Ethics: The Missing Ingredient in the Collection Industry Business Model
Jerry Ashton
What if ethics were promoted as an essential ingredient in our industry’s cookbook for individual, corporate, and agency success? What if we ensured that its presence in our operations were enshrined in our policies, procedures, and mission statements; and enforced in our daily actions?
Would putting ethics first make a difference in the way our industry is perceived? In the way we deal with our clients and their debtors? In the way we are held by governmental agencies and consumer advocacy groups? In our bottom line?
But, simply defined, what is ethics?
eth•ics
- a system of moral principles: the ethics of a culture.
- the rules of conduct recognized in respect to a particular class of human actions or a particular group, culture, etc.: medical ethics; Christian ethics.
- moral principles, as of an individual: His ethics forbade betrayal of a confidence.
Before you dismiss my question, or second-guess my intentions, you may first want to hear an Internet Radio interview I recently conducted with Michael Brozetti, CiA, CISA, CGEIT. This is a man who, in addition to being a Certified Internal Auditor & Training Partner with the Institute of Internal Auditors, Villanova University, and the Homes Corporation, is a sought-after speaker on the topics of ethics, governance and culture.
In his opinion and experience, internal auditing is the corporate conscience; its practitioners are the shield bearers of an organization. Is that true for you, or your operation?
According to Michael, the quality of the ethics and compliance systems in place in your operation will be a relevant factor when people judge the good faith and fiduciary duties of your company’s leadership and management.
In fact, given the myriad laws that affect the collections industry, there is precedent in the Federal Government Code of Ethics that asserts that if a U.S. Corporation can demonstrate that their ethical system is designed and operating to a higher standard of fitness than that of the federal entity trying to regulate them, the constructive argument of “qualified immunity” is plausible, reasonable and compelling.
Many of my readers already know of my series of blogs excoriating JPMorgan Chase for firing veteran credit and collections veteran (and Black Belt), Linda Almonte.
As Michael points out, if Chase had diligently and faithfully followed a Code of Ethics, that firing would never have taken place; there would never have been cause. Linda would still be happily and productively employed instead of homeless and jobless, and Chase would have saved countless dollars and hours defending – and continuing to defend – their actions. (Editor’s note: background at http://onforb.es/iVprb0)
Let’s take my recommendation of adopting a strict Ethics Code a step further — way further. What if an agency were to require a standard agreement be in place with its clients and prospective clients that set down such standards and ground rules as:
- We will not work accounts out of statute
- We will not work accounts that cannot be documented in full as necessary to satisfy the court
- We will not work accounts that have been secured by the client by way of predatory lending practices
- We will not work accounts that have been subject to accelerated fees
- We will not work accounts that have been created through unethical sales practices
- We will not (fill in the blanks)
Could you do that? Would you do that? Stop chasing those payday loans, the faux mortgages, the out-of-statue or poorly documented credit cards? Would you turn down business just because of…ethics?
It may be time for an industry gut-check. Enjoy Mr. Brazetti’s talk, which you can find here: http://bit.ly/q6iBNe. Take good notes, decide whether the points he makes are important, and then roll up your sleeves and reset your personal and/or company’s moral compass.
The company (and soul?) you save may be your own.
For Item 1, out of statute debts remain valid debts and it is legal to continue to attempt to collect outside of the court system (via lettering and calling campaigns, for example). Items 3 and 5, concerning predatory lending practices and unethical sales practices, give me pause since there may be difficulty in determining if the original creditor actually engaged in these practices or not (assuming all fifty states use the same definitions).
I think its’ ironic that I read your post today. Our company has always held itself to a high standard and attempted to treat debtors as customers. Also, we do not accept accounts from clients that have questionable sales/marketing practices. Our name in the market is more important to me than a client that might get me on the front page of the newspaper. Yesterday, i had a meeting with our management team to discuss ways in which ACCESS Receivables can further its mission to dispel the myth about the big bad debt collector. I still think there are many companies and owners in our industry that are willing to go down fighting (see above post). Collecting on out of statute accounts was brought on by greedy creditors (banks) that wanted to squeeze every possible dime out of their portfolio without any regard for collateral damage. The collateral damage is accruing to the debt buyers who bought these accounts. Yes, we can argue that we a re right and, we might be, but, we will be right and can easily be legislated out of business in the next few years. Being right or justified is irrelevant when public opinion sways courts and politicians. In the old days, we would go out and sell a client (OMG). Having a strong code of ethics is essential in my opinion. Enforcing that code of ethics is even better.
