Customer Service – When Less May be More

Traditionally, “customer service” meant paying more attention to the consumer. However, in some cases it may actually mean paying less attention – at least from a human to human perspective. A different form of service is increasingly being requested – self-service.

At one time, customer service representatives were the primary provider of information and consumers needed to contact them as a key source for that information. Now that same information is often just a click away. Additionally, a company representative was almost always needed to complete a transaction.

Now when shopping, many consumers choose to place their own orders online versus going to a store or placing a phone order. Time of day may be a factor.  With varied working hours many consumers appreciate that they can conduct business when they want – regardless of the operating hours of the company they are dealing with. Often a consumer wants to “browse” without a company representative continually asking questions or trying to “close” the sale. Or maybe the particular situation just makes person to person interaction the less desirable option. A person may be happier handling things themselves.

Credit Consulting Services realizes that well trained customer service representatives are an important part of successful consumer relations, but that it also makes sense to provide self-service as another option for consumers needing to make or arrange payments on their own schedule.  We offer both the ability to pay online and the ability to arrange payments through our Virtual Payment Negotiator. Consumers that have had their debt assigned to us may now negotiate and/or make payments without any direct person to person contact with one of our financial counselors.

Whereas at one time self-service meant sacrificing some level of service to get a lower price (think back to the origination of pumping your own gas), now self-service may actually be the desired choice. If that’s the case for you – we’ve got you covered!

The Importance of a Credit Policy Review

credit-policy-reviewWe talked about the Consumer Financial Protection Bureau and their proposed rulemaking for the debt collection industry in an earlier post. It is important to note that this proposed rulemaking will affect not just debt collection agencies; it will also affect the original debt owner – the creditor. The CFPB is focusing on data integrity to make sure collection agencies are receiving accurate data from their clients before they begin the collection process.

The CFPB states that “the most common debt collection complaint received by the Bureau concerns collectors seeking to recover from the wrong consumer or in the wrong amount.” They further state that they believe this stems in large part from “substantial deficiencies in the quality and quantity of information collectors receive at placement of the debt.”

Before you send a debt to collection, the CFPB is now going to require that you be able to substantiate the debt. That means having complete billing information on all responsible parties, as well as an accurate description of charges. Backup documentation, such as any signed agreements or statements sent, also need to be carefully maintained. You need to make sure all of this information is complete and accurate before you turn the account over for collection.

CCS has always placed a big emphasis on the quality of information. Our onboarding process allows us to identify the type of data elements our clients are capturing and make sure these elements are being passed on at time of assignment.

We encourage all of our clients, from the outset of our relationship, to begin with a Credit Policy Review. If cash flow is the life blood of a business, an effective and up-to-date credit policy is the heart that keeps the blood pumping. CCS helps clients analyze the entire billing cycle and its effectiveness. We look at:

  • Risk areas
  • Credit terms
  • Credit agreements
  • Information systems
  • Collection methods
  • Follow-up procedures

A thorough review will allow a client to update their credit policy in order to make educated decisions on extending credit and enforcing credit policies. Equally important, in light of the CFPB proposed rulemaking, a review of the information systems will ensure that full and accurate data is being collected. And accurate data is the key to right party contact during the collection process.

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How to Choose a Collection Agency

teamCreditors should be looking for a partner that will be the best collection agency for their accounts. But often, as discussed in this article in Collector magazine, a flawed Request for Proposal can make the decision making process less successful. Here are six problems industry insiders frequently see, and how to solve them.

