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Last year brought on the beginning of many changes for the credit and collection industry. The Consumer Financial Protection Bureau (CFPB) announced a Notice of Proposed Rulemaking (NPR), digital communications are becoming part of the conversation for debt collection, and data privacy concerns are now front and center.
Accounts Receivable professionals from all across the industry spent the end of 2019 reflecting on the surprises of the past 12 months and discussing their predictions for the future. Here’s what they had to say.
CFPB Proposed Debt Collection Rules
The promise of new rules for debt collection has been discussed since 2016. The CFPB’s actual proposal this year was a big surprise to many, including Harry Strausser, ACA Director of Education. “The industry has been waiting for many years for new rules to be proposed by the CFPB,” says Strausser.
However, he was surprised by more than the proposed rule’s release. Industry reaction is not what Strausser would have anticipated. “Overall the response to the proposed changes has been rather calm and almost dismissive with many industry players I talk to. They have a “wait and see” attitude and don’t seem terribly concerned about the anticipated revisions.”
Joann Needleman, Member at Clark-Hill Law, was surprised by the opposition and negative reaction to the proposed new rules from consumer advocacy groups. “I would have to say what surprised me, or disappointed me the most in 2019 was the overwhelming opposition by consumer advocates to the NPR. For decades advocates have called for a major overhaul to the debt collections industry. While the NPR is not perfect, it is an important first step in setting regulatory expectations both for consumers and debt collectors.”
Although the initial reaction may have been less enthusiastic and more negative than some had hoped, Lex Patterson, President of DAKCS Software Systems felt this year was the beginning of a big change for debt collection.
“2019 was different in that for the first time in many years I've seen movement in the discussion of the outdated regulations that continue to be a challenge for our industry. It felt like maybe the ball is beginning to swing back toward the center and this gave many of us in the industry hope. The good news is that discussion is happening and options are being offered. We have a platform to create change.”
Embracing Digital Communication
Digital communication – specifically the use of email and text messaging – will also be a relevant topic in the industry this year. Needleman says although the Bureau’s rules haven’t changed wildly from the 2016 outline, there was one notable addition.
“The one significant change to the NPR was the inclusion of the use of electronic methods with which to communicate with consumers. Email, text and the use of electronic disclosures simply cannot be ignored. The debt collections industry has suffered greatly over the years because of this lack of guidance by regulators. Consumers have been equally frustrated by the inability of our industry to communicate using methods that consumers prefer.”
“The industry will turn its sights on the use of communication technologies not currently in active use as the federal regulators provide a green light on the acceptance of these contemporary tools.”Harry Strausser
Some experts in the field have already seen interest in the past year from collectors in using new forms of communication with consumers. “We noticed a break-through in the adoption of texting, SMS and self-pay as the preferred method of communication,” says Fritz Schulze, CEO, Comtech Systems, Inc. In fact, he predicts that “adding self-pay and SMS to existing technology solutions to accommodate payees’ desire not to interact with a human” will be a major focus of 2020.
Others, however, note their surprise at the overall slow response to adopt new communication channels after the release of the NPR. “The industry's desire for certainty is hurting them and consumers that want these other ways of communicating regarding their financial obligations,” says Tim Collins, Chief Compliance Officer of TrueAccord. He predicts that if companies don’t begin to adopt, the next year will bring unnecessary litigation.
“The ability to get in contact with consumers using phone calls will continue to plummet and may even get to the point where collection agencies feel like they have no choice but to try something different. Most agencies will rush into the use of SMS without building a robust compliance program causing a spike in TCPA litigation.”
Lauren Valenzuela, Corporate Counsel at Performant Recovery, Inc. also sees email and text playing a larger part in debt collection in the near future. “With all of the call blocking technology and legislation before us, I predict that our industry will make strides in figuring out how to better use email, text messaging, and online self-service portals in 2020. I think this will ultimately result in consumers having more control over when and how they communicate with us, and I’m optimistic that this has the potential to improve consumers’ experiences with collectors.”
