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During this week’s Research Assistant Peer call one of our members asked about the risks associated with implementing a pre-collect or first-party program. Without hesitation, our members provided great insight. Here is a summary of the considerations and best practices we discussed.
At the outset, we talked about the differences between first and third-party collections. The first-party/third-party question is becoming increasingly more prevalent because the Fair Debt Collections Practices Act (FDCPA) covers third-party collections, but may not cover first-party collections.
This does not mean, you can scratch the FDCPA entirely when you collect in first-party mode. First, there are several states that have laws specifically governing first-party collections. Second, where the first-party/third-party lines are drawn isn’t always very clear. Make sure you research both of these issues before deciding whether you will take first-party work and before writing your policies and procedures.
If you are considering adding a first-party department to your organization, here are some things to consider.
Keep the line clear between first and third-party collection activity
Some organizations will go as far as establishing a separate business entity altogether for first-party work. There may be some shared back-office support functions, but the first-party side calls consumers in the name of the creditor, as if they were the creditor, and often works off the client’s system, has separate business licenses, and financials.
Whether or not you choose to create a separate organization for first-party collections, you will want to create different training. Even though third-party collection tactics have become more consumer-friendly, you will want to make sure that you are training more towards customer service than collections, along with the client system training. If you are working the accounts in your system, make sure to create segregation within your network between your first-party accounts and third-party accounts, and make it clear that the client still controls the account.
Finally, one of the most important areas to consider is financials. If your organization is collecting in a first party capacity, you should create and maintain separate accounts and accounting procedures. Comingling of money makes for very messy financials. Add to that, a lot of government agencies, hospitals, and other large entities require specific trust accounts and contract requirements for the separation of monies collected.
There are a lot of things to consider when building out your first-party collections strategy, and you will want to be well-prepared before going live. Hire an attorney with experience in first-party collections and utilize your Compliance Officer or hire a Compliance consultant who can provide assistance with policies, procedures, and training and help you build out your internal auditing controls.
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Reminder: Send any topics or questions that you want to discuss to sara@insidearm.com by Thursday to ensure it makes it on our agenda!
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