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Jaspreet Kondal | SVP, FIS and Gemel Clark, President, Complete Payment Recovery Services Inc. (CPRS, FIS Collection Group)
December 21, 2020
2020 will be remembered as the year that a virus made us all stay home, companies scrambled to remain relevant and worked on strategies to evolve their way of doing business. Debt collection, always a sensitive and tricky aspect for businesses big and small, has become even more complex now as COVID 19 impacts the industry. Companies that normally would not have incurred cash flow issues or found themselves in the debt column, are now facing such challenges. For those tasked with collections, understanding the current and likely future landscape while remaining sensitive to consumer issues as well as vigilant to proposed regulatory changes is more important than ever before.
Collections, while no doubt a necessity, is unappetizing, especially in the current scenario, with so many folks out of jobs or facing hefty pay cuts. Almost no one likes to receive a collections call, and being the person on the other end, demanding payment, is less than pleasant. In fact, employee recruitment and retention are a constant challenge in the collections space, with 100% annual turnover. At Complete Payment Recovery Services (CPRS), we underscore to collectors that it is about acting for consumer advocacy and helping them resolve a financial concern.
A major concern in collections is how difficult it is to establish consumer contact. With the telephone as primary medium of communication reducing in usefulness, both as a result of regulations as well as a move away from answering unknown calls and marking them as spam, it is hard to get in touch with a consumer. Spam and scam regulations while a welcome move, make the job of collections harder. The lack of available information for a consumer also impacts account handoffs.
Between 2000 and 2012, 29 changes in state regulations in 21 states occurred, and 22 of those changes were expected to make the process of collecting on delinquent debt more challenging. according to CallMiner. While the majority are for 3rd party debt collection agencies, these changes also impact and influence 1st party collectors. If you think of these as consumer advocacy rules, created to protect consumers from bad practices, then while painful, they are necessary. As collection agencies, you still want to collect the debt that’s due and which affects your bottom line – and what you have to do is balance those two aspects (consumer advocacy versus collecting on what’s owing), which is not always easy.
The regulatory landscape is both complex and landmine-filled, with state and federal laws governing collections. A collector must have a high level of awareness as well as high agility, to comply. Further complicating the scenario are the proposed CFPB (Consumer Financial Protection Bureau) rules, a looming concern for those in the business of collections. Understanding the content and timing of regulatory debt collections rule changes is paramount to remaining compliant and having success with collections.
The pandemic has only added to the complexity. We can expect that recovery will get more challenging in the coming months. With forbearance, relief and stimulus packages and unemployment benefits wearing off, debts will fall out of deferment and become owing.
We need to address debt collection from a pre-2020 and 2020-and beyond lens. 4.78% of all outstanding debt in the US was in delinquency as of December 31, 2019, with total delinquent debt of $669 billion. What changed in 2020? COVID 19 arose and changed the way consumers spent, saved and addressed debt, ushering in economic uncertainty. High unemployment rates, concern about the education system, will we be able to safely reopen businesses – endless worries with no clear-cut solutions. Not to forget, millions of households were in a state of financial fragility even before COVID brought on a recession.
Many folks are relying on hardship programs, deferrals, the CARES Act, where there has been forbearance, stays on eviction and even on debt collections. Companies that offered customers modification or deferral programs are now faced with growing concern about the debt that will still be due, owing and growing - and will have to be collected on at some point. We are expecting a groundswell of collection activity. The projections are that there will be growth in delinquency across delinquency types, charge-offs. We have been monitoring and adapting/responding in real time, to local, state and federal laws regarding debt management during this emergency, but as they expire, we are starting to see increases in inactivity.
Technology can come to the rescue, helping collections companies ramp up by harnessing innovative methods and the latest tech, of greater importance as we are tasked with doing more with less and with work from home making the call center floor irrelevant. Regulatory concerns too, can be mitigated through the use of technology. However, apprehensions over cost and investment as well as information security hinder technology adoption.
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