CFPB Consumer Advisory Board Addresses Debt Collection; Samet Changes the Conversation

In a surprise addition to last Thursday's Consumer Financial Protection Bureau (CFPB) Consumer Advisory Board (CAB) agenda (which announced only a “Trends and themes discussion”), two members made presentations about debt collection topics. 

First, Josh Zinner spoke. He is the Chief Executive Officer of the Interfaith Center on Corporate Responsibility, a coalition of progressive shareholders pressing for corporate accountability and economic, social and environmental justice. He was previously the Co-Director of New Economy Project, an advocacy organization that works with community groups to promote racial and economic justice in New York City neighborhoods.

Mr. Zinner presented the work of the New Economy Project which looked at the effect of lawsuits brought by debt buyers on New York communities of color. He explained that debt collectors buy debts – represented only in spreadsheets -- for pennies on the dollar, and they file lawsuits without substantiation.

He lobbied for a federal rule that would require the same elements of substantiation that have been put into place in New York; in order to file a debt collection lawsuit, the suit must be filed together with a contract (or equivalent) that established the debt, an account statement from the time of charge-off, and evidence of full chain of title. Zinner said that collection lawsuits of this type have been substantially reduced in New York because of these rules.

Judith Fox, another CAB member (a Clinical Professor of Law at Notre Dame, and director of the Economic Justice Project, a low income clinic specializing in foreclosure and debt collection defense), commented on the need for rulemaking to focus on the sellers of debt, as they are the ones who hold the documentation. She also added that a rule needs to clarify that servicers can’t add fees and costs after charge-off. In a moment of levity, Ms. Fox requested debt collection rules for Christmas.

Next, Ohad Samet spoke. Mr. Samet, CEO of TrueAccord, is a new addition to the CAB and this was his first meeting. He stepped in at the last minute for another CAB member who fell ill and could not attend.  Here are some highlights from his remarks:

• Consumers prefer to engage on their own time. More than 25% of traffic on TrueAccord’s website is initated by consumers outside of hours when communication can be initiated by collectors.
• Consumers have gotten used to online, mobile experiences. 70% of collections related traffic on TrueAccord’s website is from mobile devices and tablets.
• Many of today’s practices limit consumer choice and create compliance concerns that stem from heavy reliance on phone-based collections.
• The maturation of machine learning, digital communication methods, and marketing techniques presents an opportunity to rethink debt collection as a consumer-focused, financial health-oriented activity.
• New technology based solutions improve collection rates by 50-500% in statistically significant tests.
• Emails and other digital communications are pre-written and pre-approved, reducing the opportunity for violations.
• Analytics for the right time and tone to use in interactions reduces contact frequency. TrueAccord attempts to contact consumers, on average, 3 times per week.
• A selection of contact channels puts consumers in control, and opt-out is simpler via email and text. Consumers react: 60% open an email, 25% click a link, 6% click a link in a text message.
• Code driven compliance is easier to adapt to changes in regulations and case law. No human re-training is necessary.
• eDisputes provide quick feedback to consumers and simplify the process, reduce reliance on letters, and improve data retention going forward.
• The shift to consumer-focused experience creates trust, enabling solutions beyond collections, like education and assistance.

In conclusion, Samet suggested that in its upcoming debt collection rulemaking the CFPB consider what limitations on contact frequency and timing mean for new contact types, as well as response to consumer triggers. He also suggested that the Bureau consider the definition of “live conversation,” “tear off,” and other paper and phone-based standards, as they may become increasingly irrelevant over time.

insideARM Perspective

As is often the case, Zinner freely interchanged the terms debt collector and debt buyer throughout his presentation. He opened by saying that abusive debt collection is a fundamental racial justice issue. But what he was really talking about was debt collection lawsuits on purchased debt.

It is clear that there is still a great misunderstanding outside of the debt collection industry that most debt collectors actually work directly for creditors who own the debt – both small and large businesses in all industries such as healthcare, telecom, utilities, credit card, retail, and many others. Most debt collectors do not purchase old debt for pennies on the dollar. Unfortunately, nobody stepped in to clarify this.

Samet did make the distinction at the beginning of his presentation that he was a debt collector and not a debt buyer. He was asked by one of the CAB members about that. She said, “If you don’t buy the debt, then how do you get it?” She – like many others -- clearly didn’t understand this most basic fact about the industry.

One other highlight I will add that was not mentioned in the presentation: Digital interaction allows for a wider array of solutions for collectors to authenticate a consumer’s identity (in order to prevent disclosure of a debt to a third party, like a friend, roommate, or family member). Currently, this authentication requirement forces a very awkward and adversarial dance at the opening of a phone call between a collector and consumer. In fact, regulators advise consumers not to cooperate with a request for personal information to verify one’s identity over the phone.

In my opinion, Samet did a yeoman’s job on little notice. Whether or not you agree with all of his assumptions or data, he is changing the conversation in a way that often only an outsider or new entrant can. Much of the industry has been pushing for the ability to communicate in the channels most comfortable to consumers. TrueAccord – and other pioneers in this space (see our other article on this today) – are pushing the envelope (pun intended) to do just that.