More Collectors Working with Debt Settlement Companies

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Teresa Dodson

In the recent insideARM.com Debt Settlement survey, over 53% of the ARM industry company respondents indicated that they were now working with debt settlement companies to increase their collections.  While this number appears to demonstrate a clear adoption of this channel by the industry, insideARM.com wanted to know why roughly half of the collection industry was still not utilizing debt settlement companies to improve recoveries.

Reasons Provided for not Working with Debt Settlement Companies

When asked to provide the reason or reasons why they did not currently work with debt settlement compa­nies, respondents gave the following justifications.

Reason

Percent

Settlement Percentages too low

16%

Legal concerns about dealing with third parties

15%

Security/Compliance Concerns

14%

Industry Perceived as not reputable

13%

Prohibited by agency agreement with creditor

10%

Limited resources to dedicate to this channel

8%

Break rates too high

5%

Too hard to locate and manage multiple debt settlement providers

5%

Not enough knowledge of the industry to make this channel effective

4%

Other

10%

The top three reasons given for not working with the debt settlement industry are related to the economics of the settlements derived through this channel, as well as the specific security, compliance, and legal concerns regarding sharing data with debt settlement companies. Given the largest group of companies that answered NO to working with the industry were collections agencies, who many times work on contingency agreements with thin margins, this would seem logical.

Ironically, reputational credibility of the industry registered only the fourth highest out of nine possible rea­sons provided, indicating that collectors and creditors may now be warming up to the idea of a regulated debt settlement industry.

The last group of reasons provided primarily dealt with a lack of understanding of the industry as a whole, and inability to effectively locate and manage a large group of debt settlement companies or a specific lack of inter­nal resources in order to effectively develop a strategy or manage a strategy in order to leverage this industry as an effective collections channel.

With increasing regulatory scrutiny of the debt collection industry by the FTC and the newly formed CFPB, it is no wonder that collectors today place a greater emphasis on risk controls in favor of increased profits.  Clearly consumers enrolled in debt settlement programs are motivated to settle their accounts, and many times have money saved and available in a trust account for this purpose; however, agencies and buyers alike, conscious of the laws and regulations relating to data security, privacy, and third-party communications, have yet to fully embrace an industry which, to date, has not been held to the same standards of PCI compliance, data security, privacy regulations, and the FDCPA.

Finally, ACA International published a Fastfax bulletin (Document Number 3002) titled Communicating with Debt Settlement Companieswhich is available to members of the ACA.  In this bulletin, the ACA navigates the concerns and requirements of collectors relating to communicating with third parties such as debt settlement companies.

Tomorrow: Looking at why collection agencies might not embrace debt settlement as an option.

About Persolvo Data Systems

Persolvo Data Systems is the only certified, PCI compliant settlement system that aggregates over $5 billion of account information from hundreds of debt settlement companies on a daily basis.  CONCERTO 3.0, from Persolvo Data Systems allows creditors and collectors to locate collection accounts enrolled in debt settlement programs, view the consumer’s saved funds available to settle accounts and view and print the corresponding Power of Attorney or Letter of Authorization from the consumer authorizing communication with their debt settlement company.  CONCERTO 3.0 is the only system of its kind used by top 10 credit card issuers, debt buyers, collection agencies and legal recovery firms to increase collections and effectively navigate many security and compliance issues when dealing with debt settlement companies.  For more information, visit their website at www.Persolvo.com.

Contact:
Ed Fontaine
Vice President, Sales
efontaine@persolvo.com
(401) 569-9531Direct

Continuing the Discussion

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  • avatar Manager says:

    What I personally find comical about the “Debt SIF Industry” is they are in essence doing the same thing the smarter collection agencies are currently doing: WORKING WITH CONSUMERS. A lot of this obviously depends on how educated your clients are or if they are just fat and greedy. What I’ve found over the last few years is there are more clients today that are more interested in a 12-15 month return as opposed to the 3-6 month return. Consumers are in much more of a bind today than just 5 years ago. So if you can get a client to agree to a SIF of lets say 60% of the balance, over the course of 12-15 months then you’re going to see a huge uptick in profits over the long haul. I’ve seen some programs that will allow an agency to take more off of the balance if the consumer will agree to quicker payments. SIF’s are the norm in our industry but we have to be open minded to a consumers financial situation and look at ourselves as being more customer service than collection agents. Listen to the consumer, develop a reasonable payment plan, propose that to the client, then pray the client accepts it. Everything is commission driven and unfortunately that turns out bad when in the hands of someone who isn’t educated on the entire process. We have to think outside the box.

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