Two, very different responses.
Linwood seems to hew to the “letter of the law” and in cases of gray areas leave the ‘right or wrong’ up to others. Sounds like business as usual to me.
Tom, on the other hand, is willing to wade into the thick of it and makes a strong stand for ethics and for the customer (aka “collateral damage”). Very likely, not gonna get much business from businesses that use agencies to squeeze out the last drop of blood.
I wonder which approach the ACA would award “best agency operation” to at their next convention?
Ethics and Capitalism seem as non aligned and nonsensical as prostitution and virginity or organized religion and the vow of poverty.
One of the greatest examples of business ethics was J & J when they made the corporate decision to remove “ALL” Tylenol off the shelves. Their “brand” was viewed as more important than the millions of dollars that decision cost them. the result was that after a year Tylenol was and still is the number one pain reliever on the market. By the way, Jerry, I still believe that a positive approach can yield better results. we lose business when the client culture believes that “all debtors are dishonest and deserve what they get. when we allow ourselves to get jaded, we lose perspective. I would also add that there is a new debtor arriving to the scene because of the current downturn in the economy. These people have traditionally paid their bills. some of them are friends, relatives and neighbors. they are also “SMART”. If you treat these people like “deadbeats” (hate that word), they will be the ones to fight back hard. so in the end, the kinder gentler approach is also self preservation.
I often encourage people to ask themselves three basis questions when faced with tough decisions, which in this situational context would be the designing and implementing of systemic methods for debt collection:
1. Is it Legal?
2. Is it Ethical?
3. Is it Sustainable?
The #2 question is a tougher question then #1, but without consideration and addressing both of these questions with sound reasoning it is likely that the answer to #3 is going to be NO. Unfortunately, many people will not believe this until it is to late and reputation is already damaged or lost.
Jerry – gotta admit, I am hesitant to respond to your rhetorical mousetrap, but..
Your commentary starts with “what if”..
My question to you is.. What if it already is?
You introduction makes a huge assumption, that the smoke signals you’re
responding to by pointing a [very popular] finger at the big bad bill collectors,
are a sign of increasingly non-compliant behavior by those in the ARM industry.
If one were to assume that debt collection operations these days may actually
be MORE compliant than ever, the flashlight might uncover bigger treasures of
interest in other corners of the credit web.
Do you REALLY believe that the problems of today are rooted in Debt Collectors
Gone Wild, or are you willing to accept that it includes a mix of things such as
news propaganda, the economic climate, political agendas? Perhaps even a global
shift in how we think?
For every lose cannon Debt Collector gone wild there are 100+ that work hard to be
compliant and professional in their efforts to perform a job that offers little positive
feedback from most of the people they deal with every day. (I like run-ons)
- Brian
PS – the government can’t cure people’s “thinking”, nor their “credit problems”,
Personal Accountability is key to the Success of any personal journey of
growth and financial stability.
Kudos to Mike and Brian.
1. The out of statute debt issue, in my mind, has little to do with the letter of the law. The average statute nationwide is 6 years which is barely adequate when you consider the length of time it takes for consumers to get back on their feet. That means that 19 states have a statue of 5 or fewer years.
If all of our laws we’re inherently ethical we wouldn’t continue to legislate new and adaptive laws. Our legislative body would be out of a job. It is our job to continually question and define what is ethical. Why is a 3 year statute, “ethical,” in Maryland but not in Ohio?
2. Mike makes a great point about not pointing the finger in one direction or the other. Any economist would tell you that singling out one factor in a complex system will undoubtedly wreak havoc on your hypothesis. Pop-culture, hyper-consumerism, cheap labor, and basic production efficiency are all to blame if we are to point the finger of blame squarely at a person’s environment. Environment is a factor. A big one, but still a factor among many.
