Credit cards have come a long way over the last 60+ years. Credit cards were originally made out of cardboard or celluloid then eventually replaced by plastic with a magnetic strip. Some added the consumers picture for additional security. They have since instituted features such as key fobs and chips that can be implanted into our electronic devices. The way we attempt to recover debt incurred on credit cards has also changed throughout the years. Almost forty years ago a once unregulated industry was required to follow certain rules under the Fair Debt Collection Practices Act (FDCPA). The FDCPA was designed to eliminate abusive practices and provide consumers with an avenue for obtaining validation of debt information in order to ensure the information’s accuracy.
Collectors had to change their approach including the time in which calls were made, ceasing calls upon request, misrepresenting the debt or using deception, harassment, communicating with third parties and any act to be deemed abusive. Agencies not only had to worry about enforcement from the Federal Trade Commission (FTC) but were also subject to predatory lawsuits for alleged violations of the Act. Nearly 33 years after the inception of the FDCPA, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into federal law. This was followed shortly by the creation of the Consumer Financial Protection Bureau (CFPB).
The CFPB prohibits unfair, deceptive and abusive acts or practices (UDAAP) and serves as the primary regulator responsible for enforcing consumer protection laws. So once again, the consumer financial services industry had to change how they conducted business and those who couldn’t or wouldn’t conform would eventually have to close their doors. UDAAP is one of the most vague, amorphous statutes ever written and the CFPB has broad power to prohibit consumer lenders, servicers and other consumer financial service participants from engaging in practices deemed to be unfair, deceptive or abusive.
What does this mean for collection agencies? 1. All agencies would need to create a compliance department that regularly monitors calls to ensure their agents don’t intentionally or unintentionally harm consumers. 2. Creditors and servicers must oversee their vendors to ensure compliance which includes monthly, quarterly or yearly audits, weekly, bi-weekly or monthly call calibrations, and weekly or monthly complaint logs. 3. Agencies are required to oversee the vendors they use to ensure processes are in place to protect personal consumer information and monitor any consumer complaints received.
Now that we’ve covered some of the regulatory requirements collectors must abide by, lets discuss what we can do to recover outstanding credit card debt while remaining compliant. Most creditors require their agencies to complete a series of scrubs (bankruptcy, deceased, military, litigious and cell) and mail the initial dunning letter upon placement. Once the aforementioned steps are complete its time to start making calls.
Collectors have to be trained on how to avoid violating the 30-day validation period when communicating with the consumer. 1. While a debt collector may ask a consumer to pay when contacting the consumer within the first thirty days, a debt collector cannot demand the consumer pay in a time frame shorter than the validation period without risking an FDCPA violation. 2. Everything a collector says is now dissected by members of compliance leaving very little margin for error. 3. Collectors must properly identify the consumer, creditor, themselves and the company from where they are calling. 4. Next they must provide the required mini-miranda and two party consent disclosures (if the calls are recorded). 5. After all of that is complete they can attempt to collect the debt by asking the consumer if they can pay the balance in full, settle or work out some sort of payment arrangement. 6. The negotiations that follow are where the majority of potential UDAAP violations can occur.
Collectors are no longer incentivized to collect the debt no matter how it’s done. Now they must collect the bill and do so in a way that could not potentially harm a consumer by misrepresenting their clients’ intentions or stating the ways that nonpayment could affect the consumer. I have sat through numerous call calibrations where collectors discussed interest rates, late fees, collection costs, credit reports and further collection activity. In the past collectors would attempt to motivate the consumer by explaining how paying the account would improve their financial situation or ability to obtain future credit. Collectors would try and talk consumers out of settlements because if the balance were paid in full it would look better on the consumers’ credit report. They would explain how nonpayment could end up costing the consumer more money with added interest, late fees or collection costs. All of these tactics could mislead, deceive or be unfair to the least sophisticated consumer and that is exactly what regulators prohibit. I can’t think of another industry that is more regulated than collections. Until we come up with a way to collect unpaid debt without ever having to make a call I suggest continual training for those who are directly communicating with consumers.
Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves on the Board of Directors for the Missouri Collectors Association.