Compliance management for banks has reached a boiling point, and it’s primarily due to antiquated tech that simply cannot keep up. Federal, state, and local regulations vary drastically, and each mandates different practices, based on customer location and lending type.  Banks and third-party vendors are facing increased scrutiny and are subject to fines from the Consumer Financial Protection Bureau (CFPB). 


CFPB Is on the Lookout for Violations

The CFPB has been proactive in enforcement. In one report, the bureau highlighted “wide-ranging” violations of law in 2020. Also chronicled in the CFPB publication Supervisory Highlights, those violations fell into the following general headings:

  • debt collectors who communicated with consumers at their workplaces after they knew or should have known that such communications are prohibited under the CFPB law
  • debt collectors who communicated with third parties other than the debtor


Case Study: CFPB Sues United Holding Group, Its Affiliates, and Its Owners for Engaged in Unlawful and Deceptive Tactics

In a recent lawsuit, the CFPB alleges that the debt collection Company and its owners placed consumer debt with, or sold consumer debt to, collection companies that used unlawful and deceptive collection tactics. The CFPB claims that the defendants knew, or should have known, the collection companies made false threats and false statements to consumers. And although some of the defendants have been the subject of prior enforcement action, they continued their unlawful practices.

The CFPB alleges all three companies allowed third-party collection companies to deceive consumers and placed or sold debt portfolios to collection companies engaged in unlawful behavior.

The defendants allegedly harmed consumers by:

  • Allowing third parties to deceive consumers.
  • Placing debt with and selling debt to collection companies engaged in unlawful behavior.


Who Needs a Compliance Framework?

Given the rocks and shoals of compliance and regulatory requirements, collection managers at all levels--banking and retail small collections teams, CFOs, receivables management specialists, as well as organizations that must look after third-party vendor management—need a compliance framework. Like most things worth doing, setting up a compliance framework for lenders isn’t easy.

In this article, we’ll cover what you need to know about setting up your compliance framework and how NeuAnalytics can help. We’ll highlight the following:

  • the nature structure, purposes, and empowerment of a compliance framework
  • why compliant collections across different regulatory bodies need to be addressed
  • the obstacles to building compliance frameworks
  • why an automated compliance management system is the key to compliant debt collection

Finally, we’ll show how the NeuAnalytics platform can be your automated partner in compliance management.


What a Compliance Framework Is and Does

The TechTarget definition of “compliance framework” is as good as any:

“A compliance framework is a structured set of guidelines that details an organization's processes for maintaining accordance with established regulations, specifications or legislation.”

With a compliance framework, an organization can join its policy manuals, job descriptions, mission statements, and compliance and regulatory mandates into a cohesive whole.

The compliance framework essentially brings order from a stream of everything that rains down on the organization. When something new comes along, the framework is in place to integrate the latest “good idea” some legislature or city council wrote into a new ordinance or state law.

Compliance frameworks are typically oriented to a specific issue, e.g., data privacy compliance, money-laundering regulations, or consumer protection.  When it comes to collections, experience has shown that there are more collections complaints than for other consumer-facing businesses. When a customer complaint is lodged on the CFPB complaint portal, the bank or its collection agency must respond or risk sanctions from the CFPB.

Benefits of a Compliance Framework

The compliance management framework is the essential piece of an organization’s overall compliance program. The framework is a set of procedures that allows the organization to conduct its business within the law. In addition to providing the tools, functions, and processes, it provides the written controls top management expects in each organization.

Elements and Benefits of a Compliance Framework

Viewed as an administrative framework, the following elements of a compliance framework contribute to easing the workload of compliance:

  • Policies are set by management and followed by everyone in the organization.
  • Processes are listed that must be followed to make sure that debt collection practices are done within the policies.
  • Training for employees is done during the hiring process, routinely after that, and as new rules and procedures are updated.
  • Monitoring to check if the rules are being followed—a system with quality checks to make sure the rules are being followed
  • Corrective actions to ensure mistakes, when occurring, are not being repeated

The benefits of a compliance framework include the following:

  • In addition to preventing legal and regulatory violations, the framework can directly reflect on the company’s reputation. 
  • A compliance framework provides written guidelines for what needs to be done and identifies those who need to be held accountable for doing (or neglecting) it.
  • A compliance network can gather information for necessary management and compliance reporting, and records retention.

Suggestions for Implementing a Compliance Framework

The logical first step is to find a framework the organization can use and compare it to what the company already does. That comparison will instantly reveal the gaps in compliance and what remedial steps must be taken over time.

The framework for debt collection compliance would essentially be based on the federal Fair Debt Collection Practices Act, Regulation F, the TCPA, the SCRA, the FCRA, and additional state and local collection regulations and knowing the limits of what debt collectors can say or do. Next comes an honest assessment, or a gap analysis, of existing controls – are the correct controls in place and do they provide actionable information? Whatever is missing in your existing compliance—either as a knowledge base or in practice—has to be incorporated into the organization’s procedures and controls.

Compliance procedures are steps and protocols that give employees and agents guidelines on how to behave in ways that comply with company policies or the law. Compliance controls are the checks that detect improper behavior.

Finally, all the above must be tied together cohesively. That, as we shall see, is where an automated compliance management system is the anchor to your compliance network. With the CMS in place, you are ready to manage your third-party collection agents, keep your consumer protection obligations on track and the regulators off your back.


Regulatory Bodies Abound and It's Hard to Keep Up

Essentially, the Fair Debt Collection Practices Act bans debt collectors from using abusive, unfair, or deceptive practices. Most state laws follow that general template, but some, like Washington state, go a step or two further—such as requiring third-party debt collectors to be licensed and bonded. In Colorado, for example, judgment creditors cannot initiate pay garnishment, attachment, or debt levies unless strict requirements are met.

