Faced with falling revenues and increasing interference from federal and state regulators, some debt collectors have been trying out a new, somewhat unorthodox strategy to improve business (and their image) — good old-fashioned customer service.
“There’s no room to be aggressive or to try to beat the daylights out of somebody and expect to collect money from them afterward,” says Richard Doane, president of the Association of Credit and Collection Professionals International (ACAI), which represents more than 3,500 collections agencies in the U.S.
To that end, there is movement among old guard players as well as new entrants to refashion debt collection as friendlier work.
In 2013, the debt collections industry took in about $52 billion in revenue, down from $55 billion in 2010, according to a recent report. At the same time, collectors have become one of regulators’ favorite punching bags, a role they’ve been trying to reverse. In 2012, the year that the CFPB began officially policing the debt collection industry, the ACAI spent more than $900,000 on lobbying efforts on Capitol Hill — quadruple its 2009 budget.
At the same time, the companies that sell their debts to collectors — mostly banks, hospitals, credit card companies and student lenders— have become increasingly sensitive about protecting their brands. Consumers lost a lot of faith in financial services after the financial crisis. Being associated with overly aggressive debt collection firm is the last thing these businesses need.
“We need to be ahead of the curve on compliance and ahead of the curve on how we treat people. Customer service is such a big thing for our industry right now,” says Doane, who runs his own debt collections firm with 500 employees, Sunrise Financial in Farmingdale, N.Y.
Shaking the debt collection industry’s public image as schoolyard bully will no doubt be an uphill battle. Debt collectors are still the second most common source of complaints to the Federal Trade Commission, which, along with the Consumer Financial Protection Bureau, is tasked with regulating financial services. Some of the most egregious debt collection offenses include illegal work phone calls, empty (yet effective) threats of arrest, and extracting payment from consumers who don’t owe any debt at all. All this for debts they purchase for 4 cents on the dollar and can be decades old.
Kill ‘em with kindness
Rather than teaching his employees how to wrestle money from consumers, Doane has begun training them in the art of customer engagement. The classes employees take today could easily be mistaken for ones taken by sales associates. Negative language that was once standard around the office has now been banned. People are no longer called “debtors,” but rather “customers.”
And Doane isn’t the only debt collector hoping to change the relationships between debtors and debt collectors.
San Francisco startup TrueAccord bills itself as the antithesis of the standard debt collections firm.
“Our view is that good people get into debt and it happens to everyone,” says Ohad Samet, co-founder of TrueAccord. “The way to treat people is not like they’re criminals or to chase them, but to try to understand why they haven’t paid.”
TrueAccord, which is scheduled to launch in mid-September, doesn’t pay its employees a commission for recovered debts. And the language they use to go after debtors is carefully chosen to optimize the chances of not only getting the debt resolved, but gaining favor with the consumer in the process. Like Doane, they don’t refer to people as debtors. They also try not to use the word “debt” at all, preferring the softer term “balance” instead. Initial emails to customers are often casual in tone, even humorous in some cases; for younger debtors, for example, TrueAccord may send them an email telling them that their debt is depressed that it hasn’t been paid and has been binge-eating chocolate and watching rom-coms all night. An algorithm decides what type of notification a customer gets depending on factors like age, hometown, type of email they use, and how responsive they’ve been to past correspondence.
Each letter also includes tips to help people along the path to debt resolution. If someone wants to dispute their debt, TrueAccord directs them to a simple dispute form on its site and works with the creditor and the customer to come to a resolution. If they can’t pay back a debt in a lump sum, they offer monthly repayment plans. Because TrueAccord works directly with creditors, customers don’t have to go far to get information about where their debt originated from.
“The core of our product is treating customers well,” Samet says. “Debt collection is going to happen, but we [see it as] helping them get to a better point in their life.”
Teaching an old dog new tricks
TrueAccord has a big advantage over long-standing debt collectors like Doane — including the support of Silicon Valley and millions of dollars in venture capital.
They don’t motivate workers with commission-based salaries because they don’t have to. Instead, they charge creditors a percentage of whatever they haul in. Their rates vary by the company’s size.
But selling the “friendly” strategy to traditional debt collectors will be no easy feat. The majority of debt collection workers are compensated based on how much debt they deliver each day — not how many popularity points they win with customers. There’s also the fact that no matter how much you sugar-coat them, debt collectors are still debt collectors — whose job it is to remind borrowers of their problematic financial circumstances.
“I’ve seen a lot of startups that wind up partnering with big banks and existing players. There’s a lot of public ill will against [financial services in general],” says Jim Bruene, founder of Finovate, a conference series that showcases emerging financial technology.
TrueAccord isn’t the first, nor will it be the last, startup to attempt to disrupt some rusted arm of the financial services sector. Some have been successful (mobile payments site PayPal, peer-to-peer lending sites like Prosper and Lending Tree, and real estate website Zillow, for example), while others have struggled. Simple, an online bank that billed itself as a white knight no-fee banking alternative was eventually purchased by a big bank itself. Bitcoin has become a cult hit, but no one’s purchased a mortgage or paid off a student loan with virtual currency yet. Health care apps haven’t yet replaced doctors’ offices.
From a regulatory standpoint, it can be a gamble to launch a new financial services company because the laws governing them are shifting. Prosper and Lending Tree had to halt operations for more than a year in 2008 when the Securities and Exchange Commission forced them to register as a securities seller.
And debt collectors are notorious for getting into trouble with regulators. In 2013, the FTC sued nine debt collectors for various violations, the highest number in any single year, netting nearly $6 million in restitution. The CFPB is in the midst of a lawsuit against a Georgia debt collector it alleges has been running a “lawsuit mill.”
Playing nice with customers and regulators alike will be crucial if debt collectors want to turn their image around.
“We’re not just about making a lot of phone calls and getting people on the line,” Samet says. “We’ve built a platform that allows us to support people in a non-confrontational way. That’s the heart of what we’re adding to the mix.”
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