepare Now for Delinquencies Tomorrow

By on July 5th, 2022 in Industry Insights

What’s going on in the economy? In Q2, Jamie Dimon advised to brace for an economic “hurricane”, a prominent black swan investor said the financial system is most vulnerable to “the greatest credit bubble of human history”, and Elon Musk had a “super bad feeling”.

As we wrap the second quarter and first half of 2022, we’re watching some key factors impacting consumers and the credit industry and making sense of what it might mean and how to prepare your business.

Key Factor 1: Inflation

Despite robust wage growth (average hourly earnings up 5.5% over last year), consumers are seeing those gains eroded by an 8.6% inflation rate in May, the highest in 40 years. The latest increase was driven by sharp year-over-year rises in the prices for energy (+34.6%), groceries (+11.9%) and shelter costs (+5.5%), an indicator of broad inflation pressures. In fact, rental prices across the nation hit a new record high—for the 15th month in a row, according to a recent Realtor.com report. Rents climbed 15.5% annually in May, to hit a median of $1,849 in the nation’s largest metropolitan areas. 

As things get more expensive, cash flow gets trickier to manage. When consumers stretch their budgets to account for higher prices, cash previously used for discretionary spending and saving disappears. Case in point: U.S. inflation-adjusted consumer spending rose in April by the most in three months, while the personal savings rate dropped to 4.4%, the lowest since 2008 and down for the fourth straight month. This indicates that many consumers are spending more and saving less.

And what about the people who have been living paycheck to paycheck and haven’t been able to accumulate savings? According to a recent study, this group includes 70% of millennials, but also 51% of Gen X and 54% of baby boomers and seniors. While some consumers are able to dip into their savings at a time like this, for many others it means looking for new lines of credit, which could be challenging because of…

Key Factor 2: Interest Rate Hikes

After another rate hike in June, the federal interest rate sits at 1.5-1.75% with the central bank expected to deliver more 50+ basis point rate hikes this year. While the markets are pricing these into forecasts, consumers will feel them more acutely in a number of ways.

A hike in the federal interest rate prompts a jump in the Bank Prime Loan Rate (prime rate), the credit rate that banks offer to their most credit-worthy customers and off of which they base other forms of consumer credit like mortgages and consumer loans. This means that those looking to open a new line of credit – as a stopgap for insufficient cash flow or otherwise – will pay more for the capital required to make purchases, with unfavorable terms that could lead to even more problems down the road. 

And we’re already seeing increased use of credit cards to deal with inflation. The Federal Reserve’s monthly credit report found that revolving credit jumped nearly 20% in April from the previous month to $1.103 trillion, breaking the pre-pandemic record. Credit card balances are also already up year over year, reaching $841 billion in the first quarter of 2022, and are expected to keep rising, according to a report from the Federal Reserve Bank of New York. For the estimated 55% of Americans who carry credit card debt month over month, paying off balances will get even more difficult for those not making minimum monthly payments. And opening a new credit card line may prove difficult – many lenders are or will be changing their strategies to stave off the looming threat of…

Key Factor 3: Rising Delinquencies

We all knew this was coming. Missed payments on certain loans are already on the rise. The Wall Street Journal reported that borrowers with credit scores below 620 (subprime) with car loans, personal loans or credit cards that are over 60 days late are “rising faster than normal.” And according to Experian’s Ascend Market Insights for June, there was an uptick in overall delinquency rates in May, with 30+ day past due accounts up 2.14% month over month, driven mostly by secured auto and mortgage loans.

The risk of delinquencies increases across the board of loan types when economic factors require consumers to stretch their dollars. When consumers spend more of their income on necessities, the surplus available for other expenses, like existing credit card or personal loan balances, dwindles, forcing consumers to prioritize payments. If your product or service is not essential to daily life, you may get pushed down the priority list and eventually dropped altogether as consumers try to make ends meet. And unfortunately for consumers, missing payments is also getting more expensive, especially on variable-rate products, and likely to compound an already financially sticky situation.

Key Factor 4: Regulatory and Compliance Guidelines

For those tasked with lending or recouping consumer loans, there are more regulatory considerations to keep in mind than before – debt collectors are under more scrutiny while lenders have similarly felt the regulatory squeeze with a number of new rulings in the past few months. Broadly, the Consumer Financial Protection Bureau (CFPB) invoked a legal provision to examine nonbank financial companies that pose risks to consumers in an effort to help protect consumers and level the playing field between banks and nonbanks, meaning if you’re offering any financial services to consumers, you may be under the microscope.

Notably for lenders, the CFPB published an advisory opinion affirming that the Equal Credit Opportunity Act (ECOA) bars lenders from discriminating against customers even after they have received a loan, not just during the application process. Further, if you’re a lender using complex algorithms or machine learning for underwriting, the federal anti-discrimination law requires you to explain to applicants the specific reasons for denying an application for credit or taking other adverse actions, and “the system said so” is not a valid excuse. 

