 Almost a decade ago the mortgage industry turned upside down. Many factors led to the crash including our economy, subprime lending and adjustable rate mortgages. As a young collector in my twenties I was able to purchase my first home using a stated income and was given a 30-year mortgage with a rate that adjusted after seven years. We submitted a stated income to the lender in order to get approved because 60% of my annual income earned was from bonus checks. For some, this process for approval backfired because the loan was based on income that was not guaranteed. Some of you may remember the refinance boom. Loan officers attempted to assist consumers by refinancing their home loan for bill consolidation, home improvements or to avoid their interest rate and monthly payment from increasing after adjustment. The opportunity to make large commission checks even prompted a few of my colleagues to leave the collection industry and become loan officers. A few of them partnered with me to where I would send the consumer their way and, if they could, refinance the consumer’s loan where I would receive a kickback. The agency I worked at saw this as an opportunity and even opened a mortgage company to which we could refer consumers. Could you imagine how that would be received given today’s regulatory environment? Things sure have changed over the years as we make our recovery from the economic crash. There are many home loans left unpaid needing assistance from collection agencies.
All collection products require a unique approach and the same holds true for unpaid mortgages. Collectors must have advanced skills in order to be successful collecting mortgages. As with any type of debt collection, knowledge is power. Having information such as property address, property value, a recent credit report and knowing state laws are essential prior to making contact. Once contact is made take time with the consumer and allow them to explain their situation. The information they provide will help you understand which options will best fit the consumer’s need. After you’ve listened to the consumer you can begin walking them through what is best for them and the servicer. If the consumer is still in the home, find out if they want to keep the home or if they just want out. By the time you reach them the servicer has more than likely already offered a deferment or loan modification. If the consumer wants to keep the home, they have equity and their credit allows they may be able to refinance their loan. If they don’t have equity and their credit doesn’t support a refinance, try to work out a payment plan that satisfies the servicer in an effort to avoid foreclosure. If they want out of the home and have equity they may be able to sell and could potentially make a profit. If they are too far upside down they may have no other option but to short sale the home. In order for this to happen all the lien holders would have to agree on a payoff. Having a copy of the HUD will help you determine how much money is available and ensure you negotiate the best possible settlement. If the consumer is not willing to cooperate, foreclosure may be inevitable.
If you are collecting on a second mortgage or line of credit state law may protect consumers who are current on their first mortgage. Consumer protection laws limit the ability to collect these types of debt forcing many lenders to wait until the home sells eventually satisfying the lien. Once the home has been foreclosed the second mortgage or line of credit becomes unsecured debt.
If the home has already been foreclosed, making contact with the consumer could be challenging. A certain amount of skip tracing may be needed in order to obtain the most recent address, employer or phone number. For many Americans their home is the last thing they stop paying so if they’ve recently fallen delinquent their financial situation may not allow them to repay at this time. Again that’s where collectors must have the ability to listen and solve problems while not being intimidated by large balances. Volume and resources have forced many agencies to rely on dialing systems however based on the need for skip tracing and personal touch I recommend a dedicated team of experienced professionals that are geared towards a manual dialing strategy.
Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves as Secretary for the Missouri Collectors Association.
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 In June, the United States Supreme Court handed down its decision in Henson v. Santander Consumer USA, Inc., holding that entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account are not “debt collectors” subject to the FDCPA Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 198 L. Ed. 2d 177 (2017). Drafted by its newest Justice, Neil Gorsuch, the decision appears on its face to be a game-changing decision for creditors. Or is it?
The facts and issue before the Court were relatively simple: Santander purchased defaulted auto loans originated by CitiFinancial Auto after which Santander sought to collect raising the question of whether Santander was a debt collector and subject to the FDCPA. Gorsuch said no. Focusing on the statutory language, he noted the FDCPA applies to those who regularly collect debts owed to another, so its plain meaning was the FDCPA was focused on third-party collections. In broad language, Gorsuch wrote that definition of debt collector did not “suggest that we should care how a debt owner came to be a debt owner—whether the owner originated the debt or came by it only through a later purchase. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’” Moreover, Gorsuch refused to countenance a counter-argument suggesting the FDCPA intentionally exempted loan originators, finding the Act was focused on the “present (not past) debt relationships.” Finally, Gorsuch noted even the definition of creditor excluded only assignees who sought to collect for another, meaning a buyer of defaulted debt is a creditor under the FDCPA.
I was frankly surprised by the broad nature of the ruling because based on the circumstances, the court could have split hairs to arrive at a way to prevent Santander, generally a loan originator, from FDCPA liability. In 2010, Santander acquired $3.2 billion of CitiFinancial Auto loan assets, some of which may have been loans in default. As such, Santander did not fall into the “traditional” definition of a debt buyer – it was not in the business of buying entirely defaulted debt.
