FICO stated recently that it is no secret that debt collection practices are under increasing regulatory scrutiny. Tougher regulations are likely to follow.
In 2013, according to the Federal Trade Commission (FTC), debt collection had the second-highest number of all consumer complaints reported. Each year, the FTC releases a summary report detailing the complaints reported to its Consumer Sentinel Network (CSN), an online database available only to law enforcement. Last year, the CSN received more than 2 million consumer complaints from numerous federal and state agencies, US and Canadian Better Business Bureaus, and consumer organizations.
The FTC report also revealed that the number of debt collection complaints (10%) was the second highest, behind only identity theft (14%). However, identity theft complaints had declined a significant 20% from 2012, while debt complaints rose by 2.5%. In addition, the report’s state-by-state breakdown shows that in nearly every state, debt collection complaints were either the highest or second-most reported category.
A recent study by US PIRG Education of consumer complaints to the Consumer Financial Protection Bureau (CFPB) also reinforced the growing frequency of debt collection complaints from consumers. Looking at July 2013—when the Bureau began receiving debt collection complaints—through January 16, 2014, PIRG noted that debt collection represented the second-highest volume of complaints behind those related to mortgage. During that timeframe, the CFPB received an average of 2,000 debt collection complaints per month.
In a third debt collection-related report, released several weeks ago by the CFPB, the Bureau confirmed that debt collection concerns now comprise the largest monthly source of complaints it receives.
While the CSN and CFPB complaints represent a relatively small percentage of the approximately 30 million Americans with debt in collections, the increase in complaints cannot be ignored. One has to keep in mind that the complaints inform regulators of problem areas that need to be addressed.
Besides engaging in the rulemaking process, it’s equally important to manage and resolve customer concerns internally before consumers take further action. FICO and others are working with clients to implement analytics and automation that help address various regulatory challenges, both in the US, as well as abroad where conduct risk has become a central regulatory focus.
In spite of the poor reputation of the industry it is noteworthy that Equifax has recently acquired three collection software companies (Inffinix – Mexico; Forseva LLC – USA and TDX – United Kingdom).
Equifax will be the only consumer credit bureau in the UK to be able to offer an end to end solution from loan origination to debt management and collection to its customers. Credit bureaus have tended to shun the ownership of such organizations primarily because of reputational risks associated with the area. Quite how the market will react to this move by Equifax is difficult to say at present.
Credit Bureaus have been dealing with tight regulations for a long time and they may be better equipped to handle the sensitivities of consumer collections.
Source: Bankinganalyticsblog.fico.com and BIIA assessment