It is too easy to turn an “out of statute” account into a court case unless their are exceptionally strong controls. Valid debt or not the means to collect it honestly are minimal at best. The only argument is moral, laced with some sort of deception to make a consumer swallow it. If not, quote chapter and verse on how many consumer have said, “I realize I don’t have to pay it but feel morally obligated to do so.”
Either the numbers are too small to justify the possibility of an FDCPA violation of some sort or an outright violation must be involved to make it work.
Interesting and worthwhile observations, all.
@Brian – thanks for stepping onto the sticky flypaper…quite brave of you. However, my post is not designed to trap the innocent. “What if” centers around making ethics the CENTERPIECE of a company’s approach and internal training. And, it is sorely needed.
Just recently, the large agency CBE felt this important enough to create a document as described below:
“The Code of Ethics, titled Employee Pledge to Ethical Excellence, illustrates employees’ passion for CBE’s corporate mission to define the future of debt collection.
To demonstrate my commitment to Defining the future of debt collection, I am proud to make this pledge to ethical excellence:
I pledge to conduct myself ethically
I pledge to treat consumers with dignity and respect
I pledge to “Do the right thing”…even when no one is looking
I pledge to hold co-workers and management accountable
I pledge that the future of debt collection starts with ME
CBE will continue to announce many proactive, corporate debt collection initiatives that support the company’s mission of Defining the future of debt collection in the months ahead.”
As with anything, the devil is in the details. What if “doing the right thing” would be to determine that a debtor is truly wronged, or that they shouldn’t accept responsibility for an out-of-statute debt when there is no compelling legal reason for them to do so…and then sending the account back as ‘uncollectible?’ (reference Mike Doukas’ remark above). At most agencies, that person would be out looking for a new job.
And, how does this employee hold their managers “accountable” – the same people who can hire and fire? Ask Linda Almonte of JPMorgan Chase fame who was fired for doing exactly that? Where are the safeguards in this pledge?
When I Googled “ethics” on the insideARM site…only a few pitiful references showed up. What might that tell us?
My hat is off to the agencies who – with our without a clearly written ethics guideline – truly do follow the Golden Rule. What is that? Let me self-reference a worthwhile blog for you:
The Golden Rule, or the Rule of Gold? http://writtenoffamerica.com/the-golden-rule-or-the-gold-rules/
Jerry – it all businesses were “Ethic Centered”, the world would be a much better place.
If all christians lived what they preach, eh?
But why stop there, businesses are made up of people..
What if…… all PEOPLE acted ethically?
I would like to turn this around and see how amenable consumers would be to take a similar
“pledge” (which of course they basically do when they agree to the terms) when they apply
for credit, and how effective that would be in curing the ailment of consumerism and blaming others for your poor decisions. It goes both ways, and I’ve met many more unethical debtors than I have ARM professionals.
The CURE for our common PROBLEM is not increased policing and punishment of hard working, ethical, fair, honest, decent, professionals in the ARM industry. Now, don’t take me wrong, GET THE BAD GUYS, weed them out, fine, sued, tar and feather them. But the rest (99%) are being punished and pushed out of business in spite of fighting the good fight.
As has already been pointed out, the OUT OF STATUTE (OOS) defense is a crock.. In some states an account is OOS in 3 years, you really think we ought to let people run away from their just obligations only 3 years after the fact? As also was pointed out, the irony of the argument is the idea that people need recovery time, a time to heal their wounds, regather their troops, and climb back out of the financial mess they’ve created. By allowing for a short-period OOS defense people will be much more likely to “wait it out” and tell their creditors to pound sand during those 2-3 years than they are to work hard to pay back what they owe, during the most difficult (statistically) 2-3 years of their financial recovery.
Your posts about Linda and Chase is a whole nother’ story.. I have NO PITY for any debt buyer/seller who sells bad paper or is otherwise a crook in the industry. . Be it Glen Cunliffe, Mike Kippel or Chase Manhattan..
- Brian