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.
|Settlement Percentages too low||
|Legal concerns about dealing with third parties||
|Industry Perceived as not reputable||
|Prohibited by agency agreement with creditor||
|Limited resources to dedicate to this channel||
|Break rates too high||
|Too hard to locate and manage multiple debt settlement providers||
|Not enough knowledge of the industry to make this channel effective||
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 Companies” which 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.
Vice President, Sales