"I'm confident the CFPB NPR will better align the regulation and technology. Savvy organizations will prepare for the potential advantages that will present themselves when this happens."Lex Patterson
Preparing for New Technologies
Along with the current tools that are being under-used, many in the credit and collections industry believe 2020 will be a time to prepare for and adopt other new technologies.
“We noticed a renewed market interest in technology in general, including the desire for new technology for voice, data and analysis. There will be a number of challenges for vendors. First, keeping up with adding machine learning and analytical solutions to identify the best collection prospects at a price point that clients are willing to pay.”Fritz Schulze
Leslie Bender, Chief Strategy Officer & General Counsel, BCA Financial Services, Inc., sees the coming year as an opportunity to take advantage of Bureau programs to bring debt collection into the future. “I hope to see folks in the industry testing out the CFPB’s office of innovation and perhaps even disclosure sandbox to test out consumer acceptance of some of the proposed NPRM features like the limited content message.”
Others also see new technologies changing both how agencies run and how they are viewed by consumers. “My unpolished and slightly damaged crystal ball tells me that 2020 will be the year that emerging technologies, including artificial intelligence and machine learning, play a significant role in altering both the operations and outward perception of the traditional collection agency,” says Scott Wortman, Partner at Blank Rome LLP.
“Correspondingly, the biggest challenge will be integrating this technology into a highly regulated legal framework—that, on one hand, is static and stuck in the days of antiquity—and on the other—is inadequately and incongruously addressing global issues at the state level.”
Data Privacy for the Credit and Collection Industry
Data privacy and security have been important topics for most industries in the past several years. Data breaches within the collection industry in 2019 have proved that if precautions are not taken, collection agencies are at risk just like any other business. Other events last year specific to the ARM industry also brought the topic to the forefront.
“It was a year in which the U.S. Department of Health and Human Services wrapped up some detailed investigations of situations in which patients were denied access to their healthcare information and situations in which data remains at risk on unencrypted devices,” says Bender. “At the same time, states took a look at California’s Consumer Privacy Act and many agreed to fund a “wait and see” approach before enacting their own legislation. On the Hill, the Senate Commerce Committee began serious conversations about an American GDPR.”
Others in the industry echoed Bender’s sentiments, commenting on the lack of interest in a new, yet important, regulation. Valenzuela was surprised by “how slow our industry was to respond to the California Consumer Privacy Act (CCPA) and its growing influence in establishing a new set of best practices for data privacy.”
“My predictions about compliance and privacy challenges in the year to come are that we have a major new privacy law taking effect yet its accompanying regulations are not final or in effect concurrently – and there are more questions about implementation and consumer education than there are answers.”Leslie Bender
Legislation on the Horizon
As always, regulation will continue to shape the future of the industry. Many experts believe 2020 will see both changes and challenges in this area – both at the state and federal level.
“I would say the two biggest challenges in California are in the legislative arena,” says Kelly Parsons-O’Brien, President of Pacific Credit Services. “We have a bill the California Association of Collectors is sponsoring in regards to Credit Repair Companies and there is a bill about licensing collection agencies that we will likely see in January. I encourage agencies from all over the country to pay attention to what is happening in California and reach out to see what you can do to help.”
As for the industry as a whole, Needleman cautions that there’s more in question this year than the release of the CFPB’s rule.
“The question of the Bureau’s authority will not be resolved and the final rules, in my opinion, will be impacted. The industry must watch closely as the United States Supreme Court determines the CFPB’s fate. Many believe that the Court will find the CFPB’s structure unconstitutional, but the bigger question will be how to fix it. Will it be enough to strike a portion of Dodd-Frank and install a CFPB Director who can be fired at-will? Does that cure a defect that resulted in very aggressive enforcement actions? Does that mean prior rules and the work of the CFPB will now become null and void? What will become of the debt collection rule? 2020 will be a year of great disruption. Buckle up.”
For updates on industry news in the coming year, follow our blog.