Continuing my Receivables Management Association International (RMAI)’s Certified Receivables Compliance Professional (CRCP) training brings us to the first installment of my article on their Introductory Survey Course on Debt Buying. This course is their chief component of becoming certified, and although the word introductory may cause some seasoned professionals to overlook these articles, not only is the regulatory landscape constantly changing, the information contained in this presentation and articles can be construed as somewhat basic but extremely crucial to compliance and excellence in operations.
In this first article, I’ll highlight some historical perspective for our industry but most importantly, discuss best practices and due diligence to help ensure compliance in our receivables management industry.
Debt Buying through the Decades
Wow, what a long journey it’s been for our industry over the decades! As our industry has evolved, we’ve learned so much about best practices. While various market conditions have changed the price and availability of debts for purchase, currently, we are chiefly affected by the Consumer Financial Protection Bureau’s (CFPB) regulations and rules, which has increased our cents per dollar on charge-offs for debt buying to all-time highs while subsequently reducing. To best work within this sphere, sound decisions on purchasing, which include no impulse buying of debts, buying from trusted and known sources, and thoroughly vetting and back-checking all debts are essential elements to maintain industry integrity and your bottom line in the long run. However, chiefest among the important caveats to follow for our industry is being certified yourself and, ideally, only working with certified individuals. Becoming certified, as I am currently doing through Receivables Management Association International (RMAI)’s Certified Receivables Compliance Professional (CRCP), is extremely important so that you cannot only work in an arena with less or no debt buying scams but also so that you can play a part in helping self-regulate our industry. If the professionals working in our industry self-police with best practices and compliance as their chief operating principles, regulation by the government through the CFPB can largely be hands-off, saving tax-payer money and our own time and energy as we perform our work.
Portfolio Evaluation and Due Diligence
Whether you’re a new debt buyer or the long-term compliance professional for your business, reading Receivables Management Association International (RMAI)’s Governance Document is an essential step to knowing how best to do our jobs ensuring compliance, thus protecting yourself and your business. Knowing the right questions to ask and what due diligence needs to be done to protect yourself and your business is essential to not only maintain compliance but help your bottom line as well.
While installment loans, consumer and business credit cards, and commercial leases are still the top three types of asset classes, peer-to-peer lending, auto installment loans, tax liens have become new asset classes debt buyers are turning to as our industry grows and changes. Mixed portfolios are common, so making sure you’re aware of all aspects of the portfolio you are buying, including whether you’re buying an “as-is” or standard reps and warranty file is the first line of information to understand what you’re buying. For instance, are there bankruptcy and deceased debtors included in the file, fraud accounts, verification of data in hard copies, do you have the ability to close and return uncollectable accounts? All these questions are important to ask to determine the level of debt present in a given portfolio prior to purchase.
Regardless of the type of debt, portfolio evaluation, and developing a plan to handle the debt prior to purchasing is arguably the most crucial step of our jobs. Scoring and segmenting accounts in a portfolio awaiting purchase is a very important way to understand what type of debt you will be working with. Additionally, knowing the strategy you will use to collect, whether legal or straight collections operations, is another important factor prior to purchasing any portfolios. This is largely due to the Office of the Comptroller of the Currency (OCC) restricting the amount of debt that can be litigated versus simply collected upon. The OCC left the term restricted intentionally vague, opening up additional potential litigation if due diligence to investigate what portion of the debt could be litigated could be construed as contestable.
Part of the portfolio evaluation includes looking at dates and demographic info. Aside from this basic information, similar to the information I discussed in my Lessons Learned in Debt Buying article, this Introductory Survey Course highlighted the importance of knowing the seller. While of course, an established relationship with a seller is a surer way forward, adequate vetting of the seller, documentation availability, post-sale customer service, and availability of a seller survey are all important aspects to consider as the buyer. If your seller doesn’t have a “Seller Survey,” (essentially a Frequently Asked Questions regarding a debt), you as the buyer should get these questions answered prior to purchasing any debt. Examples of important questions to be included in a seller survey include agency level, whether 1099’s were issued, what the charge off policies are, has there been scoring done prior to sale, are there representations and warranties, and geographic and demographic considerations are all basic aspects to consider; however, the more information you obtain, the better outcome you’re likely to have.
To keep both yourself, your employees, and your business above board, receiving and keeping masked consumer debt data as well as keeping these data secure is essential. Aside from simply masking data within your organization, it’s important to make sure to keep and transfer data securely, don’t disclose any data publicly and ensure encryption on your website, and, as I alluded to in my IT Disaster Recovery Plan article: have a plan for security breach and/or data loss. Additionally, another essential aspect of any debt buying is ensuring that there is a chain of title. Another important standard to consider is your insurance level. Ensuring that you are adequately protected to cover all aspects of your assets by meeting both the minimum amounts to ensure compliance and also appropriately mitigate your loss risk for premiums upfront versus potentiality of pay-out, or cost of protection versus cost of liability.
Additional considerations in buying any debt are considering post-sale issue risk mitigation. Sometimes, post-sale issues, such as a discrepancy of a direct payment date cannot be known prior to purchasing a debt, other post-sale issues can be avoided by due diligence. These supposed post-sale issues such as open litigation against a seller, account recalls, seller longevity, and documented agency requirements all can be vetted prior to a debt purchase with adequate due diligence and portfolio evaluation.
Disclaimer
This information is not legal advice and may not be used as legal advice. Information discussed or contained is not an explanation of the law and is presented for educational purposes only.
