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Debt Portfolio Registration Services Fill an Operational and Regulatory Gap
July 22, 2009
Driven by a need to fulfill increasing debt validation requests from consumers, the debt purchasing industry has been very slowly evaluating debt portfolio registration services.
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Recent regulatory and legislative moves on the federal level have prompted the debt purchasing industry to once again explore the concept of a centralized registration platform for portfolios. And an increase in consumer validation attempts has made the system attractive for the shops collecting on the debt.
For years, the debt portfolio ownership chain has gotten more complex. In the past, if a creditor needed money from defaulted accounts before the traditional collection process could bear fruit, he’d sell the debt to one of a small handful of specialists. As the specialists became successful – and after government moves like the Resolution Trust Corporation in the aftermath of the savings & loan crisis in the late 1980s -- the debt buying process evolved, bringing to the table second, third and an ever-increasing list of sellers, debt buyers and brokers.
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But the real driver of the debt buying market has been the success sellers see from the process, whether they are the original creditors or companies that bought the debt.
In each case, the debt seller would likely package the debt before selling it. He might collect on some of it before the sale, or just divide the debt differently (e.g., splitting credit card and mortgage debt or dividing by state) before selling or reselling. But each of the firms in the process has its own hardware and software to track the debt – and in many instances the technology of the buyer might not communicate with the technology of the seller. Additionally, the debt might have been placed with several collection agencies -- which also have their own technologies -- before the debt owner decides to sell it.
All of this buying and selling across platforms makes it increasingly difficult for buyers and sellers to correctly evaluate portfolios because the media – physical pieces of paper --with the verification of the debt doesn’t always follow, or may be misread by a different technology or by a human within the company. So much of the pertinent data may have been damaged, miscopied or otherwise incorrect. If a consumer asked a collector to verify the debt, the ARM firm has traditionally been at the mercy of a wayward box of files.
This is an issue the debt purchasing industry has tried to solve for years. One company, Global Debt Registry of Columbia, Mo., thinks it has found the answer.
“There are three basic validation issues,” said Greg Ousley, who co-founded the company with Bruce Gilmore in 2006. “[Buyers and sellers] need to be able to validate the existence of the debt, the ownership of the debt and the outstanding balances.”
The Federal Trade Commission, in a landmark report entitled “Collecting Consumer Debts: The Challenges of Change,” released in February, mentioned data integrity as one of the key issues the industry needed to address (“FTC Proposes Significant Changes to FDCPA in Workshop Report,” Feb. 27).
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Comments
Comment from JHS 1127 on July 22, 2009 at 12:59PM EST
This sounds more like a way to cut another slice out of the buyer’s pie. Wouldn’t it be easier to demand all documents be part of the original transaction? If all legitimate debt buyers would stick together on this the original creditors would have to provide this data in order to sell their files.
Comment from MAJ on July 23, 2009 at 12:04PM EST
"This sounds more like a way to cut another slice out of the buyer’s pie. Wouldn’t it be easier to demand all documents be part of the original transaction? If all legitimate debt buyers would stick together on this the original creditors would have to provide this data in order to sell their file"
I agree with JHS completely. If there is validating/supporting documentation....DONT BUY THE DEBT!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Comment from MAJ on July 23, 2009 at 12:09PM EST
And if your an agency that routinely works purchased debt, determine if validating/supporting documentation is available on ALL accounts that will be assigned and if not...DONT WORK THEM. These are no brainers. Its hard enough to collect on debt that CAN be validated.
Comment from Sam Small on July 23, 2009 at 3:51PM EST
To provide all documents at every sale is very unpractical; it entails thousands of files.
I don't comprehend why "the fee is based on a percentage of the transaction". Why isn't it based on the amount of data?
Comment from Anonymous on July 24, 2009 at 9:15AM EST
Accurate data is the life-blood of any financial services sector.
Whether it be securities, M&A, capital markets, traditional lending, private equity, hedge funds, debt portfolios ... the list goes on.
Securities broker-dealers have been under this from a regulatory perspective for decades and this quality of data has made the "market" for securities the envy of all others. Someone mentioned thousands of documents, try millions of documents with the strictest oversight and enforcement of any regulated industry provided by the SEC and FINRA.
Seems to me that the ARM industry is long-overdue for better data management practices and now is the time to act.
If not for the benefit of the idustry or as a safe-guard against potential new regulations, individual firms owe it to themselves to have "clean" data in their systems for other less-altruistic reasons.
Clean data structures can be beneficial in re-sale situations as sell-side portfolio owners will be able to demand a premium for better data and on the buy-side firms can mitigate their risks more easily during due diligence and during transition/activation of newly acquired portfolios.
In short, griping about a few thousand documents would be laughed at by most other finserv firms. With scanning systems that handle bulk paper conversion at very affordable levels and SaaS-cloud based data management and workflow tools emerging every day, there is no excuse for any firm not to be making great strides in their efforts to go paperless.
Sure, regulation needs to be viewed from both sides of the coin but good business practices related to data management can contribute directly to any firm's bottom line and it doesn't take big IT budgets or months to make a big impact.