  1. Out of place, boilerplate language. You wouldn’t use the same RFP when choosing a tree-trimming service that you would when choosing a collection agency. But all too often, those documents look very similar, containing a lot of questions that do not apply to the bidder. Collection services are pretty specialized, so you and the agency will benefit if you streamline the document and be specific about what you need from a collection agency.
  2. Asking about company size. Asking an agency how many employees they have, or how many employees would be dedicated to their account, will not necessarily give you a clear idea of how much work they can do for you. These days most collection agencies rely on sophisticated technology to automate work and streamline tasks. Better questions to ask would include;
    1. What is your average total number of accounts placed per month?
    2. What is your average daily outbound call rate?
    3. What is your meaningful contact rate?
    4. What is the average number of accounts per collector?
  3. Failing to provide essential information. It is a huge misconception that the less an agency knows about a creditor’s collection history and average account balance, the lower they will bid. In fact, the opposite is true. Without this kind of information, the agency is likely to bid high, because the accounts could turn out to be unprofitable. This will force them to be cautious.
  4. Overreliance on recovery rate. It makes sense to ask an agency about their recovery rate, but it is a very difficult number to pin down. Recovery rate will vary from agency to agency simply based on their client list. Collecting on accounts for a huge healthcare system is going to yield very different results from collecting on accounts for a small physician’s office. It is a good idea to ask the agency how they calculate their average recovery rate. But perhaps a more meaningful gauge would be to talk to references: find out what their reputation is with their own clients.
  5. Blinded by fees. Don’t make the mistake of letting the low bidder knock out all the other applicants. Experience and qualifications count for a lot. What really matters is how much you are getting back for every dollar spent. Lower fee and higher recovery rate rarely go together.
  6. Not validating compliance and data security. Don’t just ask if an agency observes state and federal regulations. Insist on certain standards, and detail what data security requirements and audits agencies must have to get the contract.

CCS has a proven track record in a variety of industries. We customize our services to our clients’ needs, and offer everything from pre-collection letter services, to training, billing/early out, credit policy review, debt collection, and payment processing/merchant services.

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Cost of Living Outpacing Income

budgetWe took a look at NerdWallet’s 2016 American Household Credit Card Debt Study recently, which shows that overall US household debt has increased by 11% in the last decade. The increase is not driven by profligate spending, but by basic cost of living increases that have outpaced income growth. Medical and housing costs, in particular, are growing at a much faster pace than income. Consumers find themselves relying on credit cards to make ends meet. Households with credit card debt average $16,061 in balances, which costs them about $1,300 a year in interest.

According to the study, household income has grown 28% since 2003, but medical costs have increased by 57% and food and beverage prices by 36%. Overall, cost of living has increased 30%, compared with income growth of 28%, and while that 2% gap may not seem that significant, it can be a huge burden on many Americans who must take on more debt to bridge the gap.

The good news is that education costs have plateaued, and while student loan debt has grown tremendously in the last decade, it is finally slowing down. More students are now opting for nonprofit public universities and colleges rather than the pricier for-profit schools, and some are bypassing college and entering the workforce.

It is NerdWallet’s opinion that the increase in credit card debt does not point to another recession. According to Sean McQuay, NerdWallet’s Credit and Banking Expert, “By all measures, consumers are handling their debt far more responsibly than they have in years past, likely due to a combination of issuers tightening their lending rules and consumers paying their minimums more responsibly.”

Credit Consulting Services plays an important role in debt management for both the creditor and the consumer. Of course we assist creditors in collecting money owed to them by consumers, but we also attempt to educate consumers about the importance of making timely payments, and assist them in learning how to make a plan to get out of debt. Together, we can navigate the tricky waters of the ever-changing economy.

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Credit Delinquency Rising in 2017?

new-carsUS consumers accumulated a record-setting $21.9 billion in credit card debt in the third quarter of 2016, the largest third quarter debt increase since 2007, according to the latest Credit Card Debt Study: Trends & Insights from WalletHub. What is even more concerning is that TransUnion’s 2017 Consumer Credit Market Forecast indicates that delinquency rates for credit cards and auto loans are expected to increase in 2017.

Although delinquency rates are still relatively low compared to the recession years, it is something to watch closely. An increase in subprime lending in Q3 2016 (volume grew by 14.7%) brings with it risks as well as rewards; an increase in card delinquency is a natural result of more subprime consumers entering the market.

Another factor poised to impact delinquency rates is the fact that credit card interest rates may rise as a result of prime rate increases. For consumers carrying a balance on their cards, monthly payment amounts will increase because of the higher interest rates, upsetting what could be a delicate balance in their budgets.

Serious delinquency rates for credit cards and auto loans have also been increasing since fourth quarter 2014. TransUnion defines serious delinquency as 60 or more days past due for auto loans and 90 or more days past due for credit cards.

