Keeping your collections operation compliant

Ensuring that your collections operation is compliant with the various state and federal regulations is no easy task. You’re required to have policies and procedures in place to ensure that your team is operating under the law, and processes to identify situations in which guidelines are not being followed so that you can address and correct any issues or potential violations.

Financial institutions, large and small, are more vulnerable than ever to regulatory scrutiny. The main culprit is the “potential” compliance scrutiny they face from state and federal regulatory audits. In this article, we’ll address the problems lenders face within the realm of compliance, and provide tips on identifying potential violations.

There’s No Getting Around Compliance in Collections

Let’s begin by addressing a couple of the “facts of life” for lenders: Lending inevitably leads to collections, and collections inevitably leads to additional compliance obligations.

Whether lenders manage their collections completely in-house, outsource a portion, or outsource all of their collection work, maintaining compliance with the various federal and state laws is critical in order to avoid legal action, regulatory fines, and a loss of reputation.

The best way to stay out of trouble is to be well informed. Let’s take a look atthree specific regulations that are most relevant to the compliance industry.

Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs)

This overarching and comprehensive set of legislation prohibits firms offering financial services from engaging in unfair, deceptive, or abusive acts or practices. This has been of particular concern in the collections business, where it is essentially the consumer who determines if they’ve been treated unfairly.

For a collection operation, the best line of defense against UDAAP violations is to be proactive. The first step in preventing UDAAPs (and remaining compliant with all collection regulations) is to ensure you have a well-documented, formalized policies and procedures manual. A well-defined manual gives your collections staff a guide and reference for expectations and guidelines. It should be organized, repeatable, and easily accessible to all necessary personnel.

Fair Debt Collections Practices Act (FDCPA)

The FDCPA was designed to eliminate abusive, deceptive, and unfair debt collection practices by collection agencies. The act restricts the time and frequency of calls, as well as the tactics available to a collector. It also requires certain conduct of debt collectors, like providing verification of debt and giving the name and address of the original creditor.

Collection operations have one job when it comes to the FDCPA—make sure collectors are properly trained and certified, and are operating under the rules for every borrower interaction. Proper training would cover the guidelines under which debt collectors may conduct business, define rights of consumers involved with debt collectors, and prescribe penalties and remedies for violations of the Act.

Telephone Consumer Protection Act (TCPA)

The TCPA was enacted to protect consumers from unwanted telemarketing calls. Regulators have expanded the protections over the years, to include restrictions of cellular phone calls. Companies found in violation of TCPA rules pay dearly, with fines of $500 to $1,500 per violation. According to JDSpura, “In 2018, TCPA lawsuits remained one of the most filed types of class actions in courts across the country.”

Minimizing TCPA violations requires thorough and on-going employee training and technology. Having technology in place that scrubs cell phone numbers from calling lists can greatly reduce the chances of calling an unauthorized cell phone number.

Compliance has become an even greater priority for lenders and collection agencies because consumer behavior has shifted. Consumers are digitally connected, more informed, less loyal, and more demanding. And, they’re not afraid to voice their complaints in places like the Consumer Financial Protection Bureau (CFPB) online forums. These forums give consumers a quick and easy way to voice their complaints about things like debt collectors.

Have you evaluated your financial institution’s collections operation lately?If you’d like to learn how outsourcing some or all of your collections work to us could not only put you ahead of the regulatory curve, but help you reduce delinquencies and increase collection cure rates, download our collections comparison guide today!