Many states and local governments also create their laws for accounts receivable with their own strict rules about how, when, and how often debt collectors can reach out to a consumer based on where the consumer lives. 

Additionally, many large corporations rely on third-party vendors or law firms to handle their collections efforts, entrusting that these agencies are following regulations and mandates. The challenges of the span of control and the fact that you can’t outsource legal liability are part of the difficulties in building and implementing compliance frameworks.


Compliance Frameworks Are Not Easily Built or Implemented

It takes time to sift through different mandates across the country, especially when operating under the laws of more than one state. That sifting and sorting are further complicated when trying to incorporate the rules and guidelines into an antiquated system that has no cross-referenced collection strategy with compliance guidance.

Moreover, there are multiple regulations based on the kinds of lending—mortgage, installment, revolving credit. Each needs to be checked and updated for compliance, and that process is often overlooked or beyond the competence of third-party vendors, whose systems are either non-existent or antiquated.

There is a story about a lumberjack whose daily production was slipping because his saw blade was dull. When asked why he didn’t take time to sharpen his blade, he replied that he couldn’t stop. He had work to do. The lumberjack anecdote also applies to antiquated systems, which are like dull saws doing things the old way. For example:

  • You receive monthly performance reports from your vendor managers and call the poor performers to urge them to work harder. You need a system to continuously monitor vendor performance to alert you of drops or improvements in vendor performance.
  • You use manual, after-the-fact reviews and discover that some of your vendors have lapsed certification and licensing. You can automate that and move your collection accounts to avoid fines and sanctions.
  • All your compliance and performance reports are spread across unshared, siloed systems. They have out-of-date information and require the “stubby-pencil” method to show the big picture. You need real-time and aggregated reports delivered on schedule and on-demand.
  • You distribute your collection accounts through a “round-robin” approach without regard to vendor performance or account characteristics. You need an intelligent system to give your accounts to the best performers.
  • Your vendors send you emails and spreadsheets, which you have to search for and cull to answer requests. You could solve that by giving your vendors automated access to the documents they need and going the self-service route.
  • For operational support requests, you receive those emails and spreadsheets and must adapt all that diverse information in analyzing fraud, disputes, and debtor complaints. You need a centralized case management capability integrated with all your core systems without the need for duplicate, time-consuming entries.

Compounding the problem is that many creditors and lenders use discrete debt tracking tools that do not provide on-demand reporting. The reporting is a manual process that can lead to human error, mistakes, and risk to the collection operation. In sum, it is difficult to collect, normalize, and create executive reporting that allows for real-time and historical data on demand.

So, the continued use of antiquated systems must give way if the organization wants to become consumer-centric. The onus, therefore, has shifted to the lender. The lender must have a strategy of compliance to reduce the risk of class-action lawsuits or hefty regulatory fines.


Why Automated Compliance Management Is Crucial to Collections

Automated compliance is crucial to collections because it:

  • cross checks various regulations and regards federal, state, and local mandates
  • approves or rejects collection strategies based on various regulations, the category of collections, and any other mandates that are required by various agencies
  • updates itself in a short timeframe, as opposed to an ongoing manual process with other, antiquated systems


NeuAnalytics Can Be Your Partner in Automated Compliance Management - "The Neu Way"

NeuAnalytics solutions are customized to pull and display analytics encompassing a creditor’s collection efforts. The platform identifies data collection concerns surrounding the process and operational risk through automation, thereby increasing accuracy and efficiency.

NeuAnalytics compliance and collections solutions are built with compliance as the foundations. This allows users to trust third-party vendors and departments to appropriately handle accounts receivable. NeuAnalytics employs an Enterprise Receivables Management (ERM) that assists debt collections professionals by reducing collection costs to manage the creditor’s portfolio throughout the life of the account.

NeuAnalytics converts vendor data into actionable formats. Creditors can use that clean information to place accounts based on quantifiable debt recovery statistics and performance.

The solutions can also be used to manage various specialties such as bankruptcy and probate agencies and law firms and the accompanying legal actions surrounding debt collections.


Let's Recap

As the focus on debt collection shifts from the collector to the lender, lenders must operate under the oversight of the CFPB and 50 separate state consumer protection agencies. Lenders—banks, third-party collectors, and other agencies—must have a compliance framework in place to keep track of the blizzard of regulations and avoid fines and sanctions.

The compliance framework must incorporate everything into a cohesive whole and bring order from the chaos of laws and unrelenting oversight of federal, state, and local regulations on debt collections.

Those regulations vary from state to state and as lenders outsource their debt collection activities, they must often cope with antiquated data collection processes without a consistent strategy and compliance guidance.

Automated compliance management is the solution to the obstacles in setting up a compliance framework. Through automation, lenders can easily cross-check regulations, approve or deny collection strategies, and update their system quickly.

NeuAnalytics has the solutions for setting up a compliance framework. Its foundation is compliance, which gives lenders the confidence to trust third-party vendors.

NeuAnalytics solutions are also adaptable to law firms, whose legal practice includes delinquent debt collection.

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NeuAnalytics Can Help Your Organization With Compliance and Workflow Management

Whether you want to reduce your compliance risk, improve your accounts receivable liquidation rates, or modernize your fraud, disputes, and complaints handling, the experts at NeuAnalytics are standing by.

NeuAnalytics is unique in the industry because it provides a single platform to integrate business process management with compliance monitoring. Request a Demo and schedule your free 1-hour assessment today.