In December, we examined many of the reasons why the debt sales marketplace has seen such drastic decline in recent years and looked at the mistakes made all around which brought a once-thriving industry down to its current level. Solutions to the problems mentioned are based on a few central ideas: long-term thinking on business decisions; vetting potential buyers properly, and fighting the right battles. Below are some potential solutions to the problems mentioned.
- The failure of the industry to police itself collectively. DBA and general licensing and approval came far too late to address the problem of rogue debt buyers when it should have been done when the resale market was exploding. Also, it was media – not the debt industry itself – reporting on illegal practices from debt buyers and collectors.
SOLUTION: The DBA’s licensing is a step in the right direction, but is only a partial solution. Smaller debt buyers have great hurdles to clear in licensing, and may not be able to afford the time or money to meet the licensing requirements the DBA has set. A less expensive and cumbersome path to certification, as well as standards that may meet non-traditional debt collection office roles (such as telecommuting), are necessary. Likewise, the DBA needs to be active in calling out violators, even from within its ranks.
- The failure of the industry to promote itself effectively. Little to no promotional work was done to undercut the massive negative press against the debt industry.
SOLUTION: Taking an active stand against bad debt buyers – and showing a difference exists between good and bad debt buyers – is necessary. Now is not the time for “no comment,” because it was not working. The debt sales industry needs to push effectively against the negative press and shows the economic benefit of debt buyers.
- The failure of large buyers to engage in free-market practices, instead catering too closely to banks (which have too close a relationship with the government). Large debt buyers have or had exclusive contracts with originators, and shut out small business collection shops from staying open and helping the industry survive. Large buyers also did not engage regulators well.
SOLUTION: Large buyers have the decision to make; will they cooperate with big business, or will they rejoin with their small-business roots to recreate a more active, robust market? If the standards are set, the large buyers CAN work with the smaller to ensure that debts are collected, bought, and sold cleanly and legally.
- The failure of banks to provide excellent documentation. For down-market debt buyers to succeed long term, particularly against aggressive consumer advocates, good documentation for debts was necessary. Banks have long been mediocre – at best – in providing proper documentation to enforce debts.
SOLUTION: Even large buyers should refuse to do business with banks without proper documentation on each and every account. While the cost to the bank is not negligible, neither is it truly prohibitively expensive with modern technology to provide good documentation to sellers; and the long-term result is fewer disputes, fewer suits and countersuits, and fewer expense for all.
The failure of banks, primary, and secondary market sellers to properly vet the buyers. Again, when debt sales from originators on an open market were common and consistent, banks and their direct buyers did little to properly vet secondary debt market buyers.
SOLUTION: Banks and buyers should all have processes to vet the buyers down the chain, and provide clean transfer paperwork. They should also be willing to work with buyers at any point in the chain for long-term protection as well. The standard for good buyers and sellers is a good vetting process.
- The failure of large debt buyers to fight against improper FDCPA claims. Far too often, even adverse FDCPA claims were settled out of court rather than be fought against by larger debt buyers to establish better legal precedents. The result has been consumers more likely to push back against collection groups, and not owning up to legally-owned debts. Small buyers are typically unable to fight FDCPA/TCPA claims extensively in court to establish precedents, but large buyers could and should have engaged more in the legal realm.
SOLUTION: Pick good battles and win them. The problem began too long ago where sellers and agencies were more willing to settle with debtors than fight through, and it became a tacit admission of guilt, as well as feeding long-term the idea that all debt buyers and collectors are greedy scumbags. Much ground needs to be taken against the bad parts of FDCPA litigation, more than should have been had the industry been thinking long-term as to the cost of business.
- The failure of the industry to fight well on the local level. DBA and ACA have lobbying arms for Washington, but local businesses did little to push back on the state and local level political scene for elections and collections laws.
SOLUTION: Engage with local, state, and national politicians in legislation to protect the industry. Agencies and buyers should know and support politicians on some level.
- The failure of a small, but significant, handful of debt buyers to play by even the most common-sense of rules of collections.
SOLUTION: Call attention to bad debt buyers, and stress how much in the minority they are. All buyers should be vetted, and bad sellers should also be held at least liable in public opinion for their lack of vetting or protection of data.
- The failure of civil courts to effectively enforce contracts and hold debtors to account for not paying debts.
SOLUTION: Fight good battles against bad judges and litigants. The right of contract is essential to a free and independent market, and legally should be protected.
- Finally, the failure of ALL groups to engage in long-term strategies in the debt marketplace, only making changes well after they were necessary.
SOLUTION: Every decision – from legal strategies to buying and selling debt – should be made with a long-term strategy in mind. The debt sales industry was too short-sighted when times were good and did not see how poor, short-term decisions were going to hurt the industry down the road.
Recovery, if possible, of the debt sales marketplace is going to take a long time, and too many players have left the field. Mid-market groups, which flourished at one point, are drastically reduced in number and show little sign of recovery. Buyers will have to prove themselves again, and make their internal changes not just for the good of individual buyers, but also for the good of the industry as a whole to recover to any degree.
By: Jeffery Hartman