Collection Industry insiders understand that their business supports the economy, helps lenders and retailers recoup costs and tames prices on goods for all of us, but John Q. Public only remembers that his third cousin's fishing buddy once heard from a rude collector.
For an industry as popular as the neighborhood tykes who won't stay off your lawn, perception often trumps reality. Most collectors are by-the-book, sure, but the rare case of one who intentionally violates the Fair Debt Collection Practices Act, gravely harms the good work of thousands.
The industry, however, is fighting back.
ACA International, the association for collection agencies, has developed a 10-year mission to explore how the industry can become self-regulated. Many believe doing so will ease compliance concerns, build better business practices and bolster the industry's image.
Others hope that a self-regulating organization (SRO) will keep regulators at bay. "If we can demonstrate that we're moving in the right direction, people will give us more latitude," says David Paris, CEO at Zenith Acquisition Corp., based in Amherst, N.Y. "If we do nothing, regulators may feel like they should do something."
Vikas Kapoor, president and CEO at iQor Inc., a global call center service company, is among the more vocal of a group of executives who believe self-regulation would be a major step toward a more efficient industry. "This is an attractive industry, with high growth prospects and decent profitability," he says. "But in many circles there is a negative halo. Some of that relates to compliance issues."
Kapoor delivered a spirited speech at a recent ACA conference, challenging attendees to forge ahead – outlining five topics to hash out in any SRO framework talks: documentation, contract standards, use of technology, dialer abuse and problematic collectors.
ACA is meeting with members to share ideas, says Rozanne Andersen, ACA's general counsel and executive vice president. After research that could take two to three years, a proposal likely will be brought before consumer groups, regulators and other associations for feedback. Then, the industry must convince the Federal Trade Commission – the chief law enforcement authority – that it can effectively police itself.
That will be tricky. Debtors are voters too and collections has gained a great deal of attention in recent years for chasing debtors without having the paper trail to prove a debt is owed and for being too aggressive.
The FTC also will want to know if it will be involved in the SRO, something the industry must decide. "SROs can come in many forms and there are choices to be made. Important choices," says Andersen.
Technically, the industry already has an informal SRO with ACA members adhering to a Code of Ethics. More formal SROs, however, could involve either hiring a third-party independent company to make sure requirements are followed or choosing to have the FTC play a quasi-government role.
Documentation Issues
There is no obvious reason why an issuer would hold back documentation on loans sold to buyers or placed with agencies but receiving complete documentation on loans placed with agencies or sold to debt buyers occurs frequently, industry insiders say.
Usually, the data has not been properly stored and is incomplete. For example, a large bank might be the result of a merger of six others and now has six separate databases. There also simply might be inconsistent methods of filing and the data is missing.
Incomplete documentation can lead to improper collections and legal headaches. Kapoor wants a standard in place for how much and what type of data credit issuers provide.
Adds Andersen, the real concern is whether documentation can be easily accessed. "The physical location of the documentation is way overrated. The question is, if a consumer requests verification of a debt, can the collector access that information?" she says.
Contract Standards
The idea is to create uniform contracts for agencies and buyers to follow. Debt-purchasing and collection contracts often are actually "standing offers," meaning clients are not committing to any volume or length of service, which makes it hard to project revenue and invest in the business, Kapoor says.
Important technology investments, in particular, are low as a result. "Contract standards could help protect every collections company," Kapoor says. "In other parts of the BPO (business process outsourcing) business it's standard to sign five-year deals to give a set amount of business. The industry needs to fix this."
Technology
Kapoor believes industry players need to have the "will to invest" in new technologies. On average, he says, the call center industry spends about 3% of revenue on technology investments versus 9% for the banking industry. iQor chooses the 9% level, but he believes many actually might be as low as 1% to 2%.
The collection industry also needs to research whether the technology available is enough or whether new generations need to be developed to comply with laws and improve collection rates.
Existing dialers, VoIP and e-mail technology might not be enough to comply with differing state laws. For example, e-mail can be used anywhere but not without consent.
Dialer Usage
Every state regulates how dialers are used. Kapoor believes there is too much repetitive dialing with no marked improvement in results.
Richard Corica, executive vice president and chief operating officer at Elite Recovery
Services, based in Buffalo, N.Y., says, "There is so much variety in the rules, any company operating a business can find it very challenging to abide by them all. The industry needs to collectively come up with standard rules, then go to states and say this is what we think should be put in place."
Problematic Collectors
Kapoor's vision for handling rogue collectors is unique, but most industry insiders do not expect it to go far. To wit: "Log their names and make the list available to everyone. Then, encourage all agencies to stop hiring these people. Problem solved," he says.
"Agencies inclined to hire them because they produce strong results need to ask, 'At what cost?' These collectors cost agencies and creditors untold amounts of money in fines, lawsuits, you name it."
Various employment-related laws and an expected legal entanglement such a blacklist could cause likely would quelch this idea. Nonetheless, many of those polled by CCR applauded the idea.
A New Era
Many collection executives are committed to developing an SRO, believing it will improve the effectiveness of their businesses and improve the industry's overall image.
Some agencies do not investigate the root cause of problems, let alone address them, says Steven Kusic, CEO at NRA Group, a health care collection specialist in Harrisburg, Pa.
Some consider complaints and lawsuits to be a report card of sorts. "The greater the number, the better job they must be doing," Kusic says. "Once, in a talk with a vendor, I mentioned we don't have legal problems. He stated, 'Are you making any money?' These sentiments give the industry a bad name."
Tom Penaluna, president and CEO at The CBE Group, a Waterloo, Iowa-based accounts receivable management firm, says it is time for collections to emerge from "past shadows" and become self-regulated. "The industry as a whole gets a bad rap for what a few agencies do. I challenge others to become proactive and show we can produce results for our clients in a manner that we would all want to be treated if we were in the consumers seat," he says.
Many questions need answered during the SRO discussion phase. What about penalties for wayward agencies and ne'er-do-well collectors? "Sanctions are always a question when you talk about self-regulating," adds Andersen. "Would a third party have the ability to fine, order equitable relief or terminate an agency's right to do business? The power of the organization would need to be examined."
While the process could take up to 10 years, Andersen expects a meaningful SRO will be in place long before.
