Making the decision to outsource some or all your financial institution's collections work is no easy task. Even when you recognize that your internal staff does not have the time, resources, or ability to efficiently keep delinquencies low, it can still be difficult to trust a third-party vendor, particularly in this day and age of enhanced regulatory scrutiny and risk of cyberattacks.
Sometimes, after weighing all of your options, outsourcing collections may be the best business decision. In many cases, vendors who specialize in collections have the staff and resources to dedicate 100% of their time to curing your delinquent accounts — oftentimes at a less expensive rate than your team can accomplish in-house.
If you've decided to take the next step and work with an outsourced collections provider, you’ll want to make sure that they have a staff that will represent your credit union’s interests as well as you would, particularly when it comes to compliance concerns.
A third-party collector is essentially speaking on your behalf, and the last thing that you want is someone to be threatening or insensitive to one of your delinquent borrowers.
Not only would that be a reputational risk, but if the consumer files a complaint, you could ultimately be held liable. At the very least, there are three major policies that any good outsourced collections staff should be familiar with and have appropriate policies in place:
Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)
UDAAP prohibits firms offering financial services from engaging in unfair, deceptive, or abusive acts or practices. According to the CFPB, an unfair act or practice takes place when:
It causes or is likely to cause substantial injury to consumers;
The injury is not reasonably avoidable by consumers; and
The injury is not outweighed by countervailing benefits to consumers or to competition
While it is certainly difficult for any collection operation to fully understand what constitutes an "unfair," "deceptive," or "abusive" act, a well-trained collection staff will have a thorough understanding of their expectations under UDAAP when dealing with borrowers, will know how to identify potential complaints, and know what steps to take in order to resolve complaints.
Fair Debt Collections Practices Act (FDCPA)
The FDCPA was enacted to protect consumers from abusive, deceptive, and unfair debt collection practices, particularly from third-party debt collection agencies. It restricts the time of collection calls, states that repeated calls can be deemed harassing or abusive, and provides guidelines for acceptable and unacceptable behavior by debt collectors. It is particularly critical for a collections staff to have appropriate training of this law. In fact, our team of collectors are given two chances during their onboarding and training process to pass the required FDCPA training and become certified. If they are unable to do so, unfortunately, they are terminated. While this is obviously not an easy decision for our management team, managing our clients' risk is a top priority to our organization.
The Telephone Consumer Protection Act (TCPA)
To protect consumers from unwanted and/or harassing telemarketing, the Federal Communications Commission (FCC) enacted the Telephone Consumer Protection Act (TCPA), which includes debt collection calls when made with an auto-dialing system or by a prerecorded message to wireless phones. To prevent or reduce TCPA violations, outsourced collection staff should be thoroughly trained on all aspects of the law, and continuously monitored to catch and correct violations.
Learn more about the TCPA here.
Vetting vendors is certainly not a quick or easy process. It requires thorough due diligence, but in the end, when you take the time to find the right outsourced collections provider for your credit union, it will be well worth the time and effort.
Learn how FAIRWINDS Credit Union decreased delinquency by 1.71% over a five-year period by outsourcing their collections work to SWBC. Click here to download the case study.
Amy Bailey is a Compliance Manager at SWBC.