A summary of TDX Group’s response to the CFPB’s ANPR

Like most of the industry, TDX has recently been reviewing the CFPB’s Advanced Notice of Proposed Rulemaking  (ANPR) and collating our thoughts to help the industry provide a rounded response to the questions laid out by the regulator. Going through this process provided us with a great platform to consolidate our thoughts on a number of the key issues currently faced by the debt industry.

One of the interesting questions repeatedly raised throughout the ANPR is the impact that regulatory changes will have on the industry, both in terms of cost and collections’ performance. In other markets increased regulation can have a detrimental impact on underlying performance; our view is that this is not the case across the debt industry as customer experience is inextricably linked to collections’ performance. By targeting industry inefficiencies the CFPB is not only driving creditors to improve their customer experience but is also helping them to enhance their collections’ strategies and, as such, improve collections.

A number of the challenges faced by the debt industry with regards to the management of third party suppliers, such as collection agencies and debt buyers, can be linked back to two underlying root causes; inefficient systems and lack of overall visibility.

The first fundamental challenge when managing third party vendors is a lack of account level visibility while accounts are being managed externally. There may be little value in clarifying precisely what activity is allowed (by either creditors or regulators) if exceptions to these regulations are not immediately and robustly identified, managed and mitigated. Once this level of visibility is achieved, through either systematic or sampled audit activity, then the guidelines currently in place, around areas such as excessive calling, should not require further definition, as creditors can develop and manage against their own internal policies.

Secondly, challenges relating to information transfer of data, media and information are often rooted in systems utilized to manage third party interactions which are not designed to manage this process. This places constraints or delays on the transfer of information, furthermore, the manual workarounds often put in place often increase the likelihood of errors; both of which can impact the resultant customer experience.

It is clear that 2013 saw the debt industry passing an inflexion point with regards to its priorities; a shift away from performance and firmly towards adherence to regulatory requirements, there is, however, further room for the market to progress. Based upon our experiences across the globe, we see that markets which focus upon the principles of the fair treatment of consumers, and not just on meeting regulatory requirements, are those which drive optimal behaviors. The challenge currently faced by the US debt market is how to move away from merely satisfying the changing regulations, towards driving best practices which ensure the optimal treatment of customers, which will, in turn, drive improved performance.

By John Telford, CEO North America, TDX Group

Transforming data into information?

Data, big, small, local, global, no matter its form, is one of the most sought after assets in modern business. There is an assumption that data is the be-all and end-all when it comes to knowing about your field, but data on its own is limited, whereas information can be invaluable.

Former US President Theodore Roosevelt has more quotes and facts attributed to him than almost any other political figure in history, but one thing I find fascinating about him was his constant quest for information and knowledge. It is said that he would read a book with breakfast and at least two more before he went to bed. Not everyone can boast similar speed reading skills, but what was even more impressive is how he managed to focus his concentration and retain such vast pieces of information.  As one biographer wrote, “his occupation for the moment was to the exclusion of everything else; if he were reading, the house might fall about his head, he could not be diverted.” Roosevelt was notably able to apply what he read to his thought process and problem solving - from the autobiographies of his mentors and historical accounts, all the way to poetry and Greek mythology, he was convinced everything he read had something valuable to teach him about life.

But how does it affect what we do day-in day-out? As a consultant I have come across both sides of the coin such as companies with limited data who have assimilated it into as much actual information as they can, and continue to focus and dedicate their analytics to find new ways of understanding their data asset.  Conversely, I have seen companies who have mountains of data, but have never stopped to turn it into information. You may guess correctly that the company with lots of information from limited data often performs better than the company which has masses of data but limited information. I believe the difference is what Teddy Roosevelt called ‘concentration’, or, in our world, analysis.

