In a world where most financial matters can be handled with a few taps on an app, debt collection appears stuck in the last century, with the most common technology used being the telephone and letters.
There's considerable evidence this is not working well. The number of complaints about collections U.S. consumers lodged in the Consumer Financial Protection Bureau’s complaint database quadrupled to 47,960 in 2017 from 11,069 in 2013. This year it may well surpass last year’s record: As of Nov. 27, the number of complaints is 46,153.
More than half of the complaints are about the way collectors communicate or fail to do so, including frequent or threatening calls, abusive language, lack of notification and documentation, impersonations of attorneys or officials and false statements.
Yet the technology exists to change this, ensuring the consumer feels heard and feels they have a degree of control. Web portals, AI, text messaging and chatbots are a few ways this could be done, and banks are slowly coming around to using them in this arena.
“This has been a gradual shift,” said Mark Tuggle, senior vice president of collections and recovery at BBVA Compass. “Banks are thinking about contacting customers in a holistic, end-to-end way.”
What technology can do
BBVA Compass has a self-service portal through which borrowers who are a day or more past their due date can make a payment, make a promise to pay, or schedule a call with a client adviser. It’s considering adding additional online capabilities. A few other banks have set up similar portals.
“The belief is that many of the functions handled by our advisers could well be handled online as a convenience to our customers,” Tuggle said.
Volume on the BBVA Compass site, called Web Promises, has tripled in the three years.
“We’ve seen a consistent rise in the rate of the site’s adoption as we’ve worked to raise customer awareness about the benefits of the portal,” Tuggle said.
Self-help options let customers interact with the bank on their own terms, at any time.
“Some people use this portal at midnight or early in the morning," Tuggle said. "The 24/7 convenience of this has resonated with our customers. Any way you can provide convenience to customers in a way they feel comfortable with, they have options to interact with us, it’s a win, and it has helped lead to an overall increase in debt payments.”
The bank is interested in using other tools, like text alerts, chat or portals for loan modification assistance. But it’s awaiting regulatory clarity. In some cases, state guidance about debt collection differs from federal regulations, and the CFPB is set to release additional debt collection rules in the spring.
The fintech startup TrueAccord provides a system that lets customers explain why they might be delinquent on a credit card debt or unsecured loan — a job loss or sudden medical expenses, for example — and offers repayment options, like allowing them to set up a repayment plan or resume payments at a later date.
As consumers interact with the platform, TrueAccord’s machine learning software generates communications and repayment options that become more tailored to the individual. The company says its debt collection rate is 50% higher than competitors still using traditional call center-based methods.
“We give consumers a sense of agency and choice that was never built into the collections process,” said Ohad Samet, CEO and founder of TrueAccord. “They are not afraid to engage in this collections process. It is not as scary. They’re in control, they can do what they want to an extent, there’s always clear communication.”
TrueAccord’s call center representatives have no incentive or requirement to force consumers to make a payment. They’re paid hourly, with incentives based on productivity, such as number of emails sent.
In traditional collections, communication is often confusing, where there is any, Samet said.
“You have to send a letter and hope for the best,” he said. “If you own a phone number that’s been owned by a consumer in debt, it’s very difficult to stop the calls. The majority of phone conversations are, they call you, you say, 'I can’t pay' and you get one or another iteration of, 'Collection efforts will continue.' People don’t feel they’re being heard.”
On every TrueAccord communication, consumers can click a button to ask for more information and receive a link with data and documentation from the lender, Samet said.
Less than 2% of people who use the system talk to an agent, and 90% of accounts that are settled have no human contact.
Another fintech working on better collections communications is Prodigal.
“The rise of spam calls coupled with the change in borrower preferences has greatly impacted the collections industry,” said Shantanu Gangal, founder of Prodigal. “As successful calls are fewer and the margin of error reduces, it is extremely important to leverage each call to the hilt.”
Prodigal’s software is intended to help lenders improve agent efficiency on calls and communicate with borrowers across multiple channels, he said.
TrueAccord, which says it's signed contracts with two top-10 banks and is onboarding two more, handles collections for 4.5 million financial services accounts and says this number is rapidly growing. It also works with fintechs like LendUp and is signing up student loan and point-of-sale lending clients.
To date, $78 million has been paid off through through TrueAccord; $54 million more is in payment plans. The company's revenue and number of employees have doubled over the past year and it has raised $30 million from investors including Capital One Growth Ventures. It is growing so fast that on Wednesday, it announced it has hired former Barclays executive Sheila Monroe as its new chief operating officer, to help scale its operations.
Prodigal says it has several lenders in different stages of co-development.
Why collections is still so old school
When Monroe was chief operating officer of Barclaycard and an operations executive at Barclays, the bank started experimenting with text messages. U.K. regulation was more lenient and consumers had mobile phones with unlimited use. Shortly after the financial crisis, Monroe’s team built a self-service website for people in debt.
“We realized we had a different kind of consumer in debt,” Monroe said. “These are consumers that maybe have never been in debt before, they find themselves in a very awkward position, mortified at the thought of speaking with a debt collector and they don’t know that they have options.”
They were able to cut the number of collections phone calls in half, and about 86% of payments were paid without the influence of a human on the collections side. Where this bank and others fell short, Monroe said, was in making investments in technologies like machine learning.
“At a 325-year-old bank, if they’re going to invest in really high-tech stuff it’s probably going to be to generate sales and not to address a debt collection issue,” she said.
Another shortcoming banks have is a lack of integration between communications with people in and out of debt.
“A lot of banks still have separate websites,” Monroe said. “I miss a few payments and I have a different login credential, I don’t have access to my whole banking suite on that website.”
Banks also tend to have a collection strategy based on generic rules around credit scores, balances, amounts past due.
“There’s not a learning element, it’s not individualized. You’re putting groups of consumers into buckets that are quite broad and where we’ve struggled is understanding exactly what communication caused someone to pay and therefore, how do you learn from that treatment,” Monroe said.
Consumers with a debt problem often have another problem that's a result or cause — high anxiety, stress, suicidal thoughts, addiction or abuse, Monroe pointed out.
“The method of randomly contacting people by phone may be an awkward situation," she said. "Not understanding or being sensitive to underlying issues or surrounding issues from that debt exacerbates the problem of the way consumers feel about debt collection.”
Monroe and others on her team at Barclays pitched the idea of using big data, artificial intelligence and modeling to get individual insight into each customer. They got seed funding, but no support beyond that.
“The problem with making that leap is some people will look at it and say, ‘It’s too expensive. If we’re not in a debt crisis, I don’t want to invest,’ " Monroe said. "Other people will say it’s a threat to what they’re comfortable with in a credit-risk-driven organization. Other people will just not get it, and opt to send more emails and make more phone calls. People who have worked in the collection industry for years are unfortunately some of the slowest to change their views about what’s necessary to be successful in the future.”
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