Embracing Regulatory Change - and Reaping the Performance Benefits

John Telford

The past year has seen regulators place their focus firmly on the debt collection industry, specifically on the latter stages of the collection process involving third party suppliers such as collection agencies and debt buyers.

It is clear that this part of the process faces greater challenges as a result of the added complexity from having multiple parties involved in collections activity, and the inevitable reduction in control from the utilization of third parties. This is best evidenced through the five-fold increase in consumer complaints originating from third party activity, rather than internal collections – this identifies the key reason for the interest from regulators.

We can see that the industry’s reactive approach towards regulatory change has resulted in a lack of preparation, driving creditors to make performance-damaging decisions. An example of this includes wide-scale reductions in the sizes of agency and buyer panels, even, in some cases, to the extent of a total withdrawal from the market. Unfortunately, these behaviors come at a heavy cost; in some cases driving a reduction in collections of over 35% which is unlikely to be sustainable.

However, this trade-off between regulatory adherence and collections’ performance does not have to be a key theme for the industry. As a positive customer experience is inextricably linked to underlying collections’ performance; then regulatory adherence can be utilized to drive collections’ uplifts.

One of the key requirements identified through a variety of regulatory publications, including the Office of the Comptroller of the Currency (OCC)’s best practice guidelines for debt sale, focuses upon the need for ongoing monitoring of suppliers. A robust, systematic monitoring solution will immediately identify any compliance breaches by suppliers which can then be effectively managed and mitigated. Furthermore, this monitoring can immediately identify any process exceptions which impact collections, and the subsequent increased visibility can be utilized to align the suppliers’ collection strategies to the wider collections process, i.e. why re-call an account that has just promised to pay?

Another key focus of the regulatory guidelines focuses upon the response to customers’ queries and disputes. Implementing an efficient process and systems to timely respond to queries and disputes will reduce response times, which clearly improves the customer experience. Less well recognized are the performance benefits that this improvement drives; reducing query response times from 21 days to 3 days drives a staggering 40% uplift in resultant collections from these queried accounts.

Our view at TDX Group is that over the next 12 months leaders across the industry will start to realize this vision of improving both compliance and performance, achieved through implementing a pro-active approach towards changing regulation. Companies which do not just ensure adherence to regulatory requirements, but place their customers’ interests at the center of their third party collections processes and strategies will benefit most, whereas those creditors who continue to simply react to the market will continue to trade off performance against compliance.

Those companies that apply a proactive approach and accept that regulation is changing, will not only demonstrate best practices in regulatory adherence, but also drive significant improvements in their collections’ performance.