Transforming collections operations while maintaining strict regulatory compliance

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1 Transforming collections operations while maintaining strict regulatory compliance A constantly changing regulatory environment makes working with the right technology partner on debt collection and compliance more important than ever. The right technology solution delivered with value added consulting knowledge and experience can help companies cut collections costs, increase customer satisfaction and better assure compliance with myriad state and federal government regulations.

2 cgi.com 2 INTRODUCTION Consumer debt is a critical component of a healthy economy. Household debt in the U.S. mortgages, student loans, credit cards, auto loans and more totals over $11 trillion. 1 Collection of this debt assures the vitality of businesses and, for consumers, the ready availability of competitively priced goods and services. Notwithstanding the importance of collecting legitimate debts to creditors and borrowers alike, the regulatory environment surrounding the collections function can be both confusing and difficult for creditors and their third party collectors to navigate. New technology enabling innovative collection practices have emerged, yet applicable federal and state laws have been slow to keep pace with these changes. Meanwhile, new legislative and regulatory initiatives, such as attempts to safeguard privacy, may have the unintended consequence of making debtors more difficult to correctly identify, increase the likelihood of disclosure mistakes, and, as a result, weaken rather than strengthen protections for borrowers. This combination of old and new rules pose significant risks of non-compliance for credit grantors and their third-party debt collection agencies. Such risks can result in substantial financial penalties and fines as well as widespread damage to reputation. One way to mitigate these risks might be to use a cadre of debt collectors, well trained and versed in the legal do s and don ts, placing manual phone calls to debtors. Such an approach is, however, hardly practical for handling large volumes of accounts and is still subject to human error. Sophisticated debt collection approaches need to help consumers meet their financial obligations and improve their repayment experience, all while operating efficiently and effectively in an evolving compliance environment. The right debtor contact strategies will be both technology-enabled and fully capable of quickly adapting to changes in law and regulation. A Complicated Compliance Environment Numerous federal and state laws regulate various aspects of debt collection or consumer protection and, as a result, make a variety of government agencies responsible for compliance enforcement. Prevailing federal laws include: The Fair Debt Collections Practices Act (FDCPA) prohibits debt collectors from engaging in unfair, deceptive and abusive acts and practices (UDAAP) and bars the disclosure of sensitive financial information to third-parties; The Telephone Consumer Protection Act (TCPA) regulates the use of automatic telephone dialing equipment, including the use of this equipment for telemarketing calls, auto-dialed calls, pre-recorded messages, text messages and unsolicited faxes; The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the Consumer Financial Protection Bureau (CFPB) authority to issue rules under FDCPA. In November 2013, CFPB issued an advance notice of proposed rulemaking, indicating its potential interest in regulating in many areas, including the communications tactics of debt collectors. 1

3 cgi.com 3 While state laws largely reflect the FDCPA in regulating collection activities, there are important distinctions. In California, for instance, the Rosenthal Fair Debt Collection Practices Act applies to both original creditors and debt collection agencies, while, in general, FDCPA applies only to the latter. 2 Massachusetts applies its fair debt collection regulations to both original creditors and agencies, and limits creditor collection calls to no more than two in a seven-day period. 3 New laws in North Carolina, Maryland, New York and other states regulate the terms and conditions by which debt can be charged off and collected. 4 Still other states require debt collectors to obtain permits or to register their use of ATDS equipment. 5 Compliance with TCPA is of particular concern to companies attempting to modernize their debt collection operations. Here, two issues stand out: Does TCPA require debt collectors to gain prior consent prior to making calls to consumers using automatic telephone dialing systems? ATDS equipment is capable of storing telephone numbers, uses a random or sequential number generator, and is capable of dialing telephone numbers. In such cases, the Federal Communication Commission, the government agency which enforces the law, distinguishes between wireline (i.e. home) phones and wireless (i.e. mobile) phones. The Commission has determined that, under the provisions of TCPA, debt collections calls made to home phones are not telemarketing calls and do not require express consent. If such calls are made to mobile phones, however, prior consumer consent is required. 6 Is the mere presence of automatic telephone dialing system equipment in collection center operations sufficient to subject the debt collector to TCPA rules, regardless of whether or not the ATDS equipment is used? Court opinion is split, with the Ninth Circuit Court of Appeals ruling that the capacity of system to store, generate and dial numbers is sufficient, while other courts have ruled that such systems must have the present capacity. Although these capabilities are more broadly designed for telemarketing and are only tangentially related to the conduct of debt collection, the FCC has not excluded from its ATDS definition equipment using predefined lists and predictive dialers to maximize collector productivity. 7 Compliance Do s and Don ts Much of what these laws seek to curb falls in the category of unethical or inappropriate behavior. UDAAP examples include: Using threats or obscene language to collect a debt, Publishing or advertising the fact that a debt exists as means of coercing payment, Making excessive calls to a debtor, Failing to properly disclose the collector s identity, Making false representations either about the nature of the debt or the consequences of non-payment, Failing to post payments to a debtor s account and then charging late fees, Disclosing to a debtor s employer or co-workers the existence of a debt, Communicating with the debtor at an unusual or inconvenient time (generally between 9 pm and 8 am) or place (such as a work site) TCPA Compliance Guide for Debt Collection, ACA International, TCPA Compliance Guide for Debt Collection, ACA International, 2014