Analysis should be focused on turning data into information, sometimes it may mean following an avenue that doesn’t lead to an immediate result, but the process of getting there can glean useful insight and enhance an analyst’s understanding for future projects. We often see analytical resource deployed to ensure that the business continues to run smoothly, or to find a work-around in a crisis. Whilst this is unavoidable to an extent, a conscious effort should be made to allow analysts time for research and development and not just use them to firefight or continuously maintain systems.  

We know this because as consultants at TDX we are in a unique position of being able to step back from the day-to-day business on behalf of our clients, and to concentrate solely on a particular area of the business or a unique set of data. We are able to apply the information we have gained from previous engagements to deliver solutions that may not have been considered previously, particularly by an in-house team. Because of this position, we can see that companies who truly excel at turning data into information make the effort to give their analysts this time for ‘reading’ and creative thinking. We’re fortunate - as consultants we have the luxury of this every day.

By Stephen Hallam, Consultant, TDX Advisory Services

The changing landscape of supplier audits – policy and process audits alone are no longer acceptable

One of the key outputs of the US debt industry focus on compliance and regulatory adherence is the increased rigor around policy and process audits conducted on suppliers such as collection agencies and debt buyers. In the current regulatory landscape, however, creditors need to question whether this approach is enough to satisfy regulators who have been doling out fines, not because of a lack of monitoring of the policies and processes, but as a result of suppliers not adhering to these policies and processes. As such, we believe that the audit landscape will change significantly over the coming year, examples of which will include:

• Supplier audits will not only ensure that policies and processes exist, but will also focus on validating that they are adhered to.
• Creditors will use systemized solutions to provide greater visibility of their suppliers which will become critical in executing the above audit activity.

A commonly accepted phrase across the industry highlights how “a fundamental objective of the CFPB is for the industry to self-identify, manage and mitigate UDAAP or other regulatory breaches”. This illustrates that the aim of the CFPB is for the industry to identify and resolve issues on its own, rather than awaiting a raft of complaints from consumers to the regulators. To achieve this, creditors need to ensure that the agreed policies and processes are being adhered to, through either sampled account level auditing or the utilization of systematic tools.

The fundamental concept behind account level auditing is to monitor the activity completed on accounts; this can be conducted through reviewing accounts on the vendors’ systems or even through mystery shopper activity. These techniques are critical to ensuring that both pre-agreed strategies are being executed and to identify any process flaws which damage the customer experience, e.g. delays in payment processing or the uncertified application of fees.

In the current environment the frequency of this activity needs to be increased to monthly, at minimum, to enable the identification of any process exceptions.

One key aspect of this activity is call listening which ensures that vendors are interacting with customers in a manner which aligns both to regulatory requirements, and to the creditor’s own standards. TDX Groups’ call listening activity on over 1,000 calls per month initially identifies that in excess of 5% of agency calls fail to meet regulatory guidelines with over 20% providing an insufficient customer experience. The identification of these issues, however, enables robust action plans to be put in place so that agencies can significantly reduce these numbers.

As the industry slowly moves towards robust account level auditing, those currently applying best practice regulatory adherence with respect to vendor monitoring are now applying systematic solutions. The systematic solution to account level auditing captures account level agency activity data to enable the immediate identification of any process exceptions, such as excessive or out of hours calling. Likewise, call listening activity is now moving towards systematic solutions, at its simplest using the above account level activity data to select calls to review. The latest revolution utilizes automated voice recognition software to enable creditors to “listen” into a greater proportion of calls and better identify those that require human review and potential intervention.

In summary, although the vendor auditing landscape has evolved throughout the past year, we anticipate a fundamental change in the activity conducted throughout the forthcoming year. Although the presence of policies and processes will remain of vital importance, the focus of creditors will shift towards ensuring that these policies and processes are being adhered to. Those creditors at the forefront of the industry will begin to deploy systematic solutions to satisfy the CFPB’s desire for the industry to immediately identify, manage and mitigate and breaches against industry codes such as UDAAP and TCPA.

 

By Chris Smith, TDX Group