By Terrence R. Heffernan, Esq.
Delinquent loans obviously jeopardize the fiscal soundness of any creditor. Studies done by the Receivables Management Industry have demonstrated how the collectability of a past-due account decreases dramatically with the age of a delinquency. For example, one study determined that 61 days past due was the optimal time to place an account with a third party collector. The study’s research concluded that at 30 days delinquent, there was a 62% chance of recovery, while the recovery percentages decreased to 53% by day 60 of delinquency, 48% by day 90, 40% by day 180, 33% by day 270, and only 20% on accounts past-due for a one year period.
Lenders must therefore have an effective mechanism for resolving delinquent loans in a timely fashion. Even credit unions, which inherently place a premium on customer relations and personalized banking, may occasionally be forced to call upon outside collection assistance as a “necessary evil”. For any credit union, the decision to employ an outside collection agent is never an easy decision.
Anyone wrestling with the Hobson’s Choice between an ineffective in-house collection program versus the fear of employing an external collection program might take comfort from knowing that professional third-party collectors are not the unregulated, uncaring individuals often portrayed in the media. To the contrary, debt collectors must follow specific federal guidelines that establish consumers’ rights and collectors’ responsibilities. Examples are the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. The majority of such federal laws also contain provisions requiring data security and confidentiality. In addition, individual state laws and regulations may impose requirements over the safekeeping of sensitive consumer information, including requirements that collectors inform consumers in the event of a security breach of consumer information. Specialized federal laws such as the Gramm-Leach-Bliley Act and the Health Insurance Portability and Accountability Act of 1996 impose additional standards to protect against the unauthorized access of consumer’s confidential information.
To dispel some of the myths regarding professional collection agents, it is not true that collectors continually hassle people who cannot pay. Apart from such conduct being both illegal and ineffective, professional collectors are trained to listen to what consumers have to say and thus determine if they indeed have the ability to pay the past-due account. The most effective collectors do not engage in intimidation. The professional collection agent is an able motivator and communicator. The best collectors work with people to get their accounts back into good standing.
Professional collectors do not force people into bankruptcy. Doing so is clearly counterproductive to the objectives of both the creditor and the collector; when people file for bankruptcy, their financial obligations are usually extinguished, which would result in the lender and the collection agent receiving very little or nothing. Good collectors know that people with financial problems often require assistance in resolving their accounts without expensive litigation, and many need the flexibility of alternative payment arrangements to work out their financial problems. While a collector’s job is to collect, in reality the job often includes counseling.
Another myth is that collectors deal mainly with the poor and the helpless. The reality is that professional collectors quickly grasp that debtors come from all levels of society. In fact, many debtors are like you and me, who for whatever reason are experiencing an unusual financial problem. Effective collectors know they must treat each person as an individual and with respect in order to understand each person’s specific situation.
If your Credit Union is experiencing difficulty in resolving delinquent accounts through your internal efforts, I hope this article may reduce apprehension of utilizing an external collection agent. As stated above, the longer an account is unpaid, the lower the possibility of repayment. Finding a collection agent who supports your fiscal strength and also preserves your community reputation should be a stress-free process. It’s only a matter of trust.
If you have any questions regarding this advisory, please contact Mr. Terrence R. Heffernan, Esq. Terry is a partner in the Legal Action Recovery department of Weltman, Weinberg & Reis Co., L.P.A. in the Columbus office. He can be reached directly at 614-857-4390 or via e-mail at theffernan@weltman.com.
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