For collectors, the CFPB enacted Regulation F late last year, and since its effective date in November has logged 2,300+ complaints* around debt collection communication tactics, which it aims to regulate, causing debt collectors to rethink their contact strategies or face repercussions. The organization also issued an advisory opinion to reduce “junk fees” charged by debt collectors and took stands against a number of repeat offenders this quarter, underlining their intent to step up consumer protection.

What to do?

While we aren’t sounding the alarms just yet, it’s certainly looking like a risky market for lending amid a tightening economy and a bleak outlook on consumer finances (many are predicting when, not if, the next recession will happen, or maybe it’s already here). And don’t forget that student loan repayments are set to resume in Q3, adding even more financial responsibility back to many consumers’ budgets. If you’re a lender, you’re likely rethinking your underwriting strategy and starting to consider the very real possibility of what happens if/when your customers start defaulting. If you’re in charge of recovering debt, you may be readying for an uphill battle.

As you prepare for what’s to come in consumer lending and debt, there is an important reality to keep in mind: Your target customer has changed. Consumer motivation for, ability to acquire and feasibility of keeping up with payments for most types of loans is very different today than it was a year ago. And that customer’s profile changes again when they start missing payments due to financial stressors. 

The best thing to do now is to ensure you have an effective collection strategy in place, preferably one that prioritizes customer experience to protect your brand, and necessarily takes compliance into account to protect your business. A technology-driven solution can not only help lenders handle an influx of delinquent accounts, but can help to preserve valuable relationships with customers as well. But not all tech is created equal – we took machine learning a step further and built HeartBeat, our patented decision engine, designed to reach every customer based on their unique situation so you won’t miss a single recovery opportunity. Learn more about how it works in our latest eBook.

*Data is from the Consumer Financial Protection Bureau’s Consumer Complaint Database, for the time period 11/30/21 – 6/24/22.

Q1 Industry Insights: Consumers Will Consume, Lenders Will Lend, Delinquencies Will Rise

By on March 31st, 2022 in Industry Insights

It’s the end of the quarter and, as always, we at TrueAccord are looking at consumer debt trends that will impact our industry and beyond. The four key trends we’re studying are: resumed foreclosure activity, extensive medical bills, the end of child tax credits and historically high inflation. Add these all together and the financial outlook for consumers, especially those in debt, is scary.

But there are silver linings, as well. For one, the consumer credit market is looking strong with signs of expansion, specifically,  originations for credit cards and personal loans are increasing. Second, the fintech industry continues to grow and evolve to meet the changing needs of consumers, offering more opportunities for financial inclusion and innovative customer experiences.

The Downside

Look, coming out of a pandemic and into a tumultuous international economic situation, we don’t expect it to be easy. But some definitely feel it more than others. For many families, government stimulus through child tax credits (which ended in December) was helpful in covering the gaps in income from pandemic losses, but it wasn’t enough to prepare them to take on new expenses and restart all the financial obligations that were temporarily on hold. In fact, a recent report from the Columbia University Center on Poverty & Social Policy found that 3.7 million U.S. children were plunged back into poverty by the end of January when child tax credits expired, indicating that the stimulus was making a significant financial difference for many families.

In January, the foreclosure proceedings that were paused under the CARES Act resumed after an 18-month hiatus. In January alone this amounted to 56,000 foreclosure starts, up 29% from the month prior. But that doesn’t tell the whole story: 964,464 mortgages are still seriously delinquent and not in forbearance, with 49% in loss mitigation plans. Even more concerning, of those 474,071 borrowers in loss mitigation, 72% just aren’t paying.

The average American household is now paying an additional $276 per month on expenses thanks to record-high inflation. And don’t forget pandemic-related medical expenses from Covid-19 testing and treatment. A recent survey found that 56% of Americans, with or without insurance, owe health-related debt, and almost one in six people with medical bills aren’t paying them off.

And it’s not just medical bills. According to Experian’s latest Ascend Market Insights, February marked the 9th month in a row with increasing 30+ delinquency rates on a unit basis across debt types. Their data shows that 30+ day past due accounts showed a 7.59% increase month over month with notable delinquency increases in first mortgages, second mortgage, auto leases and unsecured personal loans. Additionally, month over month views of roll rates show 0.91% of consumer accounts were rolling into higher stages of delinquency in February 2022. This indicator has now returned to the same level as the start of the pandemic in March 2020. 

While student loan payments are still paused through May, the day is quickly approaching when many will see their financial obligations increase yet again, compounding the burden and financial pressure on consumers.