According to Nidhi Verma, senior director of research and consulting in TransUnion’s financial services business unit, “These projected increases in delinquency are not surprising, nor are they yet a cause for concern. Lenders are adjusting their underwriting strategies to maintain a good balance between expected losses, consumer credit access, customer utility and investor returns—and in the end, that balance is a benefit to all parties.”

We here at Credit Consulting Services will be keeping a close eye on these trends.

Consumer’s Credit Access Experiences and Expectations Decline

bigstock-male-hand-showing-credit-card-19469411The Federal Reserve Bank of New York released results from its October 2016 Survey of Consumer Expectations (SCE) Credit Access Survey, and the news is not good.

The Credit Access Survey is a component of the SCE that measures consumers’ expectations and experiences concerning access to credit, such as:

  • The likelihood of applying for a credit card over the next 12 months;
  • The likelihood of rejection of a credit application;
  • The likelihood of rejection of a credit limit increase;
  • The likelihood of rejection of a mortgage or mortgage refinance.

The results of this part of the survey are released every four months. This October 2016 release showed what the Fed termed a “deterioration” in consumers’ experience in the credit market since June, with rejection rates returning to levels last seen in February 2015. Not surprisingly, the percentage of respondents likely to apply for credit over the next 12 months declined to 27.8%, the lowest number since the survey began in October 2013.

Another component of the Credit Access Survey consists of a question that has been asked of respondents since December 2013: “What do you think is the percent chance that you could come up with $2,000 if an unexpected need arose within the next month?” Researchers from the Fed say: “The question is similar to one used to assess the financial fragility of households in the United States and in other countries. The average response to this question in our December 2013 survey was 57.3 percent, and had risen to 65.9 percent in October 2016.”

They are quick to note, however, that the number masks a disparity between higher-income households and lower-income households. Of households with an annual income over $100,000, 85.5% could come up with $2,000, as compared with 47.7% of lower-income households (those with an annual income less than $50,000.)

For complete details on the Credit Access Survey, check the Fed’s website.

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Access to Credit Builds Consumer Confidence

tight-moneyFast on the heels of the release of the CFPB’s Proposed Rule, which could effectively shut down the small dollar lending market, comes the news that consumers’ spending expectations dropped, after an upswing in September. Perhaps not surprisingly, there was also a decline in consumers’ outlook on credit availability in the year ahead, according to the Federal Reserve Bank of New York.

The New York Fed’s Survey of Consumer Expectations is a monthly, internet-based survey of approximately 1,200 household heads. It contains insight about how consumers expect overall inflation and prices for food, gas, housing, education and medical care to change over time. It also provides Americans’ views about job prospects and earnings growth, as well as their expectations about future spending and access to credit.

Access to credit is a practical necessity in today’s economy. Many consumers increasingly need credit, not for frivolous purchases, but to cover basic, everyday needs. The CFPB’s paternalistic attitude toward “protecting” consumers from the encumbrance of small dollar loans misses one very important point: denying access to credit does not make the need for credit go away. Removing a legitimate, albeit expensive, source of credit will just force consumers in great need to look elsewhere – possibly driving them into the arms of less scrupulous lenders.

The Survey of Consumer Expectations is one of the methods used to measure consumer confidence. Access to credit is a very basic factor in building consumer confidence, and should be available to all socio-economic groups.

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CFPB’s Payday Lending Rule Could Block Consumers’ Access to Small Dollar Loans

We here at CCS understand, perhaps better than most, the important role credit plays in the economy.  Consumer borrowing fuels economic growth. Credit, when used responsibly, allows consumers to spend money on goods and services, which in turn allows businesses to grow and expand, creating jobs and increasing income. So it is good news that consumer borrowing grew at a record pace in August, as reported by ACA International:

“The non-revolving credit increase was the highest since September 2015, Bloomberg reports. Economists estimated total consumer borrowing would increase $16.5 billion in August, according to the article. ‘Steady hiring and income growth may be making Americans more willing to borrow, helping to sustain consumer spending and the economic expansion,’ it states.”

The CFPB released the Proposed Rule in June, which could essentially shut down the small dollar lending market, forcing businesses to close and denying access to credit for millions of Americans who have nowhere else to turn.