Notwithstanding, decisions are already coming down in an effort to get around the decision. Just two weeks ago, in our federal district court, a judge held the servicer of a debt buyer (a wholly owned subsidiary of the debt buyer bearing the same name) was a “collection agency” because it collected on chargedoff debt for owners of debt – the debt buyer. In another case, the court made a point of finding the decision was narrow because it did not address the “principal purpose … is the collection of any debts.” The court reasoned because the debt buyer admitted its purpose was buying defaulted debts and collecting on them, they were debt collectors covered by the FDCPA.
In a ruling that has gotten less attention but one I believe has more impact upon us as lawyers was the unanimous Supreme Court decision in Kokesh v. S.E.C., 137 S. Ct. 1635, 198 L. Ed. 2d 86 (2017). In that case, the Supremes found the five-year limitations period applies when a government agency seeks disgorgement. This is potentially important as the CFPB has argued no statute of limitations applies to claims it brings in administrative enforcement actions, such as those suffered by Hanna and a host of other participants in our industry. Justice Sotomayor noted statutes of limitations are “vital to the welfare of society.” It is sad we need the Supreme Court to weigh in on such basic concept of justice but nonetheless a cause for hope.
All of us maintain policies and procedures, are subjected to audits and maintain the highest efforts to work with consumers. But it is important to note policies are developed in response to events, and circumstances to correct oversights or to put into black and white a practice you deem critical. In other words, at some point in the past, you did not have a policy in many instances for that specific item. Perhaps it wasn’t an issue then, but is now. Perhaps it was created in response to a perceived error. But the CFPB does not look at things that way. They want to reach back into the time when what you were doing was not improper (or in many instances never was) to extract a press release by living in the past. Kokesh stands for the proposition that such a manner of doing business helps no one, rights no wrongs nor makes anyone truly whole.
In Henson, Gorsuch noted “[d]isruptive dinnertime calls, downright deceit, and more besides drew Congress’s eye to the debt collection industry.” I think that is a prescient comment, one regulators should take to heart: Get the truly bad actors but work with the good ones to make our system better and fairer for all participants. Do Henson and Kokesh solve all our problems? Absolutely not. However, do they seem to point to a more common sense approach to consumer protection? There, I think the answer is a firm yes.
Fred N. Blitt, Esq., is a partner with Blitt and Gaines, PC in Illinois and Couch, Conville and Blitt in Louisiana. He is past president of NARCA.
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 There has been much discussion lately about financial transparency within the financial services industry. Assuring that all consumers have access to credit and have the full story relating to their financial institution is a necessary part of commerce. But how does financial transparency trickle down to the back-end of the credit lifecycle… collections?
By first understanding what financial transparency means to front-end lending, we may be in a better position to understand how it may impact debt collections.
Financial transparency, according to the Financial Dictionary (http://financial- dictionary.thefreedictionary.com), is defined as “The state in which all relevant information is fully and freely available to the public.” Simply put, it means the financial institution is not hiding anything; it is being honest about their performance, even when it’s not perfect. Financial transparency allows for investors to make wise investments in a company and it allows consumers to make the right choice for them when obtaining credit.
Without financial transparency in the lending industry, consumers could not make well-informed choices about from whom to obtain a mortgage, auto loan, student loan, credit card or any other type of financial product.
So how does this flow down to the collection of a past due account? Financial transparency flows through to collections in the way in which you provide an open line of communication to consumers, providing them with the documentation they request to prove the balance and ownership of the accounts. Collectors need to be clear on who they are and who is the original creditor. They must be clear on what options are available to consumer, and what actions the collection agency can legally take to collect the debt.
“The majority of consumers in collections are good people who have hit a rough spot. Most people want to pay, but circumstances are such that they just can’t,” explained Thomas C. Brown, senior vice president, U.S. Commercial Markets and Global Market Development, LexisNexis Risk Solutions.
“Bringing them back into commerce is a good thing for everyone involved and the economy as a whole. To do that, though, banks and/or collectors need to make the environment of collections transparent by stating their intent in communications and touch-points with the consumer,” stated Brown who has been in the credit and collections industry for 28 years. “Transparency is key to thriving in the current highly regulated collections industry, it not only keeps you in line with the regulator’s expectations, but it is also fair to the consumer,” said Brown.
The CFPB has made it very clear that one of their goals is to improve fairness and transparency in the debt collection market. On the Compliance & Guidance page of their website, the first thing they say is, “Our goal is to issue regulations that protect consumers and promote fair, transparent, and competitive markets.” In July 2016, a blog post titled “We’re working to improve fairness and transparency in the debt collection market for you” appeared in the CFPB’s blog1 as an explanation to consumers about the release of the proposed collections rulemaking the CFPB announced that month.
The CPFB has always been very clear in their settlements and rulings with collection agencies that being transparent is an expectation, not a suggestion.
In the CFPB’s Fall 2016 Supervisory Highlights2, the CFPB cites several violations that could have been avoided with complete transparency to consumers:
• Collectors telling consumers that the ability to settle the collection account was revoked or would expire when in fact the consumers still had the ability to settle.