The Upside

In spite of the challenging economic landscape, the good news is that consumers now have more options when it comes to lending and personal finance, and they’re taking advantage of them. Higher costs of living and, for some, sustained unemployment (partially influenced by the Great Resignation) are driving consumers to look for new lines of credit to manage expenses. According to TransUnion, originations for personal loans are expected to continue rising in 2022 to both non-prime and prime and above consumers, reaching pre-pandemic origination volumes last seen in 2019, while credit card origination and balances will hold steady near pre-pandemic levels.

And lenders are happy to lend. Between extra cash on hand from government stimulus, pauses on many financial obligations and new cash flow budgeting options like BNPL taking the payments industry by storm, consumers actually did a pretty good job managing their finances in regard to repaying debts during the pandemic. Delinquencies were at record lows, causing lenders to become more comfortable serving subprime segments that were performing well. As a result, originations for credit cards and personal loans have returned to pre-pandemic levels and have been holding fairly constant over the last two quarters.

This bodes well for financial inclusion and the bevy of fintechs looking to get in on the action. From eCommerce and retail to banking and money transfers, every sector features a fintech company that’s innovating digitally to provide more people with better financial access and positive customer experiences. A recent report by Plaid includes key findings about what consumers want from their financial services: 1) apps and services that work when and how they want and that make it easier to manage money, 2) interoperability, with apps and services providing connected experiences, regardless of the providers, and 3) services that not only help them save money but achieve better financial outcomes. And guess what? Fintech companies are delivering. According to research from Bloomberg, fintech companies now originate 38% of U.S. unsecured personal loans, with a large presence in the mortgage and auto loan categories.

Boiling This All Down

Remember when stimulus money was flowing, consumers weren’t spending as much (because what was there to do?) and instead taking the opportunity to pay off loans and debt and save at record rates? Those times are gone and signs show that consumers are looking to use more credit and take on new loans in response to economic pressures. Unfortunately, a rise in originations will inevitably lead to a rise in delinquencies, especially in a challenging and unpredictable economy. Knowing what comes next, now is the time to start thinking about pre-default and keeping consumers on track with payments and out of collection.

For lenders, this means engaging delinquent customers early on when the first signs of slippage occur, and how you do that is important. Consumers today expect a seamless, personalized experience in every financial transaction, and the right recovery operations can continue to deliver that all the way through the customer journey when you have the right strategy in place. If you don’t know where to start in building a strategy, our Recovery & Collection Starter Kit is a good place.

How to Use Recovery KPIs: Your Keys to Building a World-Class Strategy

By on February 17th, 2022 in Industry Insights
TrueAccord Blog

Measuring the success of a recovery strategy goes beyond just the dollars and cents recovered. Yes, the goal of a recovery operation is to maximize profitability by efficiently recovering money lent to consumers, but other key factors — like consumer experience and retention — are also important in evaluating the success of your business.  

A recovery team could theoretically chase down every last delinquent dollar, but doing so is often not worth the  operational cost of the effort, and the associated legal and reputational risk can cut into profitability. 

In this blog post, we’ll share the most important key performance indicators (KPIs) for collections and recovery — and how you can use them to create a seamless, scalable, and world-class recovery practice. 

Meet the Metrics 

Whether looking at portfolio performance, operational profitability, or consumer experience, different KPIs play a role in measuring the success of a recovery strategy. Collectively, these metrics make up the “language” of recovery and collection — helping organizations understand the fundamentals of their operation.

Here are a few of the most integral metrics to know:

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

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

The following diagram highlights the relationship between these core operational metrics of a recovery strategy and portfolio-level outcomes.

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 we see above, forward-looking fintechs and lending organizations should include KPIs that measure the value of consumer experiences:

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

How to Make the Most Out of These Metrics

So you have traditional metrics and consumer-focused KPIs, but how do you use it all? Managing performance with operational and consumer-centric metrics requires understanding the economics of recovery. Successful organizations will use the data to measure trends against the company’s own historical data, evaluate partners and strategies, and understand the big picture.

Understand the Big Picture

Visualize the relationship between operational metrics and portfolio-level outcomes. Conduct scenario planning exercises (e.g., “if we were able to improve the reach of our efforts by 25% through digital outreach, we would be able to reduce our net loss rate by 750 basis points”).

Measure Trends Longitudinally

Benchmark against a company’s own historical data as the collection team rolls out new strategies and tactics (e.g., “we boosted our promise to pay kept rate by 350 basis points relative to the previous vintage with pre-payment date reminders”)

Evaluate Partners

Assess potential collection vendors against a standard slate of metrics and KPIs (e.g., “of the three vendors that we evaluated for our collections, which one led to the greatest reduction in roll rate?”)

Moving Towards World-Class Recovery 

Understanding collection KPIs and how to use them is a critical part of creating an effective recovery strategy — learn about all the components of a successful collection operation in our new ebook, the Guide to World-Class Recovery. Available for download now, this ebook provides the tools and frameworks to ensure that you’re architecting the right recovery strategy for your company for the long run. 

