Can it be true that the DCA [Debt Collection Agency] industry will be no more? Is it possible that the sale of debt could be a thing of the past? Will companies have to collect their own debt or write it off? Will technology destroy the thing that compliance cannot control?
Who am I?
I have been involved personally in lending, debt collection and debt sale for 40+ years. I have written credit and risk documents for a couple for startup finance companies. Additionally, I have worked with many a DCA.
My experience in debt sale, was that I was able to “sell” £100,000,000 of post repossession subprime auto loans. There cannot be a more uncollectable debt, yet the owners of the business pocketed an enormous and unexpected bonus.
I have organised and managed debt collection teams of up to 200. Collecting the debt, I was responsible for lending to customers.
Why do companies outsource debt collection or sell their debt portfolio?
Quite simple for 2 basic reasons.
- Too expensive to collect. Who wants to recruit, manage, and pay appropriate wages to teams of people?
- It is a nice bit of gravy to have. Lenders have risk based pricing into which they will have calculated their bad debt. However, when they “write off” this bad debt, they can sell it. Thus, earning themselves a bit of an extra bonus.
The DCA – Debt Collection Agency
Anyone who thinks that most DCA’s have a conscience or genuinely care about treating customers fairly are possibly misguided.
When they have team meetings, it is not about how they can benefit customers, it is about how they can get money from them. They share experiences of how they got a customer to pay, not how they helped someone write off their debt.
When the directors have meetings, it is all about margins, efficiency, and cost. It is never about customer care, unless there are serious complaints.
Why did DCA’s not exist years ago, as they do now?
Automation. Technology. Cheap and efficient banking. Email and mobile telephony. Quite simply debt collection would have been far too expensive a decade or so ago. The benefits of the internet are not helping those less fortunate — at the moment.
The Lender and The DCA
Here is the short of it. If you cannot or do not want to collect from your own defaulters:
- Say no to the initial application.
- Spend more on repayment assessment. However, that does impact the bottom line. In addition, it upsets intermediaries.
- Write it off. Completely. You have priced for it. Bin it.
The Debtor (non-payer)
Debtors fall into 4 categories
- Can pay and will not pay. Go for them with all the tenacity you can muster. It is a game for them. A game that you must win. I know this from my considerable experience.
- Cannot pay. Most people want to pay their debt. However, there are a multitude of reasons why they cannot. Lenders (not debt collectors) need to assess the debtor’s situation and decide to write off or move to the can/won’t pay process. How do they do that? There are numerous solutions available to them.
- Fraudster. Proper underwriting policies and processes should keep these to a minimum. However, when they do get through you are rarely going to collect. Write it off and learn. Bear in mind that most fraud/deception is by the intermediary.
- Financially naïve. They fall for the slick sale pitch. They are misguided consumerists. Educate your introducers. You (the lender) will have performance reports of introducers. Have the balls to act upon them.
By the by, finance companies and lenders fail because of fraud. Generally, at the hands of their employees or introducers.
Here Is What Will Happen.
Regulation and compliance will make it impossible for lenders to either outsource or sell their debt. If they cannot collect in house, they will have to write it off.
You have to remember that a lender can assign the beneficial rights of an agreement but not the obligations. They are responsible for how their external debt collectors operate.
DCA’s will have to use voice analysis on 100% of their conversations with clients and each other. The technology exits now as it has done for years. Yet, the lenders rarely demand use of it, nor do the debt collectors use it in compliance.
There is a lack of will in governments to demand a change in how both the lender and the debt collector operate. However, it will come.
Vietnam is aleardy taking a stance as of September 2020. They have banned investements in DCA’s and 3rd party debt collectors.
Technology Will Bite the Debt Collectors In The Rear!
Robokillers and the like, are apps that fall into the category of robocall blockers. They use sophisticated AI to answer calls. These roboblockers been downloaded 10’s if not 100’s of millions of times. They were developed to block spam calls by imitating a real person and keeping the caller on the line – thus wasting time and money for the caller.
The companies that have developed auto calling or introduced it into their collection process could be hoisted on their own petard. There will not be much sympathy.
What will happen with debtors?
There will then be a need for face to face conversations with the debtor, and that is not cheap. However, it is effective, assuming the agent is prepared.
Farewell DCA, what will you do next?