At issue here are two critical points:

  • The CFPB has a predetermined viewpoint on the small dollar lending market (it is “harmful” to consumers) from which it will not be swayed by actual evidence.
  • As a result of this attitude, the CFPB approached the Small Business Regulatory Enforcement Fairness Act panel process in a purely perfunctory way. This absence of a good-faith effort to obtain meaningful feedback from small business compromises the lawfulness of any Final Rule.

It is heartening to note that the CFPB has received an unprecedented number of comments on this proposed rule from both small businesses and borrowers. We sincerely hope they will conduct serious additional research before releasing their Final Rule, especially since the Federal Appeals Court found the CFPB to be unconstitutionally structured.

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The National Consumer Assistance Plan and Its Impact on Collection Agencies

Filling out a form

CCS has been closely following new policies announced by the three major credit reporting agencies, which are expected to roll out over the next three years.  Equifax, Experian, and TransUnion, have created the National Consumer Assistance Plan in response to cooperative discussions and a subsequent agreement with the Attorneys General of thirty states. The intended effect of this plan is to provide consumers more transparency when interacting with consumer reporting agencies about their credit reports, particularly when there are errors which result in negative information being added to credit reports.

As stated by Stuart Pratt, President and CEO of the Consumer Data Industry Association (the trade association representing the three major credit reporting agencies, among others), “While we are pleased that the most recent comprehensive study by the Federal Trade Commission showed that credit reports are materially accurate 98% of the time, we are always looking for ways to improve our procedures, and this consumer assistance plan will allow us to do that.”

Here are some of the main changes to the data reporting process affecting how debt collection agencies, such as CCS, report information to credit reporting agencies:

  • Report the name of the original creditor and creditor classification code.
  • Furnish data using newly established minimum reporting requirements for consumer personally identifiable information, such as full date of birth, and full social security number when available.
  • Do not report debt that did not arise from a consumer contract or agreement to pay, such as tickets or fines.
  • Do not report medical debt collection accounts less than 180 days old, in order to allow insurance company payments to be applied.
  • Remove debt paid or being paid by insurance.
  • Report paid in full collection accounts before purging the accounts from your internal collection system.

The fact of the matter is, these new guidelines will have little impact on us here at Credit Consulting Services, because CCS has always set high standards for furnishing data to credit reporting agencies. Accurate information is vitally important to the successful collection of debt. Legitimate collection disputes are almost always quickly resolved. Collection disputes that are not legitimate almost always involve spotty or inaccurate information on the consumer. This is something we understand thoroughly here at CCS, and we spend a considerable amount of time educating our clients about it as well.

It is also incumbent upon consumers to regularly review their credit reports for legitimate errors, and to be an effective manager of their credit rather than a victim. The National Consumer Assistance Plan can be another tool to help them do just that.

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Debt Collection Complaint Average Continues to Decline

chartAs an ethical and professional company within the debt collection industry, we here at CCS were very pleased to see that, according to the Consumer Financial Protection Bureau, consumer debt collection complaints have declined over the last six months. This is great news for the industry; what is not so great is the manner in which the CFPB reports on the data they collect.

As detailed in this article, ACA International (The Association of Credit and Collection Professionals) is very concerned about the Consumer Financial Protection Bureau’s flawed consumer complaint handling process. Some examples:

  • Since 2012, the CFPB has been sharing individual-level complaint data on their website.
  • In 2015, they began providing consumers with the option to include “complaint narratives” for publication in the Consumer Complaint Database.
  • CFPB’s monthly complaint reports now include a list of the “most-complained-about-companies” based on raw number of complaints.

There is a serious problem with this. These lists provide no information to put the complaint data in context. For instance, it is a fact that the more consumer contacts a business or industry makes, the more consumer complaints it will receive, regardless of the quality of those contacts. This raw data can mislead consumers, and paints an unfair portrait of the debt collection industry.

However, despite these biases, the latest CFPB monthly complaint snapshot showed a three-month decline in debt collection complaints: April to June 2016 is down 3 percent compared to April to June 2015, and likewise for March to May 2016 versus March to May 2015. It is interesting to note that the three-month average of credit card complaints, on the other hand, increased by 9 percent.

We here at CCS will continue to be in the vanguard of debt collection companies that provide an excellent service to our clients, while adhering to our pledge to treat consumers with dignity and respect.