Download the Guide to World-Class Recovery»

The Digest: December 2020

By on December 17th, 2020 in Industry Insights

Between the COVID-19 vaccine rollout, a potential second stimulus package, and the incoming Biden administration, big changes are upon us in the United States. How will these changes impact the worlds of finance, fintech, and collections? Here are the headlines we’re watching as we consider the changes to come in 2021:

• As we covered in November, the CFPB’s new debt collection rule signals a continued shift towards more protections for consumers in debt. With the incoming Biden administration, more regulatory news from the CFPB could be imminent, including announcements of more aggressive oversight of the student debt industry and regulations to help homeowners who are facing foreclosure.

• According to Bloomberg, “Americans’ household finances are in the best shape in decades,” despite the surging pandemic. While 2020 has been much harder on working-class families, data from the Federal Reserve shows that “they too have more money in the bank now.” Unfortunately, this good news regarding household finances is complicated by the recent jump in unemployment claims and an increase in food insecurity among low-income families.

• Lawmakers are currently in stimulus negotiations, which means some financial relief could be on the way for families and businesses. Even if a deal is not achieved in the coming weeks, the Biden administration has indicated that “it will push for a multi-trillion-dollar package in 2021,” according to Business Insider. As we’ve noted, a large stimulus could have wide-ranging effects on consumer finances, including a possible sharp increase in debt repayment.

• On the fintech front, we are still closely watching the rising success of BNPL (Buy Now Pay Later) startups, such as Affirm, Afterpay, and Klarna. PYMNTS.com recently released a study, Buy Now, Pay Later: Millennials and the Shifting Dynamics of Online Credit, that sheds light on the audience factors encouraging this emerging landscape. As we’ve noted before, flexible payment options can be a real win-win: better for the customer experience, as well as a positive for payment plan retention.

The Digest: The CFPB’s New Debt Collection Rule

By on November 19th, 2020 in Industry Insights

In this edition of The Digest, we’re zooming in on a topic making headlines in the world of collections: the new CFPB debt collection rule. We sat down with TrueAccord’s Chief Compliance Officer Tim Collins to get his initial thoughts on what the new rule will mean for the collections industry, and how it may open new doors for better relationships between collectors and consumers.

Tim, thank you for sharing your thoughts on the long-awaited new CFPB debt collection rule. It’s the first big change to the FDCPA since 1977, and it provides new “rules of the road” for collections. What are some of the top takeaways for the collections industry?

As you said, this is the first major change to the FDCPA in over forty years. The new rule is meant to help the collections industry adapt to all the exponential changes in technology, communication, and consumer behavior that have happened since then.

To some degree, there is still a focus on regulating the more traditional world of call-and-collect agencies. There are new guidelines around call caps. They also put in a clearer definition of limited content messages, which was a topic that the industry was looking for guidance on. In general, there are now clearer instructions on the means by which a collector can reach a consumer.

Beyond the world of call-and-collect agencies, the new rule opens doors for better digital communications with consumers—email, SMS, etc. There’s a huge focus on consumer preference. The new rule is clear: the consumer has the right to tell you when is a good time for them to be contacted, and they have the ability to tell you what communications channels work best for them. All of that is very much in line with what we already do—and have always done—at TrueAccord.

The new rule is clear: the consumer has the right to tell you when is a good time for them to be contacted, and they have the ability to tell you what communications channels work best for them.

I know TrueAccord was influential in issuing comments that were ultimately incorporated into the rule. Can you tell us a bit about that?

We’re proud to have been involved in providing public comments to the rule around the use of email in collections. We were able to share our insights on how emails should be sent, why email is convenient for consumers, the advantages of email with opt-out, and other dimensions of a successful, compliant email program.

[Editor’s note: for more insights from TrueAccord on using email in collections, check out our new whitepaper co-authored with Experian: What to Know When Adding Email to Collections: The Ultimate Guide]

It’s important to note that the new rule won’t take effect until late 2021, and there’s a lot that could change between now and then in the United States. So, there’s still some degree of uncertainty about how the rule will be implemented.

That’s right. There’s a lot of things that could happen between now and when the rule becomes effective. Also, we’re still waiting for part two of the rule to come out. That will likely happen in December.

So yes, there’s a lot that we still don’t know, and a lot that could change. There’s even a chance the whole rule could be tossed out, though that is unlikely. But right now, the new rule gives us a vision and a direction about where the industry is headed— and that is towards better alignment with consumers, more protection for consumers. That’s part of the CFPB’s mission, and that’s part of our mission as well.

This interview has been edited and condensed for clarity.

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TrueAccord’s compliance and digital collections experts are available to talk more about the CFPB’s new debt collection rule and what it will mean for the collections industry. Start a conversation with our team to learn more.