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Having been a GetOutOfDebt.org site reader and contributor for many years, I am used to seeing posts about what the New Year will bring to debt relief services. Below, I offer my own brief version of what may come in 2015, but with a focus on debt collectors. Changes that we should see to rules governing debt collectors behavior, next year and beyond, could provide impacts to the debt relief services industry not seen since 2005.
Shortly after the financial crisis began, a common refrain began when I talked to people about the work I do. Starting in roughly 2008 – as the financial crisis really picked up momentum – people assumed I was busier than ever, because I work with people struggling to keep up with their bills. And when all manner of bills were landing on the desks of debt collectors at an alarming, followed by a record setting pace, that would have been a safe assumption to make.
When people are hit with the worst of it financially, like through job loss, foreclosure, sudden illness, etc., there is less reason to talk with a debt relief service provider about what steps can be taken to avoid bankruptcy. When you hit the debt wall at certain high speeds, sometimes you really just need to talk to a professional about bankruptcy and just file bankruptcy to get some financial relief. So while it stands to reason I should be at my busiest when there are more people in a bind with debt, I found myself with fewer potentially suitable customers than in what could be considered better times for the nation – economically speaking.
So too, recent and coming changes to the landscape of the debt collection industry, combined with a return to lower unsecured delinquency rates, could lead to less of a need for collection professionals. That may seem a bit counter intuitive to some. After all, there are still all those debts unpaid from the recession. But coming changes can make it near pointless to try and collect on a good portion of those debts.
Debt collection is hard to automate, but simple to boilerplate.
Automation and technology advancements have led the way to the reduction of work force in many industries. That has not been a legitimate risk when it comes to debt collection. There are technology developments that let debt collectors work smarter, to be sure, but it really does take human to human contact to get consumers to respond to a collection agencies effort to collect.
Debt collectors come into contact with people mostly over the phone or through the court system when debts reach a critical stage of collection. Other than human contact, debt collectors are left to send notices in the mail, which hit a person’s round file (the trash can), more often than not. Debt collectors also appear on consumer credit reports, which can be viewed as a form of collection. Debt collectors answering the phone to speak with someone motivated to resolve a debt would not be difficult to staff for.
So… what is it about debt collection changes that could see a decrease in demand for debt collectors? In a word… regulation.
The CFPB is set to hit the second stage of their rule making authority as it relates to debt collection in April of 2015. This notice of proposed rules will likely be accompanied by an open comment period, giving industry professional, stake holders, consumer groups, and consumers, the opportunity to weigh in. Once the rules are set, there will be an implementation date. Even if the implementation for new debt collection rules date is, say January 1st, 2016, many debt collection companies (and potentially banks), will begin efforts to meet compliance. All of this, I would wager, will begin in 2015.
I think it is safe to assume that all legitimate debt collectors do make efforts to meet a minimum compliance standard. It is, in fact, those efforts to comply that make for a boilerplate industry. To the point that all collection notices start to appear the same, and the discussions a person can have on the phone with collectors tend to take on a repetitious quality, when juggling multiple accounts, placed with different collection agencies.
I am not one that thinks the boilerplate aspects of debt collection are a bad thing, far from it. That sameness makes things predictable and easier for people to absorb and navigate.
Reasons for new debt collection rules to heavily impact the industry.
I am going to bullet list the potential impacts to debt collectors from new rules. Each bullet is worthy of discussion in the comments, and even a dedicated article. Some of what I list may be seen as controversial, and may never come to be.
- Debt collectors will sue far less as a result of new debt documentation rules that could require best evidence be in hand prior to a suit for collection being filed (or some other stringent pre-filing requirements). Some states have already enacted stronger rules about debt documentation, New York being the most recent). Tighter rules in this area of legal collections will mean far fewer lawsuits on debts that are already a few years old, or that have already been sold more than once. It could take a few years before lawsuits to collect on delinquent unsecured debts are able to pick up in volume.
- Debt collection laws will potentially be applied to original creditors, where the FDCPA (Fair Debt Collection Practices Act) had only applied to third party debt collectors (collection agencies or debt buyers). If this comes to pass, credit originators may come to realize the efficiencies of selling their charged off accounts immediately, or finally embracing the 60/60 repayment plans (consumer pays 60% of their balances on credit cards, over a 60 month period), or a combination of both. Because of the efficiencies that already exist with credit originators and the nonprofit credit counseling agencies, coupled with the scalability of the nonprofits to offer less than full balance repayments, this would be welcomed by this segment of the debt relief services industry.
- Accounts that remain unpaid long enough to pass the statute of limitations to sue in the consumer’s state require that be made clear to consumers. This effectively means collectors working older files are all bark, and no bite. The only leverage left is the credit reporting.
The only uptick of size that debt collectors can realistically expect would be in subprime auto loans, and student debt. With the former maintaining a secured interest, and the latter limiting legitimate collection players (government contracts), there is not much growth to see on the horizon for the industry as a whole. But there is one area I see where collection shops should be prepared to meet demand.
- Collection notices, and perhaps every form of communication with consumers, will take on a more informative tone. Changes to what meets a debt collectors obligation to validate a debt (currently being contemplated in pending rules from the CFPB), could simplify how people view resolving their unpaid debts over time. I imagine an upswing in more consumer requests for detailed information, and debt validation. But I think the increase will be short lived, lasting only a couple of years.
Debt collectors adapt.
There will be adaptations to new collection rules. State law changes, like those in North Carolina a few years back, show that debt collection activity does not die off when fairer, more transparent processes are put in place. Debt collection lawsuits fell off a cliff (to near zero) for a year or so in NC, but returned after the industry had time to absorb and adapt to the changes. I do not expect anything different with a set of fairer national rules and standards.
I expect debt collection will become simpler, and even more scalable, than it ever has been before. But making it from now, to then, is likely not in the cards for all of today’s debt collection industry participants. The weakest hands will fold, and fair amount of consolidation can be expected. None of which is a bad thing for consumers.
That problems exist throughout the entire debt collection pipe line, from day one of delinquency, on through to collecting in the courts, is not arguable. There are tendencies to reduce the mammoth concerns about bad debt collection practices to rogue agencies. My experiences suggest it is not a discussion of bad vs. good actors. With few exceptions, it is more a discussion of the cleanest dirty shirt. And that includes credit originators to court actors, and every one that touches unpaid accounts in between.
Changes to the market for debt relief services are afoot. There will be opportunities to come, I’ve no doubt. But I suspect those will come from places many are not looking at just yet.
Thanks for the memories 2014.
Michael Bovee founded CRN, a unique company offering debt negotiation education and services, in 2004. Bovee has been contributing articles and free reader feedback on this site for several years.
Michael is a debt industry professional who has volunteered his time to help answer reader questions.
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