Fooling Around with Fees
There are bad apples in every industry. The collection industry is certainly not immune to schemes such as this one, where unscrupulous individuals prey on vulnerable small businesses that are seeking to recover past due accounts at potentially attractive rates. The rates don’t matter to the dishonest collectors, because they never intend to remit back to the client anyway.
If you’re a credit grantor, you’re probably thinking this can’t happen to you. Many credit card issuers have developed a bullet-proof on-boarding process for collection vendors, believing that prevents unscrupulous agencies from getting in. The reality is that creditors can be their own worst offender when it comes to letting the “bad guys” in through the back door – by cutting rates down so low that it is impossible for reputable agencies to generate enough revenues and profits to properly capitalize their business and maximize recoveries for their clients.
What do you think is the number one concern among senior executives who are in charge of recoveries for their company? If your answer is maximizing net-back performance you’re dead wrong. The number one concern among recover managers is waking up one morning and finding their company on the front page of USA Today because of extreme cases like the one above – or more commonly, from aggressive collection tactics that violate FDCPA. Front line news about their collection vendors may cost a recovery executive his or her job. That is a risk they simply can’t take.
In short, you get what you pay for. If the creditor works with their collection agencies to keep fee rates at appropriate levels, the agency can generate profits without sacrificing performance, and everyone wins. The client will maximize recoveries while staying out of the headlines. The agency will grow a profitable and sustainable business. We just might keep the bad guys out of the industry once and for all.
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Comments
Comment from Gilbert Roberts on April 1, 2008 at 1:54PM EST
We always pre-screen using an auditing company.
Comment from James Karnath on April 4, 2008 at 6:28PM EST
Mike - I'd like to quote parts of your article to our clients - especially the part about compliance vs. low rates. What do I have to do to get permission?