Debt collection can be a challenge. Adhering to the many laws and statutes which govern collections practices can be a formidable task, and sometimes mistakes are made. As we approach Halloween, let’s take a look at some outsourced collections horror stories and talk about how to avoid being haunted by similar disasters.
Earlier this year, Fair Collections & Outsourcing Inc. was sued by the Consumer Financial Protection Bureau. The CEO and owner of Fair Collections was also named in the lawsuit. According to the CFPB’s website, “The bureau’s complaint alleges that FCO violated the Fair Credit Reporting Act, Regulation V, and the Consumer Financial Protection Act by:
failing to establish or implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to consumer reporting companies, specifically with respect to its handling of indirect disputes
failing to consider or incorporate the appropriate guidelines in developing its policies and procedures regarding the handling of indirect disputes
furnishing information about accounts before or without conducting an investigation into the accuracy of the information it was furnishing after receiving identity theft reports from consumers disputing such accounts
Finally, the Bureau’s complaint alleges that Fair Collections’ president violated the Fair Debt Collection Practices Act when FCO represented that consumers owed certain debts when, in fact, FCO did not have a reasonable basis to assert that the consumers owed those debts.
The bureau’s complaint seeks an injunction, as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of a civil money penalty.”
The 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. This act creates guidelines under which debt collectors may conduct business, defines rights of consumers involved with debt collectors, and prescribes penalties and remedies for violations of the act. It also restricts the time and frequency of collection calls, and provides guidelines for acceptable, and not acceptable, behaviors by debt collectors.
Another horror story comes from CreditUnions.com. They report that the “Bay Ridge Federal Credit Union sued a member to collect on an unpaid loan. Bay Ridge also notified the outside vendor Experian. The member wrote to Experian to dispute the amount owed. Bay Ridge did not provide Experian with proof of the amount owed or conduct any investigation into the member's dispute. The member filed suit against Bay Ridge, claiming numerous violations of the Fair Credit Reporting Act and the Fair Debt Collection Practices Act.”
Reliable Vendor Relationships
Although this lawsuit was ultimately dismissed because a court decided that Bay Ridge was not obligated to report back to their vendor Experian, it does bring up the importance of making sure that your vendor relationships are in top order.
Actions that your partners take can also affect your credit union, especially when you factor in the (sometimes harsh) reality that the CFPB does not distinguish between the activities of vendors and the activities of the financial institutions that those vendors serve.
Many companies rely on service providers to essentially take over part of their functions, using expertise that the company itself may not have. For many, this includes monitoring compliance and risk management. That doesn’t mean you can entirely step away; your involvement shifts, instead, to service provider management or vendor management. This is a multifaceted program designed to oversee all third-party activity and manage risks associated with vendor relationships. It is designed to protect the lender, the vendor, and, of course, the consumer.
Partnering with the right vendors and making sure those partners are following their due diligence becomes especially critical when you’re entrusting someone else with your organization’s reputation.
Vetting vendors is certainly not a quick or easy process. It requires a thorough selection process, 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 more about in-house vs. outsourced collections. Download the collections comparison guide today!