Making the decision to outsource some or all of your financial institution's collections work is no easy task. Even when you recognize that your internal staff does not have the time, resources, or ability to efficiently keep delinquencies low, it can still be difficult to trust a third-party vendor, particularly in this day and age of cyber breaches and regulatory scrutiny. Sometimes, after weighing all of your options, outsourcing collections may be the best business decision. In many cases, third-party vendors who specialize in collections have the staff and resources to dedicate 100% of their time to curing your delinquent accounts—oftentimes at a less expensive rate than your team can accomplish in-house. However, if you've decided to take the next step and work with an outsourced collections provider, there are a few questions you should ask before you sign on the dotted line.
1. Are you properly licensed?
This seems like a no-brainer, but it is a common question that can be overlooked. Each state requires different licenses, bonds, and/or fees for third-party collectors, and it's critical that the vendors you are considering are properly licensed to help ensure your institution does not come under regulatory scrutiny.
2. What is your staffing model like?
When it comes to collections, it's hard to determine which is more important—technology or staff. Technology, such as an auto dialer, can give a collection operation the ability to make multiple call attempts to every one attempt that a collector could make on a traditional phone; however, without the human being on the other end of the line, the technology is ultimately useless. It's important to understand the staffing model that the vendors you're vetting deploy. For example, how do they leverage scalability to be as efficient as possible? Do they employ full- and/or part-time staff? How do they use their staffing model to their advantage to ensure the highest possible right-party contact rates?
Related reading: Three Cost-Saving Benefits to Outsourcing Collections
3. What kind of training does your staff undergo?
I'd argue that the kind and frequency of training an outsourced collections provider gives their staff is just as, if not more, important than the staffing model they deploy. A first-party collector is essentially speaking on your behalf, and the last thing that you want is for an untrained third-party employee to be threatening or insensitive to one of your delinquent borrowers.
A first-party collector is essentially speaking on your behalf, and the last thing that you want is for an untrained third-party employee to be threatening or insensitive to one of your delinquent borrowers.
Not only would that be a reputational risk, but if the consumer files a complaint, you could ultimately be held liable. At the very least, our organization recommends that collection staff have training in the following areas:
A. Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)
UDAAP prohibits firms offering financial services from engaging in unfair, deceptive, or abusive acts or practices. According to the CFPB, an unfair act or practice:
Causes or is likely to cause substantial injury to consumers;
The injury is not reasonably avoidable by consumers; and
The injury is not outweighed by countervailing benefits to consumers or to competition
While it is certainly difficult for any collection operation to fully understand what constitutes an "unfair," "deceptive," or "abusive" act, a well-trained collection staff will have a thorough understanding of their expectations under UDAAP when dealing with borrowers, will know how to identify potential complaints, and know what steps to take in order to resolve complaints.
B. Fair Debt Collections Practices Act (FDCPA)
The FDCPA was enacted to protect consumers from abusive, deceptive, and unfair debt collection practices, particularly from third-party debt collection agencies. It also restricts the time and frequency of collection calls, and provides guidelines for acceptable, and not acceptable, behaviors by debt collectors. This law is particularly critical for a collection staff to be properly trained. In fact, our team of collectors are given two chances during their onboarding and training process to pass the required FDCPA training and become certified. If they are unable to do so, unfortunately, they are terminated. While this is obviously not an easy decision for our management team, managing our clients' risk is a top priority to our organization.
C. The Telephone Consumer Protection Act (TCPA)
To protect consumers from unwanted and/or harassing telemarketing, the Federal Communications Commission enacted the Telephone Consumer Protection Act (TCPA), which expanded to include debt collection calls. To prevent or reduce TCPA violations, outsourced collection staff should be thoroughly trained on all aspects of the law, and continuously monitored to catch and correct violations.
3. What other compliance controls do you have in place?
Staff training is a critical component of compliance, but there are several other things that a diligent, proactive outsourced collections provider should do to ensure they remain compliant with current and future regulations. Some examples include:
No cell phone on premises policies for collectors
Clean desk policies for collectors
Documentation policies and procedures for consumer complaints
Regular internal audits
Access to—whether in-house or via a third-party consultant—a compliance team to provide guidance, best practices, and policies and procedures
4. How do you gain access to my institution's delinquent accounts/borrower data?
There are essentially two ways for outsourced collections providers to gain access to your borrowers' data—they can VPN directly into your core system, or via secure FTP. It's critical to understand how this data is exchanged because with the former method gives multiple people outside of your institution access to your borrower’s sensitive PII, increasing the risk of fraud and potentially exposing you to cyber attacks and hacking.
5. How flexible are your services?
Not all collection operations are created equal, and not all lenders are looking for the same thing in their outsourced collection providers. Some lenders only need assistance with their early-stage accounts, while others need a partner for late-stage collections and or skip tracing. The key is to find a collections provider that can work to meet your specific needs.
6. What kind of reporting do you provide?
An outsourced collections provider is only as valuable as the reporting they provide. After all, if they aren't providing robust reporting to demonstrate to you how many calls they're making, their cure rates, queue averages, payment activity, etc., how can you fully understand how well your portfolio is performing? Preferably, look for an vendor that can provide customized reporting—or at the very least, give you enough information in their reports to give you a full 360-degree view of their performance.
Vetting vendors is certainly not a quick or easy process. It requires thorough due diligence, but in the end, when you take the time to find the right outsourced collections provider for your institution, it will be well worth the time and effort.
Learn more about in-house vs. outsourced collections. Download the collections comparison guide today!