The debt collections process may seem to the uninitiated to be very simple. Obtain a portfolio of accounts from a client; contact the consumers and collect the amounts due; and remit the collection proceeds back to the client minus the commissions.The devil always being in the details, however, a lot of things can happen during this “simple” process.
The collections effort required to convince a consumer to make good on a charged-off receivable account may be as simple as contacting the debtor once through a single reminder letter or reminder phone call or it may become as complex as placing the charged-off receivable account with a series of collection agencies and ultimately with a collections law firm in order to obtain and execute on a judgment. Each step along a full-blown collection process may have many possibilities, which may lead to a very convoluted path from placement to collection.
For example, the simplest middle step of contacting the debtor and collecting the account may be as little as sending the first collection notice for the account being placed with the agency, which may elicit a payment. On the other hand, the debtor may ignore the first notice, in which case the collection agency may have to resort to an initial collection call. If the initial collection call does not result in a payment, then the creditor may have to sue the consumer.
While this may also seem like a relatively simple scheme, one must appreciate that some level of detail and expertise is required to complete even the first or second steps of these limited processes. For example, depending on the aggressiveness of the collection campaign, the collector may quietly wait for a certain period of time between mailing the first notice and making the initial collection call. In addition, to be both legally compliant and effective, both the first collection notice and the initial collection call must contain several particular pieces of information. Furthermore, the initial collection call will usually have several requisite steps.
Explaining the complexity of these initial steps a little more completely requires knowing that the collections industry is a very heavily regulated business and that the most significant law regulating it is the Fair Debt Collections Practices Act, which is often abbreviated as the FDCPA. It is sufficient to know now that Section 809(a) of the FDCPA requires an initial communication about a debt to contain:
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days of receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector,
(4) a statement that if the debtor notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the debtor and a copy of such verification or judgment will be mailed to the debtor by the debt collector; and
(5) a statement that, upon the debtor’s written request within the thirty-day period, the debt collector will provide the debtor with the name and address of the original creditor, if different from the current creditor.
The Section 809 verification Period
Paying attention to the thrice repeated “thirty-day period” in section 809, one should become aware that this is what is often referred to as the “Section 809 Thirty-Day Verification Period.” Section 809 gives the debtor this period as an initial window of opportunity during which the debtor may object (for any reason using any manner and means of communication the debtor desires) to all or any portion of the debt.
No collector may do anything during the Verification Period that may overshadow (i.e. shorten or lessen in any length, dimension, way, shape or form) the debtor’s right to object to all or any portion of the alleged debt. Therefore, a collector should be especially careful of what he or she writes or says to the debtor during this period of time. In addition, should the debtor request in writing verification of the debt or the name of the original creditor, one must be aware of and compliant with the law, which states that a collector may not take any further collection activity until he or she mails an appropriate response to such a written request.
The Initial Collection Call
An Initial collection Call should ideally include the following steps:
- Identify and speak only with the consumer
- Identify the collector specifically by personal and company name and as a debt collector
- Deliver the mini-Miranda warning that “this is an attempt to collect a debt and any information obtained will be used for that purpose”
- Explain the particulars of the debt
- Pitch the debtor with a request for payment-in-full (“PIF”)
- Wait for a “Psychological Pause” until the debtor replies
- Negotiate a PIF, a settlement-in-full (“SIF”) or a payment plan agreement (“PPA”)
- Document the account file
The Less Simple Collection Process
Other bits and pieces of the collection process may or may not come into play depending on the circumstances. Requests for verification may come and have to be answered. Bad contact information may be updated with more current addresses and phone numbers. Payment plans may be promised, promises broken, and broken promises repaired again.
Unlike the simple process imagined by those unfamiliar with the industry, the entire collections process is actually so complex that its entire documentation could and should take up an entire volume often referred to as a Collections Operations Management System manual, a Professional Practice Management System, or a Professional Industry Practices Management and Compliance System.
Settle, Sue, Sell, Surrender
At some point in any collections process, any owner of a debtor’s account or agent of the owner will have one of four alternatives available for resolution of an account: settle, sue, sell, or surrender.
- Settle with a cooperative debtor
- Sue a recalcitrant debtor
- Sell an uncollected account
- Surrender an uncollectible debtor.
As the agent, representative, or advisor to the account owner, a portfolio manager or a collection agency manager, may be called upon to exercise one or more of these options.
At some time in the collections process, if the first notice does not result in a payment and the initial collection call does not result in a payment, then a collector must determine whether additional attempts at written or telephonic contact have a substantial likelihood of resulting in a payment settlement. If not, then the account should either be sent for legal review to decide whether to sue the debtor or surrendered back to the client as being uncollectible. The client may then forward the account to a more effective collection agency, sue the debtor, sell the account to another owner, or just surrender the account as being uncollectible and give up taking any further action.
The collector faced with a failure to settle an account must consider the reasons that no payment can be obtained and the effect that surrendering on an account may have on getting future placements from that particular creditor client. For example, did the first notice even reach the debtor or did it come back as returned mail without a forwarding address? If so, is the account worth investing in skip tracing the debtor to find his or her current address and/or phone number? Was the debtor contacted, but simply refused to pay the account? Will the additional investment of resources needed to extract a payment from a recalcitrant debtor be justified by the expected fees generated by the collection? These and other questions exist at every twist and turn of a moderately complex collections process.