Caring Consumer Collections Policies Gain Traction

[Editor’s note: This is a guest post from Shaun O’Neill, President of Concord Servicing Corporation. Founded in 1988, Concord is a world-class financial technology company, delivering innovative, flexible, and scalable portfolio servicing solutions to meet the demands of loan originators and capital providers (and their customers) in multiple asset classes.]

A recommendation that collections and customer service “should be two sides of the same coin” is currently gaining momentum in the pandemic era. But this approach was advocated fully two decades ago by none other than LendIt’s own Peter Renton.

In a previous life he owned a printing company that sold products to credit departments and he had long advocated the need for consummate customer service. His key recommendations tied to bill-collection policies appeared in a January 2001 article in the prestigious Editor & Publisher magazine.

In part, his bylined article states: “In this dark morass actually lies a wonderful opportunity to turn debt collection into a customer-relationship-building program…this opens up the potential to generate some unexpected goodwill.”

The article continues: “…there’s a big payoff, literally and figuratively, for debt collectors who view themselves as customer-service representatives…Instead of a typical collection call, take the initiative to be empathic.”

To drive home the point about win-win, Renton suggests a discussion that asks the question: “What can we come up with together that will satisfy both of our cash-flow concerns? While you have the customer’s attention, attempt to extract a commitment from the customer to a mutually agreeable future payment framework.”

In a nutshell, this is how debt collection strategies are evolving now. Renton’s advice 20 years ago is spot on, and more important than ever.

A combination of economic woes triggered by the pandemic, and exacerbated by weather-related catastrophes, makes kinder, gentler, more understanding collection policies good for portfolio performance. They’re likely to generate more revenue than a hardline approach, plus there’s the benefit of building longevity and loyalty with customers who like, trust and respect their “bill collectors” instead of abhorring them.

This isn’t to say that harsher measures can’t be deployed if necessary. But first, collectors need to do everything reasonably possible to develop a collaborative, realistic debt collection plan that acknowledges and respects difficulties encountered by consumers.

As part of this, it’s important to ensure that collections practices line up with a creditor commitment to achieve win-win with customers. So, “negotiating” the collaborative sweet spot needs to be a top priority, with clear understanding of policies among all parties.

Also of utmost importance are federal, state and local regulations addressing acceptable collection tactics and new levels of leniency mandated by many agencies to give consumers a break through a continuing challenging economic environment.

With deferments, forbearance/repayment options and routine waiving of late fees and other normal penalties, there’s a lot for any debt collector to understand and be able to convey to the service reps handling communications with consumers.

In some cases, such as recently-announced Federal Housing Finance Agency extensions on forbearance programs, consumers can read about it before companies get everyone up to speed on details and deployment. This can put reps in the awkward position of not knowing about or being able to yet formally offer these new options—in turn creating substantial consumer frustration.

While new directives are being put into place, it’s incumbent upon collectors to train reps in such a way as to confidently, accurately and completely inform consumers in an up-to-date fashion—to avoid a complete disconnect and consequent consumer anxiety and disgruntlement.

What else do debt collectors need to know to provide the best customer service and adhere to all regulations, while also keeping an eye on optimizing investor portfolios?

1. Establish clear understandings and agreements. Being empathic and collaborative does not mean conveying the impression to consumers that they no longer need to take responsibility. One of the best ways to do this is the “fair and firm” approach with clear terms and incentives to follow through (e.g., adherence to an agreement that allows extended time to pay without penalties.) Understanding that there are consumers who will view collaboration as an excuse to get out of paying, maintaining this even-handed approach helps ensure better outcomes.

Generally, people want to do what’s right. Under stress, however, we all have a tendency to react more defensively—and perhaps revert to less collaborative stances.

Given the current payment plan options, there is much room for win-win negotiation.

2. Know all the rules to avoid legal, regulatory and reputation troubles. Staying on top of all applicable federal, state and local collection rules is a herculean, ever-changing challenge. Reputable loan servicing companies engaged in collections devote substantial human capital and resources to stay current and pivot quickly—keeping their clients in full compliance.

As with any policies crossing multiple jurisdictions, there’s a need to comply with everything that is on the books or contemplated (e.g., there can be 300 pending bills at state levels at one time). In some cases, this creates conflicting rules and regulations that much be sorted out to ensure all applicable policies and protocols are followed.

It’s also critical to stay ahead of the curve with what may coming, by studying proposed rules and regulations and prospective enforcement dates. Continuing education, viewing litigation trends, and reviewing legislative sessions and intelligence-gathering from multiple industry groups (e.g., The International Association of Credit and Collection Professionals) is a must. Full licensing in every state requiring it also is mandatory).

Finally, it’s critical to mesh all this with client experiences and requirements to ensure smooth sailing consistently. Loan servicers/bill collectors possessing many years of collections experience and “tribal knowledge” can help guide clients about reasonable debt recovery objectives and the most effective strategies with customers to achieve the best outcomes.

3. Prepare for the long haul. Collaborative collections are here to stay. While some collectors may toughen up practices as the economy improves and restrictions ease, empirical evidence showing that portfolios perform best with customer service-oriented collection programs will be the guiding light.

Further, such agencies as the federal Consumer Finance Protection Bureau are moving the world toward more consumer protections, so it makes maximum sense to address issues proactively instead of waiting for regulations to force the issue.

Along the way, this win-win collections approach will drive better relationships with customers and result in better company reputations.

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