Using external collections to recover debt is a tried-and-proven method that can deliver extraordinary results. On the other hand, mounting internal campaigns to avoid paying contingency fees is tempting, but the high startup costs and complex compliance requirements generally outweigh the potential savings. Furthermore, just one compliance blunder may result in expensive litigation, regulatory fines, brand damage or all of the above.
Some non-compliant do-it-yourselfers are financial institutions such as credit unions or card companies while others are small businesses that may believe compliance laws don’t apply to them. Not true — the heavy hand of the law can leverage its might against small companies if they chose to defy or ignore compliance.
In this first installment of a three-part series, the legal ramifications of practicing “compliance defiance” is examined. See “Internal vs External Collections, Pt 2: Mental Health” about the effects of internal collections on management and employees.
Small Business Defiance
Enforced by the Federal Trade Commission (FTC) from 1977 to 2010, the Fair Debt Collection Practices Act (FDCPA) is now under the jurisdiction of the Consumer Financial Protection Bureau (CFPB) which has kept a watchful eye on debt collections since 2013. The CFPB focuses on agencies with $10 million or more in debt collection revenue, but it won’t hesitate to pursue action against small businesses that are non-compliant. Potential violations by small businesses include:
- “Impersonating” a debt-collection agency — small businesses are required to use their official company name while conducting debt collections.
- Conducting business in states with compliance laws that supersede FDCPA regulations — states such as California, Colorado, Connecticut, Florida, Iowa, Louisiana, Maryland, Massachusetts and New York group small businesses conducting internal collections with large collection agencies.
- Using illegal collection tactics — harassment, intimidation or humiliation; calling cell phones without prior authorization of the debtor; calling places of employment; threats to garnish wages without court judgments.
Textbook Compliance in External Collections
Debt collections is one of the most regulated industries in the country, and subject to several state laws and federal regulations such as the Health Insurance Portability and Accountability Act (HIPAA), Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), Gramm Leach Bliley Act (GLBA), Telephone Consumer Protection Act (TCPA) and Servicemembers Civil Relief Act (SCRA).
Compliance with these laws is a necessary component of conducting internal or external collections. Best-in-class debt collection agencies are well aware of the consequences to being non-compliant, and rely on a infrastructure of compliance certification, training and education that is managed by the compliance and quality assurance (QA) department.
Compliance and QA departments are directed by the in-house counsel and manager of corporate compliance who works with other attorneys, QA supervisors and QA representatives. A good portion of the team maintains Credit and Collection Compliance Officer (CCCO) certification from ACA International.
Needless to say, operating a highly trained team is an expensive undertaking, but the alternative — compliance defiance — can shutter the entire business if things go wrong.
Functions of Textbook Compliance
Compliance departments are responsible for developing and maintaining policies and procedures as well as the agency training program. They also manage daily operations, monitor and evaluate collector phone conversations with consumers, provide reports to executive management and clients, and maintain the manuals used by collectors.
Other tasks include reviewing and evaluating:
- Compliance issues and concerns
- Updates to federal and state laws
- Recent case laws
The departments are asked to surpass call-monitoring targets, conduct call-calibration meetings, prepare and update scripts and team specifications for current and new clients, address special projects to identify opportunities, and monitor and score collection calls. Clients generally have call monitoring scorecards that are customized by the agency’s compliance and QA department.
Newly hired collectors are expected to thoroughly understand federal and state laws as well as relevant proprietary training manuals.
Best-in-class agencies also schedule monthly compliance meetings that cover all relevant laws, recent performances, and the previous month’s audit results. Each collector must complete a short test at the conclusion of each monthly meeting.
Consequences of Compliance Defiance
“Taking the easy way out” is never advisable in highly regulated industries like financial services, and especially in debt collections. As detailed above, operating a compliant internal collections department is too great a task for most organizations, and that realization alone justifies the need for external collections.
Best-in-class agencies have set the bar high for external collections using a commitment to accountability and transparency with regulators, clients and employees.
They deliver favorable returns on investment for clients who are free to produce goods or services without worrying about unpaid accounts, compliance blunders or reputation management. This peace of mind forms the essence of outsourcing collections to only qualified agencies.
Contact us today to learn about Optio’s foundation of compliance, certification, data security and technology.
