Are New Guidelines Putting a Key Source of 2013 Revenue (Credit Line Increases) at Risk?

In their zeal to help us manage our businesses better and to do right by our customers and banks, new regulatory guidelines may be unintentionally making our jobs a bit more difficult. We’ve talked to various regulators and have heard different things. When it comes to marketing, there is one area they seem to be focusing their enforcement efforts on around the globe, which is acquiring “fresh data”. The ability to prove you have communicated with the customer since receiving their initial application data is key.

Specific to Credit Line Increases, they are asking that your recent communication with the borrower proves they agreed to pay the loan in full and the borrower has the ability to pay the loan. In that process, they are looking for evidence of agent judgment, postponed decisions, inconsistency, and disparate treatment. Essentially they are asking you to prove you did not do something. The proving a negative is what our clients are finding most difficult.

Subsequently, some clients believe the only surefire way to gather evidence for a Credit Line Increase is to have an outbound call involving a conversation with the customer. Unfortunately outbound calls are expensive and it’s simply not wise to utilize them as your main strategy. Our solution can take customers to a web based platform where they can enter their information and enables real time decisioning. Truly any solution must capture and document borrower agreement, individualized program offers via dialogue with the borrower, allow the lender to prove willingness and ability, and with fair and consistent decisioning. Our solution enables this successfully, repeatedly, and cost effectively.

In addition to the cost effective benefit of the web portal, it has been shown that consumers overwhelmingly prefer it. We’ve observed that of those who are eligible and offered Credit Line Increase opportunities, approximately 85% respond directly to the website. Of that 85%, the majority (between 80-90%) qualify.

Ultimately our solution enables you to say, here are my policies, here is my execution of those policies in the system, and here is individually audited proof that they were executed consistently. This represents a great revenue opportunity in 2013, as it relates to Credit Line Increases, that could otherwise be hindered as a consequence of these regulatory actions.

Compliant Payment Programs via the Web

Recently we heard a comment from a client about hearing from their OCC examiner. They said “Payment programs offered on the web are not what we want to see”. When we first heard this story we were concerned – we talked to an examiner who recently left the OCC and got a different story. So I guess we’re left wondering, have any of you personally heard this from your OCC examiner? Or is it a case of “I heard from someone, who heard from someone, who heard from someone else”?

To clear things up, the official source on uniform policy, specifically the part about making program offers, reads that “documentation normally shows that the institution’s personnel communicated with the borrower, the borrower agreed to pay the loan in full, and the borrower has the ability to repay the loan”. Basically, they don’t want to see a “one size fits all” offer. Individualizing our approach seems to be the key thing they are after.

Platforms like FlexCollect offer a simple solution to proving this individualized approach. There’s the ability to prove the interaction with the borrower. You can capture data at the individual customer level and verify the evidence you need for willingness and ability because it’s systemically controlled by your computer. You can prove a fair and consistent program offering which is individualized to a unique borrower experience. All at an account – level audit trail.

Looking to 2013

The beginning of 2012 was shaped by uncertainty on two fronts: will the economy finally start back, however slowly, toward growth? And will the proposed CFPB’s director take us, along with the other regulatory bodies, headlong into regulatory conscription where we would have to consider and justify every action in terms of our being responsible for ‘protecting consumers from themselves’? Our answers were delivered in the form of increased activity and aggressiveness by regulators across the board, unabated by the (now dashed) hopes that a Romney victory would bring an end to the piling-on.  The economy seems to be continuing its cautious upward crawl, buffeted by repeated threats of Euro-disaster and political standoffs – but upward it continues, and lenders seem to be focusing once again on growing their portfolios which means it won’t be long before delinquencies start to rebound from historical lows.

As we turn our gaze toward 2013, while we are still not without uncertainty (“How much damage will the beltway bobbleheads wreak on the economy before they demur, declare victory and move on to ignoring some other key issue like firearm management?” etc.), there is one thing we can be sure of:  the regulatory environment we most feared is fully upon us and isn’t likely to change for several years.  So — We have to re-address ourselves in 2013 to the issues of

• transparency of our operations and, more importantly,
• provability of our actions without the kinds of costs and disruption that regulatory audits have raised in the past.

Winners will be the ones who resign themselves to what is (versus wishing for what might have been), and position themselves to thrive despite the extra burdens.

