Lately, many agency executives have created new opportunities for their businesses by offering to work in the name of their creditor clients under a first-party model. That’s because since 2012, the ARM and healthcare revenue cycle industries have put a tight focus on vendor and service provider management. The CFPB expects both supervised banks and non-banks to have an effective process for managing the risks of service provider relationships – Essentially holding creditors liable for collector behavior.
Litigators have been successful in supporting this accountability in and out of the courtroom. Creditors have responded by reducing the number of collection agencies they leverage, preferring larger-market participants that are already acclimated to the CFPB’s supervision and scrutiny.
This scrutiny is why creditors and providers have been auditing their remaining collection agencies’ activities more thoroughly than ever before. The CFPB uses UDAAP to reach into the creditor space, and creates consent decrees on behavior that is unfair, deceptive, or abusive, saying:
“Although the Fair Debt Collection Practices Act generally applies only to third-party collectors, all collectors subject to the CFPB’s jurisdiction can be held accountable for any unfair, deceptive, or abusive practices in collecting a consumer’s debts.”
The CFPB has made it clear that it dislikes contingent collections, claiming the arrangement generally rewards the wrong behaviors. We see this opinion on display in the Dodd-Frank Wall Street Reform Act, specifically in section 956, which targets incentive pay. In this particular instance, the restriction applies largely to executives, but reflects a growing antipathy for the model. Many creditors have noted the writing on the wall, and have responded by embracing a per-account or per-FTE type of compensation in “first-party” work, which directs more attention to complaints, call quality and other non-recovery factors.
So logically, many in the industry are asking ‘what’s next?’ Initially, it appeared the CFPB was on a fast-track to propose and publish rules for both covered and non-covered entities under the FDCPA, having announced a separate proceeding to address people and organizations performing collection activity who are not “covered persons” under the FDCPA. Now, with the recent election, it’s important to watch the CFPB’s next steps. Will they press ahead quickly as it appeared they would before the election? Or will those results slow them and any rule-making down?
If the current indicators come to pass, creditors will be required to provide information to agencies that more provably substantiate debts, and delineate the charges that may have arisen during collection efforts. If this all feels like a tough challenge to meet, you’re not alone.
Many agencies in the industry are taking steps even now to meet these new demands by modifying their service offerings to include:
- Creating an exclusive team of customer service reps for each particular creditor serviced
- Revamping workflows and contract execution to ensure staff works in the name of the creditor, including all inbound and outbound calls and letters
- Adopting creditor merchant accounts for transactions, or requiring direct payment to the creditor directly
- Using a compensation model that avoids contingency fees in favor of a flat fee for service model
- Working to bolster compliance with creditor-required collection practices, including (but not limited to) communication frequency, and whether they wish to leave voicemail and/or record conversations with consumers
- Developing mature complaint and incident response processes
- Working with creditor clients to provide customer service handling according to their specifications
- Credit reporting in the name of the creditor only if or as directed by the creditor
As government regulation and creditor demands continue to tighten, this path to first-party collections may become a popular business model. Now is the time to review your own client relationships and decide if you should offer it.
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