4 cgi.com 4 Collection compliance remains a significant issue for creditors and their collection agencies. An analysis of over 14,000 complaints to CFPB by ACA International, the Association of Credit and Collection Professionals, found 80 percent related to third-party debt collectors. Twenty percent of all complaints involved questionable communication tactics, mostly repeated or frequent calling. 8 Other complaints included improper contacts (8 percent), false statements (7 percent) and threats (6 percent). While the CFPB is in the process of issuing its own regulations, abuses associated with collections calling have already cost many companies hefty penalties. A Federal Trade Commission complaint against Regional Adjustment Bureau, Memphis, TN, resulted in a fine of $1.5 million in August Violations of the FDCPA included repeated calling, accusing consumers of debts not owed, contacting debtors at work knowing employers barred such calls, and disclosing confidential information to third parties. Likewise, an FTC complaint against Credit Smart LLC, Suffolk County, NY, and associated companies involved, among other violations, leaving pre-recorded messages misrepresenting the true nature of the consumer contact (which was debt collection). The settlement imposed a $1.2 million fine, with all but $490,000 suspended based on the defendants inability to pay. 9 Failure to comply with TCPA regulations yields both actual and statutory damages. As a result, missteps may subject companies to large fines and costs. Recent class action suits against credit card issuers and collections agencies involved the use of auto dialers and pre-recorded messages in calls to cell phone users without their express consent The suits resulted in $75 million and $40 million settlements. Strategies for Effective Collections and Compliance While the laws governing consumer contact are evolving and, at times, potentially conflicting, enlightened strategies combining innovative technology and business best practice can reduce risks and improve collections results. The goal of collections should be to engage the consumer in a process that will eliminate the debt. Calling so frequently that a borrower feels harassed is counterproductive and potentially illegal. What constitutes excessive calling is, of course, subjective, but behavior and motivation are important keys to a successful conclusion. Calling on a holiday, like Christmas Day, would in all likelihood be considered inconvenient. Behavior intended to provoke or annoy reflects itself in calling decisions and patterns, such as repeated late night or frequent hang up calls. A well-designed collections strategy can optimize opportunities to reach consumers while avoiding such pitfalls and compliance miscues. TCPA mandates that debt collectors must have the consumer s express consent before placing collection calls to cell phones using pre-recorded messages, auto dialers and other ATDS equipment. FDPCA requires debt collectors to identify themselves and the nature of their calls before placing calls to consumer cell phones. To avoid violations, much attention must be focused on how express consent is achieved. Consent can be given (or revoked) verbally or in writing. Generally, consent is obtained when a consumer provides a cell phone number to a creditor or collector. Because the onus of establishing the fact that consent has been granted rests with the creditor or collector, using explicit consent agreements are preferable. Express permission may not be necessary to place calls to consumer cell phones under certain circumstances, including cell phone numbers obtained through skip tracing or captured in incoming calls. The distinction is a narrow one, however; allowing manual calls to be placed over systems equipped with automated dialing capabilities but not necessarily allowing the use of auto dialers themselves. 12 Weaknesses of manual calling include loose compliance tracking for time of day, number of calls and related issues TCPA Compliance Guide for Debt Collections, ACA International, 2014