Summary of Industry Advisory Group London Autumn 2012

We recently completed our second annual European Industry Advisory Group in London. Attendees representing 8 of the UK’s top financial institutions gathered alongside our clients and partners, more than 30 attendees in all. The group had the opportunity to review many of the challenges in the industry and the many opportunities to utilize technology to drive down costs and improve compliance. We welcomed Auriemma Consulting Group as Preferred Partners and described our mutual quest to continually improve the business perspective and value added of CMC’s periodic review process.

Discussion in the morning centered on the group’s reading of “the economic tea-leaves” and the implications on collections organizations’ operational responses. We introduced attendees and reviewed the many new developments at CMC since our last IAG, including new clients, partners, product capabilities deployed, and organization expansion in the UK and EU. Bridgeforce’s Andrew Domino led a discussion of the three main economic drivers that will impinge on creditors’ ability to collect more. Auriemma’s Stuart Sykes led a discussion of the operational challenges being experienced in the UK due to both the ongoing economic challenges as well as the regulatory changes afoot including the breakup of the FSA and other impending requirements in both creditors and DCAs alike.

The afternoon sessions centered on best practices in technology deployments and in meeting the compliance challenges posed by the evolving regulatory environment, supplemented by our technology showcase demos. Matt Bailer of CMC led a discussion of digital channel best practices, highlighting the success our recent UK client’s deployment achieved and the future growth initiatives underway. Jackie Sullivan led a discussion of collection agent automation best practices, highlighting the results achieved by an EU client’s installation. Our panel of compliance experts discussed both the challenges and the engagement opportunities inherent in the upcoming FSA changes and urged IAG members to take advantage of the chance to shape, rather than be shaped by, a changing guard.

We host the Industry Advisory Group sessions twice a year, in the UK in the fall and in the US in the spring. We look forward to seeing you next time.

CMC Releases FlexCollect5 Featuring Advanced Workflow

We are happy to announce the general availability of FlexCollect5®, the latest version of our platform. FlexCollect5® provides a fully visualized workflow layout, easing users’ ability to configure tasks, apply actions like payment program offers, customer communications or status updates at any step in the process. Whether you are automating specialty processes in your collections operation or implementing an entire loan modification workflow, FlexCollect5® puts all the controls in your hands.

We have also upgraded strategy simulation capability, now allowing previews of strategy runs to be displayed right on the underlying decision tree. Clients will continue to enjoy the advantages of running simulations on an active read-only replica of their production data while now seeing results in context and also being able to apply additional filtering per segment simulated.

FlexCollect5® is a critical milestone in the evolution of our platform, driven by our clients and the marketplace. The benefits to operators in collections, loan modifications and even portfolio management functions like credit line management are dramatically increased with this remarkable slate of features. And like all our platform enhancements, existing clients can receive FlexCollect5® with their current subscriptions.

All business processes can now be made consistently compliant by centrally managing all tasks with FlexCollect’s Workflow Management. Not only can you put compliant workflows in place, you can prove compliance with individual account-level audit trails for use in internal and external reviews. With increasing regulatory scrutiny of late, you can automate the manual tasks traditionally performed in audits.

FlexCollect is delivered as managed service solution, meaning no hardware or software to install. This pre-integrated approach speeds time to market to weeks versus months, eliminates up-front and on-going capital expenditure and reduces operating expenses. Given this and the platform’s unique ability to deploy comprehensive self-service strategies, this new release widens the gap between FlexCollect and the out of the box capabilities of most legacy collections systems.

Fair Isaac & Adeptra Join the Chorus

Fair Isaac (FICO) has seen the value of integrating executional capabilities with their decisioning platforms, Triad and Blaze and Falcon – as evidenced by their recent purchase of Adeptra, a leading Interactive Voice Response (IVR) vendor for close to $120 Million a few weeks ago.

This acquisition has been a long time coming: the parties have had a long-standing and mutually productive reseller partnership which has been particularly strong in the fraud application, where Adeptra’s IVR is tightly coupled with Falcon to provide a highly valuable automation component that saves fraud departments money while improving their responsiveness by reaching out to customers more quickly upon Falcon’s determination that a transaction (or series of transactions) merited concern and verifications.

While the integration between Adeptra and the collections decisioning platforms hasn’t received as much publicity, it makes similar sense and clearly offers the same benefits of increased responsiveness, lower cost and greater collections effectiveness.   We look for FICO to continue to expand their messaging about the value of combining decisioning and execution, and welcome their voice to the chorus that has been touting that message for the past several years.