• Collectors had impersonated consumers while using the relevant creditors’ consumer-facing automated telephone system to obtain information about the consumer’s debt.
• Collectors purported to assess consumers’ creditworthiness, credit scores, or credit reports, which were misleading because collectors could not assess overall borrower creditworthiness.
As you can see, transparency is critical in all phases of the consumer’s financial lifecycle. From up-front lending practices, to back-end collection practices, being transparent with consumers is not only the ethical thing to do, but it may also help to keep you out of hot water with the regulators.
Linda Straub Jones is Director of Collections Compliance at LexisNexis Risk Solutions.
1 https://www.consumerfinance.gov/about-us/blog/were-working-improvefairness- and-transparency-debt-collection-market-you/
2 http://files.consumerfinance.gov/f/ documents/Supervisory_Highlights_Issue_ 13__Final_10.31.16.pdf
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Virtual Collections Software Roundtable
Some would say virtual collections is the last frontier in debt collection, the omission of the debt collector completely. While it is highly unlikely collection floors will empty in our lifetime, the prospect of automating a time consuming portion of debt collection is tempting for the budget-minded. Collection Advisor rounded up the thoughts of thought leaders on the subject to analyze key analytics and what they could mean for virtual collection software implementation.
Carl A. Briganti President and founder of CSS, Inc.
 What key analytics allow collection professionals to modify and improve collection efforts?
There are a variety of key analytics that collection professionals are recommended to utilize and evaluate to modify and improve collection efforts including: account type, age, number of agency placements, file penetration, and others. This is why agencies are strongly urged to employ powerful reporting tools and real-time dashboards to provide this crucial information at both point-in-time and on a regularly scheduled basis.
What advice would help an agency best integrate virtual collection software into its collection efforts?
Virtual collection software is designed primarily for accounts with higher liquidation rates or are in the beginning stages of delinquency. Old, recalcitrant accounts will not benefit from this approach. The deployment of a virtual collection application will help an agency engender payments with a “soft” recovery approach. It would benefit the agency by saving from paying commissions, internal or external, when a debtor would pay regardless of the approach.
Matthew Hill President / CEO of InterProse
 What key analytics allow collection professionals to modify and improve collection efforts?
One of the most important data points that facilitate “tuning” of a virtual collection platform over time are the bail-out points. This is a tool that tracks the point where the consumers break the engagement; if before payment resolution, then when and where? For example, this knowledge can help us find off-putting or confusing language. By identifying flaws that can be reworked or moved to a more suitable place in the session.
What advice would help an agency best integrate virtual collection software into its collection efforts?
Use every possible communication channel available to drive the consumer to the site. Statistics show that nine out of 10 consumers prefer online to live collectors. If a site has the advanced capability to handle multiple debt types and complex offers, then you truly can divert as much as 15%-20% of all payments to a virtual agent with the bonus an additional lift in the dollar amount of payments.
Albert Rookard President and CEO of Applied Innovation
 What key analytics allow collection professionals to modify and improve collection efforts?
There are many responses to this question which are valid. Let’s start with the math. The investment in a collector for a month is $3,000. In an eight-hour work day they obtain 25 promises to make payment. Over a 21-day work month that’s 525 arrangements. The cost is $5.71 for each arrangement made. ($3,000 / 21 x 25) = $5.71
Okay? So far so good. Now, what if a virtual collection system can do the same work for something like 50 cents. That’s 8% - 9% of the current cost to obtain the same thing…a promise to make a payment on an account.
Additionally, a virtual collection system can use many of the tools available to a live agent when determining what is or is not an appropriate repayment plan, such as age of account, client, scoring analytics, balance, date of last payment… just to name a few. The decision tree can be every bit as complex as the creditor or agency would like it to be, even to the point of understanding prior “discussions” between the virtual system and the consumer.
What advice would help an agency best integrate virtual collection software into its collection efforts?
Do it. The risk is nearly zero. For every payment captured by way of a virtualized collector, resources are freed for other endeavors. Live agents can then spend their time on broken arrangement follow up or skiptracing. A virtual collection system, used fully, creates efficiencies in many areas.
Give it the attention it deserves. How many hours or days are spent hiring and training a new collector? Yet, a virtual collector may be addressed once and left to run on its own, utilizing the same strategies created with its original “hire.” Check into your virtual collector with some frequency. How is he/she doing? Effectiveness of the collection approaches. Review the language used to best develop confidence in the consumer and prompt a high frequency of payments.
Encourage consumers to “discuss” their accounts with the virtual collector. It’s in a safe environment that allows them to look and review repayment options at a time convenient for them. A link from a website or provided on a notice encourages exploration of the virtual option.
In the end, and if you so choose to implement a virtual collection system, use it as you see fit. Maybe conservative in the beginning with tweaks along the way to find where it best fits into your overall strategy.
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