The inefficiencies and insecurities inherent in handling content have never been more complex for debt collectors.
While there has always been a fairly high level of inefficiency in content management when it comes to collections, new guidance required by many states have made those issues ever more ominous. Not only are processes wonky, but they also open up creditors and collectors to an increase of risk with unsecure systems and processes. Requests for documents, moving from creditor to collector and collector to customer, are at increased risk of being lost, stolen, or otherwise compromised.
Regulation F Drives Rise in Requests
On November 30, 2021, Regulation F went into effect. The regulation provides new guidance from the Consumer Financial Protection Bureau (CFPB) regarding communication to consumers about the information surrounding the debts sought by collectors and dispute handling procedures.
As Regulation F has come into use, many states have established new rules about the content used in collections and how to make documentation available to consumers. As with many guidelines around collections, there can be a wide variance in how states approach or add to the federal regulations. In addition, local jurisdictions can impose their own guidelines, adding further complexity and increased need for risk management strategies.
The CFPB provided a model validation notice form under Regulation F, which replaces the initial demand letter that was commonplace in collections procedures. While its use isn't mandatory, the CFPB provides a safe harbor against consumers claiming certain types of misrepresentations when agencies use the model form. The model validation notice has several criteria:
- The notice must be clear and conspicuous, with written and electronic disclosures written legibly and with reasonable font size. Oral communications must be at a sufficient volume and speed for a consumer to hear and understand
- The initial notice must contain specific information that must be disclosed to the consumer, including a balance breakdown, and an itemization date, which can be one of the following:
- Judgment date
- Charge-off date
- Last payment date
- Last statement date
- Transaction date
Regulation F requires inclusion on the model validation notice of several categories of information, including:
- Debt collection communication disclosures
- Debt-related information
- Itemized information
- Information about what consumer protection is available
- Information about consumer response
The model validation notice contains several items allowing the consumer to request additional information. For example, the consumer may ask for the name and address of the original creditor if it’s different from the current creditor. In such cases, if the consumer asks for such information, the creditor must cease all collection activity until the information is provided.
There’s also a tear-off form at the bottom that can be used to request the name and address of the original creditor. The tear-off form also allows the consumer to dispute the debt by indicating they believe the debt is not theirs, the amount is wrong, or indicate another reason for the dispute.
It's here that content management comes into play. In collections, content management is the process used to maintain the documents initially executed between the creditor and consumer, as well as ongoing statements and communication with the consumer. It also refers to the information required to forward accounts to third-party vendors with proof necessary to collect a debt or help consumers understand the basis for the debt.
Practices in Place, Both Past and Present
There are very good reasons why documentation is an essential component of collections management. Dispute management is often difficult, heated, and complex when it comes to proving debt. That’s why consumer protection laws are in place that allow consumers the right to proof of, and documentation verifying, the debt in question.
A failure to provide the information that consumers are legally entitled to can be a costly matter, leading to legal cases and fines if a debt collector continues to pursue debt without providing adequate information.
Even if the collector were to claim that its actions were unintentional or in error in an attempt to shield itself from liability, the creditor and the collector will likely need to demonstrate that there were procedures in place to prevent those errors from occurring. Systemic failure by a creditor to monitor third party collection vendor activity, could potentially subject it to regulatory fines through vicarious liability
In today’s collection landscape, consumers have the right to access the documentation from creditors that outlines and verifies the debt they owe.
In a typical situation, a third-party collection vendor contacts the creditor with the validation of debt (VOD) request. Usually, this request is made via email.
The creditor must then find the appropriate files and documents to find the requested information. That information is then returned, again, usually by email.
The system used today is slow and painfully inefficient for both sides. It also introduces extraordinary levels of risk into the process. Emails can be insecure and can easily be intercepted. With each email sent containing sensitive information, both the creditor and collector are opening themselves to unnecessary risk. Furthermore, items sent by regular mail add additional time and increased risk to the process.
In the meantime, all collection activity is stalled, adding expense to vendors and creditors and longer lag times of no communication for consumers.
Efficient SaaS Solutions for Creditors, Vendors, and Consumers
Regulation F requires dramatic changes to business processes. It also introduces a new element of compliance for creditors and third-party vendors involved in collections management.
Risk management is front-of-mind for creditors today, now being tasked with balancing the ongoing pressure and expectations of performance metrics while managing risk at an acceptable level. Liabilities can be severe if there are gaps in a creditor or debt collector’s compliance management systems, processes, and procedures.
The presence of Dodd-Frank regulations, among others, has become increasingly burdensome. However, the cost of non-compliance is even higher.
Compliance failures can lead to individual legal actions or class action lawsuits that can dramatically multiply the financial risk for third-party collections vendors. It’s the smart business solution and reasoning for why creditors and debt collectors need a dynamic, secure, and clear process for risk management.
Failure to comply can lead to action taken by the CFPB, including six- and seven-figure penalties. In the last 10 years alone, the CFPB has levied civil penalties of $1.7 billion and civil relief for American consumers totaling $14.4 billion.
In 2020 alone, the number of enforcement actions taken by the CFPB rose to 48 from 22 in the previous year. To compound the potential pain inflicted by such fines, each consumer-related incident can have multiple cases associated with it. In addition, the CFPB has been staffing up with attorneys over the past year, which points to the intent of an increase in overall examinations and likely downstream fines being levied.
However, the guidance is not only a federal issue. As noted above, states can pass their own regulations when it comes to collections practices. These practices can differ greatly from the federal guidance, yet must also be adhered to in parallel, further cementing the importance of having compliance and content management systems in place.
If a third-party vendor operates in one of the states with its own regulations, it is bound to follow those state guidelines. State regulations can call for variances in how frequently consumers can be contacted about debt, the channels used for those outreaches and the timeframe of collection activity.