CMC’s Industry Advisory Group discusses compliance, other critical topics in collections

Collections Marketing Center, Inc. (CMC) is pleased to launch its blog with the following findings from its recent Industry Advisory Group (IAG) meeting, where thought leaders representing nearly 30 of the industry’s top lenders and service providers gathered to share insights and perspectives on the major challenges facing the industry in the coming year.  Some of the key topic areas covered:

Meeting Introduction and Theme

Vytas Kisielius, CEO of CMC, introduced the meeting’s theme: “Has the industry’s ‘strike zone’ changed, and what can we do about it?” with a summary of IAG members’ responses to a pre-IAG survey: whereas reducing losses was THE concern two years ago and cost reduction topped last year’s survey, the issue preoccupying the majority of respondents’ executive attention in this year’s feedback was regulatory compliance.  He then covered the implications on spending plans of the technology adoption anticipated by respondents, as well as CMC’s progress in its technology, infrastructure, and business growth in the past 12 months.

 

Current Industry Outlook

Matt Scarborough, CEO of Bridgeforce, shared the leading consultancy’s perspective on the impact of our gradual-but-painfully-slower-than-hoped economic recovery in terms of focusing creditors’ behaviors toward re-gaining revenue traction versus shoring up operations.  Banks’ focus on regulatory compliance spending is crowding out the necessary investment in efficiency and effectiveness; it is this investment that should be viewed, he argued, as a ‘cost of doing business’ rather than diverting spend to temporary fixes that distract the organization while competitors who previously invested in a strong foundation of automation-based operational efficiency continue to build a superior competitive position based on their operational and cost advantage.  He recommended that creditors analyze complaints proactively and take actions to improve their operations now in order to avoid future regulatory actions.

User Perspectives

Collections Solution Product Manager for TSYS, presented the various components of a comprehensive collections operation, highlighting the interdependencies that arise from the desire on the part of enlightened collections executives to treat each debtor individually and maintain a single conversation across numerous departments and touch points.  She then reviewed how TSYS and CMC combined capabilities to address this problem in the TSYS Collections solution.

Collections and Loan Modifications Manager for RBS Citizens, presented the results of the bank’s recent deployment of FlexCollect as their collections platform: significant FTE savings while roll rates and losses were reduced, leading to a dramatic reduction in loss reserves.  A new initiative in loan modification will be Greg’s newest undertaking, in which he hopes to post similarly strong results.

Collections Strategy Manager for Barclaycard, presented the bank’s positive experience leveraging email enticements to increase online payment and program acceptance volume using a substantially more efficient self-service channel and freeing agents to handle more specialized cases.

Collections Strategy Manager for Sallie Mae, reviewed the lender’s success in deploying live chat on their online collections platform to reach ‘spinners’ and target online conversations with impossible-to-reach or high-risk debtors rather than every debtor.  Providing this option, she reported, “increases the perception on the part of our borrowers that we’re flexible and easy to deal with… which helps our collections efforts”.

Peter Blau, Principal of Customer Growth, presented his firm’s successes in helping creditors redesign their campaign’s content and execution in enticing more borrowers to utilize self-service options; he also offered to provide IAG members with a trial of the consultative help that can propel them to greater effectiveness.

Compliance Panel Discussion

Dawn Willey of Bridgeforce, Bill Weinstein of Weinstein & Riley, and Tony L’Abbate of NCO collaborated to bring IAG members their collective expertise on this topic that loomed broadly over all of the day’s discussions. The panel covered the compliance implications in such diverse areas as Operating Policies/Procedures, Documentation and Disclosures, Contact Management Strategies, and Vendor Management (subject of a CFPB bulletin issued this past Friday).  Bill provided comprehensive Exhibits detailing recent developments regarding the TCPA, FDCPA and CFPB, which he elaborated by saying that those regulations had generally become less unfavorable to the industry but that the “penumbra of fear” caused by uncertainty over what the CFPB would actually require was still blocking a lot of much-needed innovation.  Tony pointed out that more and more creditors are pursuing zero tolerance policies in reviewing the performance of their outsourced agencies, and that Compliance Scorecards were quickly taking their place alongside the financial performance metrics.  Dawn added that the more proactive an operation could become, especially concerning SCRA and UDAAP-related issues, the more likely they would be to withstand an audit and forestall any negative enforcement rulings.

General

Attendees generally agreed that getting minimum acceptable standards defined by CFPB would mitigate, but not eliminate, the greatest immediate-term threat, which is that posed by activist Attorneys-General in several states.  As a follow-on activity, CMC has gathered the IAG’s “collective wisdom” in order to provide the CFPB with an enumeration of the crucial “asks” the industry would like to see from the bureau in clarifying how they will approach their newly-empowered roles in regulating, supervising and enforcing debt collection behaviors and practices.