5 cgi.com 5 Effective strategies for first and third party collections will feature: A comprehensive understanding of current law and regulation and the ability to monitor and reflect changes in statute, regulation and case law; A commitment to improved customer experience through identifying and tracking contact consumer preferences and convenient times; The ability to flexibly stagger contacts and manage disclosures transparently so that both the appearance and reality of abusive calling and collection practice are avoided; The active maintenance of mechanisms for dispute resolution so that inaccurate information is quickly corrected; A convenient time to call, similar to the DriveTime Consumer Financial Protection Bureau Consent Order, where the consumer has the ability to limit the times of day calls can be made to a phone number and the lender must accept the customer s oral request to limit such calls, without requiring any additional steps by the consumer. The lender must also accept customers requests to limit the times of account servicing calls by , fax, and letter. Client Contact Study The financial services subsidiary of a major computer equipment manufacturer faced the formidable challenge of improving collections performance, cutting costs, and managing multiple debt collection agencies, all while remaining in compliance with a demanding and frequently changing regulatory environment. Business as usual collection operations consisted of a vigorous but largely undifferentiated contact solution eight call attempts per day per borrower phone line (home, cell and work). The approach failed to help the creditor understand what worked, what else was needed, whether calling limits were being exceeded or how changes in approach might impact collections performance. Bringing to bear its extensive collections experience, best-in-class applications and training, and its ability to manage large and complex collections contact operations, CGI worked with the client to develop a strategy which limited outbound calling to seven attempts per day with phone type limits of four per home number, two per cell number and one per other. Instead of high volume calling, the outreach emphasized: manageable staffing, analytics and business intelligence for performance improvement on an on-going basis an operational approach which provided all day coverage while avoiding predictable patterns strict compliance with government regulations. Greater granularity meant specific campaigns could be crafted to associate call times with phone types and dialer filters could be updated based on past experience, not guess work. Although manual calling was still required, training helped reduce mistakes, and systems were put in place to track both performance and compliance. The CGI collections approach allowed the client to make fewer collections, and to do so with a minimal impact on right party called rates and an overall increase in average payment amounts.

6 cgi.com 6 Assure Compliance with a Best-in-Class Technology Partner Building a culture of compliance, while challenging, need not be an overwhelming management burden. Rather, selecting the right technology solution can improve both the customer experience and collections performance, reduce collections costs and mitigate the risks of non-compliance with legal requirements and internal business practices. Picking the best fit partner is key. To meet a series of demanding performance and compliance objectives, that partner s solution should feature: Automated case management and workflow to improve collection efficiency; support customer-centric processing; manage multiple organizations and credit products; provide flexible rules for defining workflows, agent and third-party assignment; and enhance regulatory compliance Consent and preference tracking at the phone number and channel level to assure regulatory compliance and optimal customer experience Customer decision strategies to create, execute, measure and experiment with various strategies across the relationship lifecycle Online collections to give consumers a comfortable self-service avenue to make promises and complete other collections business transactions Third-party management to provide a single source of timely, accurate information to debt collectors, and capture data for a wide range of business intelligence uses Complaint management to track and resolve disputes and correct erroneous information Omni-channel capabilities (text, , web, mobile app) for a better overall customer experience Performance tracking and compliance reporting for management insight and risk mitigation Strategy analysis and recommendations to assure continuous improvement Collaborative governance for management flexibility and oversight, as well as tighter compliance with federal and state mandates and corporate quality standards. CGI has incorporated these capabilities and more into its industry leading Collections360 managed services solution. Moreover, CGI partners closely with its clients to understand their specific situations and levels of risk tolerance and, along with technical and analytical sophistication, advances problem-solving by providing a third-party point of view. Conclusions The switch to a tightly integrated managed services solution can produce dramatic collections compliance results, helping companies to: Mitigate risks and avoid heavy fines and damage to reputation Increase customer satisfaction and operational efficiency Recapture revenue rightfully owed without violating the law or provoking consumer complaints Stay abreast of changes in statute and regulation and quickly adapt business rules and systems. For companies in financial services, telecommunications, utilities, insurance and many other industries, CGI is the right partner for transforming collections operations while maintaining strict regulatory compliance.

7 For more information about CGI and the powerful benefits of Collections360, contact cgi.com With 68,000 professionals operating in 400 offices in 40 countries, CGI fosters local accountability for client success while bringing global delivery capabilities to clients front doors. Founded in 1976, CGI applies a disciplined delivery approach that has achieved an industry-leading track record of on-time, on-budget projects. Our high-quality business consulting, systems integration and outsourcing services help clients leverage current investments while adopting new technology and business strategies that achieve top and bottom line results.