Examples of state regulations differing from federal guidelines include:
- Regarding disclosure and verification information, the state of Arkansas disallows the design of forms and other correspondence that create a false belief that a person other than a creditor is participating in the debt collection.
- On July 1, 2022, a new California Regulation will go into effect relating to debt assigned to a collector and the documentation collectors must have access to prior to initiating collection activities. The new regulation also requires an additional disclosure in the initial demand letter relating to records and documentation the consumer may request.
- In September 2021, the District of Columbia amended their debt collection code to say that before attempting to collect a debt, the collector must possess certain information relating to the debt, including an itemized accounting. For credit cards the itemized accounting includes the last 24-months of statements. All of this information must be provided to the consumer in writing within 5-days of the initial communication, and collection shall cease until provided.
A solution that can expedite document requests, store and deliver debt-related information securely, and provide transparency is the right approach.
A robust content management system for collections helps alleviate several pain points, especially considering the new Regulation F, state, and local guidelines. Among the key benefits are:
- Tracking Legal Requirements. With a cloud-based receivables management system in place, third-party collections agencies can ensure that all requirements can be managed and processes adhered to specific mandates. By tracking the legal requirements of each jurisdiction, agencies are able to streamline and manage time-consuming manual procedures
- Live Records. By instituting a receivables management system solution, you can create live records of engagements with consumers. Software can track, record and store engagements - comprehensively leading to better customer experiences, easier ways to track engagements and accurate records that can be used to refute allegations in complaints or legal cases
- Faster Outcomes. With automated processes within a receivables management system, document management can be expedited. Documents can be stored at the outset of acquisition, eliminating some of the back and forth that occurs presently between consumers, third parties, and creditors. By speeding up the process, less time lapses between requests and fulfillment, driving historically idle collections activity to produce increased resolution rates and/or more revenue
- Organization. With enhanced document accessibility in an organized system, operations inherently become more streamlined as a result. Better management and electronic filing systems allow for easier training of new employees and seamless engagements with customer service agents should consumers want to follow up on inquiries.
NeuAnalytics - Solutions Built on Compliance
The NeuAnalytics Content Module
At NeuAnalytics, we offer content management solutions that provide for the secure collection and sharing of information required by the new federal Regulation F and other federal regulations, as well as state and local requirements.
NeuAnalytics makes content management and distribution seamless, efficient, and secure. The content management system is robust and designed to make document handling and requests convenient and efficient for creditors and vendors alike.
With NeuAnalytics, creditors and vendors can use our secure platform to access files and documents in one space.
- Creditors can upload documentation directly and electronically into the NeuAnalytics Platform.
- Documentation is available to vendors handling those specific accounts using a secure login procedure.
- Creditors can set permission levels for vendors, determining which third-party collection agencies have access to which accounts.
- Vendors can access the documents immediately after receiving a request for verification from a consumer.
- As accounts roll from one agency to another, there is no need to re-send verification of debt documentation to subsequent agencies. Access permissions within the platform move from “Agency A” to “Agency B” and the documentation will be available to subsequent vendors
- Vendors can make one-off requests for specific documents from the creditor within the platform. These inquiries are secure, and transfers are handled quickly and easily. The inquiries can have Service Level Agreements applied to ensure nothing gets ‘lost’. Requests are also viewable in a dashboard to quickly see those that are nearing the Service Level Agreement (SLA)
- Creditors can have vendors provide content upstream as well, for example to review audit samples, retain form documents, or even an entire population of letters sent to consumers.
Processes that had previously taken days and weeks can now be resolved in mere minutes!
Once a creditor uploads its records into the NeuAnalytics platform, our system goes to work validating and sorting the information. The self-service functionality is intuitive and easy to learn and use.
By using our embedded importing and exporting features, logjams are eliminated, and consumers gain resolution to inquiries quicker. The speed, accuracy, and security of NeuAnalytics’ solutions allow for faster collections, reduced risk of compliance missteps, and more revenue.
Additional Tools Available in the NeuAnalytics Platform
Our Enterprise Receivables Management System helps you gain insights into the state of your receivables, from accurate daily balances to settlements and payment plans.
With daily monitoring of your collection agency’s activities down to account level, our performance reports provide the insights needed to better manage your network and optimize their activity, yielding an average 25% increase in gross dollars collected within the first 12 months. You can be sure your agencies are performing to your work standards and dedicating time and resources to your accounts.
The NeuAnalytics Enterprise Receivables Management System also allows creditors to dynamically model and predict the best collection strategy for each account, effectively placing accounts with the vendor best apt to produce the highest yield, ultimately leading to increased performance overall.
NeuAnalytics is the industry leader in operational risk and compliance management. Our solutions provide the world’s leading creditors with comprehensive business intelligence while continuously monitoring for compliance.
The NeuAnalytics Compliance Management System allows your staff to holistically manage compliance, down to the individual consumer level. It is a powerful set of tools for determining if vendors are acting on your behalf in compliance with the, at times, an overwhelming multitude of federal, state, and local consumer protection regulations.
With NeuAnalytics, you can avoid compliance-related fines and penalties that can result in reputational damage to your brand.
Every creditor using the NeuAnalytics Compliance Management System has successfully experienced a 100% audit pass rate from the CFPB, FDIC, and OCC since onboarding with us. With the solution in place, creditors can handily eliminate 99% of their operational risk in the first 90 days of use alone.
Fraud, Disputes & Complaints
A single, seamless case management system allows your specialty servicing organizations to streamline critical workflows within fraud, disputes, and complaints.
By tracking frauds, disputes, and complaints within one platform, you can better determine root causes, create action plans, and effectively reduce the time to resolution by over 25% for both your internal teams and customers alike.
To learn more about NeuAnalytics solutions visit our website neuanalytics.com.