"An estimated 515 different collection agencies and creditors were sued between March 16-31, the highest half-month period thus far in 2011. … Consumers filed an estimated 570 lawsuits under consumer statutes," according to an article in the April 13 issue of Collections and Credit Risk. Those are disturbing statistics for any banker.
As important as it is to protect the bank's assets by collecting debts, it is equally important to protect the bank's reputation by not being taken to court.
As a bank executive said to me: "When the credit crisis hit, our collectors became the face of the banks for the customers they talked to. Their job isn't just to collect payments — it is to manage the customer relationship, including retaining the right customers who happen to be a payment or two behind. They are advocates for our customers, not adversaries."
Banks have traveled a rough road lately, reputationally speaking. As they work to overcome the political challenges of overdraft fees, home foreclosures and restrictive lending, the last thing they want to do is find themselves on television explaining lawsuits filed by their own customers. Nothing undermines years of cultivating a stellar reputation like seeing the contents of a lawsuit made public. The rising wave of consumer lawsuits signals evolving social trends with potential risk for collections:
- New and strengthened laws and regulations intended to protect delinquent debtors. This crazy quilt of laws, anchored by federal laws (the Fair Debt Collection Practices Act and the Fair Credit Reporting Act), varies state by state, changes frequently and is subject to differing judicial interpretations in each jurisdiction.
- A judiciary possibly more inclined, in today's economic climate, to decide against collectors who break the law.
- A society likewise more inclined to favor the debtor.
- A general rise in litigiousness among consumers, along with a greater percentage of them in financial difficulty.
With those trends converging, even the best-intentioned collectors must be alert to every opportunity to minimize exposure to reputational risk.
In collections, many complaints arise from three sources: too-frequent calls to the same number in a particular time frame, calls outside of permitted hours and calls to the debtor's workplace beyond those permitted.
There may be unscrupulous collectors who ignore the law on these matters, but most banks and other respectable collectors do their best to make sure they respect all restrictions, no matter how they vary from state to state or how rapidly they change. They intentionally err on the side of safety.
But they can still make many mistakes that land them in hot water if their calling strategy is no more informed than to call everybody as often as possible until somebody answers. True, collections is a high-volume operation that employs highly trained associates whose productivity can make or break the value of the operation. There is a trade-off between making sure collectors are active and making sure no rules are being broken. When that trade-off is decided in favor of compliance (as it should be) collections results can suffer.
But a high-intensity calling strategy is not the only alternative to scrupulous compliance. One successful approach is to employ analytics that enable collections management to segment and target the right debtors for contact at the right time in order to increase the chance of reaching the customer at a time when he or she is likely to take the call. Banks that use analytics this way have more productive conversations with customers who are willing to work with collectors.
Industry-leading collections operations are getting more and more sophisticated about assembling analytics that draw data from many sources to accurately predict the right day to call, the right time to call, the right number or device to call. Data and analytics contain information that helps the collector have a more constructive conversation with the customer, eliminating the need for more calls to that customer. They can help collectors understand what communications channel would be preferable for future contacts, what other obligations the customer might have and the customer's ability to pay.
Who is more likely to file a lawsuit — the customer whose phone rings night and day and possibly at work, or the one who gets one well-timed call and has a fruitful conversation on the spot? And who is more likely to choose to remain a customer of the bank?
The use of customer analytics for marketing purposes is already a well-established practice at many banks. They use analytics to determine their channel preferences, their next product to buy and so on, benefitting the customer and the bank. Applying that same rigor to collections has the potential to improve collections payment rates and reduce collections costs while ensuring collectors adhere to the letter and spirit of the law.
