A Silver Lining Amidst Intense Regulatory Oversight

Mike Ginsberg

Last week, the Federal Reserve Board reminded financial institutions of their responsibility when outsourcing business functions including accounts receivable management services.

As stated by insideARM, “If service provider relationships are not managed effectively, they may expose financial institutions to risks that can result in reputational problems, financial loss, or regulatory actions, according to the guidance.” This reminder came nearly 6 months after the CFPB and the OCC made their own warnings to banks about their responsibilities regarding debt sales and their use of collection vendors. Where is the holiday spirit?

Clearly financial institutions are being told they are on the hook for the actions of their collection agencies and debt buyers and this scrutiny will only continue to intensify their oversight of their vendors. This responsibility is not just limited to large banks. According to Martin Sher, former ACA International President and agency executive, “Creditors who were excluded from the Fair Debt Collection Practices Act of 1977 will be front and center this time. Everyone, let me repeat, everyone in the credit cycle will be included either initially or eventually. This will ultimately include hospitals, and large and small medical practices.”

There is another concern that has been raised by some credit and collection professionals that banks and perhaps other credit grantors might stop outsourcing their collection needs altogether in light of the increased responsibilities placed upon them to oversee their vendors. Their belief is that if maintaining compliance is more important to credit grantors than recovering past due accounts receivable then why not internalize the service altogether?

Let’s put this notion to rest once and for all. This will not happen. Banks, arguably the most qualified creditor when it comes to collecting for their own account, don’t possess the same capability of a focused third party vendor when it comes to maximizing recoveries amidst intense regulatory compliance requirements. Healthcare providers, utilities, municipalities and other grantors certainly don’t have such capabilities and will continue to outsource to 3rd party collection specialists.

However, I believe there is a silver lining for all ARM companies who are actively seeking to band together to create a unified front when it comes to the CFPB efforts to create new rules for the industry. As more supervisory responsibility is placed on the creditor, their desire to voice their opinion and participate in creating a unified message for debt collection and debt sales should increase.

Right now, numerous heads of collection agencies, collection law firms and debt buyers, along with the associations are attempting to come together and create a unified response to the CFPB’s Advance Notice of Proposed Rulemaking (ANPR). If credit grantors are directly responsible for the actions of their vendors then they too may want to have a seat at that table.

Here’s to enjoying the holiday season and to a prosperous New Year.