Legal collections took a backseat to other financial processes in the wake of the recession. But with the job market showing strength and the related assumption that defaulting borrowers are regaining the capacity to pay back debt, it’s expected that 2016 is the year that collection revenue via litigation will again grow.
As the market regains some balance and regulatory uncertainty eases, creditors will develop litigation strategies that are more sensitive toward borrowers. The collections market should see greater profitability through more targeted impact.
Leveraging innovation in technology, analytics and new B2B as well as consumer-facing methodologies will help this new way move forward. In this first of two articles, we’ll discuss current market problems and how we’ve gotten here.
The collections market today faces three primary challenges: optimizing profitability of strategies, mitigating risks in an evolving regulatory environment and managing volume uncertainties.
Without a collections framework and supportive data in place, and using a scattershot approach to bringing legal suits, collection professionals risk suing people who can’t pay or focusing on debt that doesn’t provide sufficient return on the cost of litigation.
All too often, creditors seek to collect from a consumer without information as to the consumer’s ability to pay back a debt. Adding to the confusion, regulations governing collection practices are constantly changing, and creditors must be up-to-date on these changes in order to comply with law.
For collection professionals, debt buyers, loan originators and collection law firms, striking a balance between volume of debts and the suitability of debts for collection from borrowers with changing circumstances is a key strategy.
These issues are critical because of greater scrutiny of contact collection efforts and collection via litigation. Identity verification tied to asset data is becoming an increasingly sensitive element in financial and legal transactions, as well, and needs to be backed by scrupulous technological support.
Collections professionals who are deploying, or considering deploying, a litigation strategy to collect on unpaid debt or unsatisfied judgments will face these issues and more. The decision to sue a consumer should not be taken lightly.
From a collections standpoint, there is a huge amount of information that should be processed and taken into consideration in order to make the best decision on whether or not to sue someone. From the consumer standpoint, consumers should be treated fairly and equitably, while at the same time allowing litigation strategies to be profitable.
Systems and technologies exist today that are able to identify and verify assets and calculate the profitability of suit decisions in a completely compliant fashion.
There are models that can predict the probability and amount of repayment via litigation. Litigation strategy can be simplified and informed by verified asset data, including, as appropriate, employment, bank account and real property information - which also provide the means to satisfy court-awarded judgments.
In our next article, which will be published here on Wednesday we’ll discuss how these new systems operate and how collections profitability can be optimized by prioritizing legal efforts and resources and by managing costs to minimize wasted legal fees.
Jason L. Horsley is director of Market Planning, Receivables Management at LexisNexis Risk Solutions, a provider of information that helps customers across industries and government predict, assess and manage risk. He can be reached at Jason.Horsley@lexisnexis.com.