Purchasers - inconsistent questions, consistent answers

The search to meet new requirements in debt sale

My previous article outlined the thoughts of creditors with respect to the latest challenges within the US debt sale market, namely regulatory requirements relating to the depth of audit activity. TDX Group’s intermediary position within the market also affords us detailed insight into the views of debt buyers around the growing requirements being placed upon them by sellers who are looking to satisfy regulators.

The primary theme from our conversations with US debt buyers over the past month is that inconsistency in the sellers’ response to current challenges is being translated into an inconsistent set of requirements being put upon upon buyers. This may well be driven by the current uncertainty around how current guidelines will form detailed regulations, but there is a concern that a continued divergence in requirements may place significant overhead on buyers looking to meet the needs of all of creditors. Any example of requirements converging - right down to the detailed level of what and how information is supplied - is welcomed by the market.

There is a consistent theme that on-going market stability remains the core focus for buyers and that they are willing to provide the information required to ensure that the market remains buoyant. There is, however, some concern around the level of visibility required by sellers and exactly how this data and information will be utilised, one buyer stating, “We will, of course, provide any data required to support audit activity but would be reluctant to share anything that gives away our IP or compromises our position”.

Our view is that greater transparency and visibility will provide wider benefits to buyers; this will not only ensure the continuation of current activity but will also re-open other opportunities such as the secondary sale market. With improved account monitoring and tracking there is no reason that this market cannot return, albeit within tighter guidelines linked directly to the levels of visibility of account treatment. We are also anticipating that new regulations will result in an extension of audit requirements from the current focus on policy and process towards account level monitoring; once again increased transparency will provide wider benefits of reducing the resource required to manage these new requests.

As with the creditor market, a number of buyers are starting to take a proactive approach and look for tools that can help them better engage with sellers post-sale. This approach enables the immediate demonstration of their ability to support creditors in meeting post-sale monitoring requirements whilst positioning the buyer as market leaders in interpreting and responding to regulation.

By Chris Smith, TDX North America

Creditors - consistent questions, inconsistent answers; the search to meet new requirements in debt sale

The US debt sale market has been through a turbulent period over the past 5 years, with the credit crunch impacting both the availability of funding and pricing across the market. This storm has been weathered and at first glance the market now appears buoyant, with a healthy volume of sale activity and pricing steadily improving by circa 4% in general and up to 12% across some debt types. Our discussions with over 20 issuers over the past few weeks, have however, highlighted the next storm on the horizon for the US debt
sale market; growing regulatory requirements.

The change in attitudes of sellers towards compliance of buyers post sale, originates from the clarification by regulators that the customer relationship is retained post the sale of an account. This has recently been reinforced by the Comptroller of the Currency's (OCC) best practice guidelines, (which are likely to be developed into formal regulation) which state that sellers are expected to have clearly document processes to audit and monitor their third party suppliers.

This is causing a challenge for sellers as introducing such mechanisms for auditing and monitoring a wide-scale purchaser panel is resource intensive and hence costly, with one global issuer quoting “the cost associated with auditing over 100 purchasers across the globe is huge and I am keen to explore any options that help me target my activity where truly required”. One response to this challenge, which has been seen in well publicised examples, is for sales to be delayed or even pulled from the market, but this cannot be the right answer.

A number of issuers are however, now taking a pro-active approach to responding to these growing regulatory requirements; namely by gaining greater visibility of their buyers activity. This is enabling an effective auditing and monitoring process as outlined by best practice but is resulting in sellers asking a new set of questions;

• What information should be gathered?
• How can this be obtained from buyers?
• What will be the integration costs of obtaining this?
• How can the data be utilised when it is gathered?
• What complexities does re-sale add into this challenge?

As with any market, this challenge is affecting all entities; i.e. both sellers and buyers. The solution also needs to be driven by all parties to ensure the on-going stability of the debt sale market. Our position as an industry intermediary affords us the ability to view and understand the opinions of both sides of the market. As such, we will report back shortly, to provide you with an update on how buyers are viewing the current challenges across the sector and their thoughts on the solution.

By Chris Smith, TDX North America

A fresh view: What do you really know about the debt industry?

Over the coming months, we'll be sharing a series of posts which offer 'a fresh view'. They are the thoughts and observations from colleagues who have recently joined TDX Group.

Liz Crosland-Taylor joined TDX Group in March 2013 and works in our Advisory team. Here she shares her thoughts about the debt industry, and how it's not quite as she thought it would be.

What do you really know about the debt industry?

I’m new to the debt industry, and when I took a job at TDX a few months ago some of my initial thoughts did include, what do I actually know about debt? I pretty much had my socialised and personal view of debt, at a micro level. In my eyes it was something that, at a very basic level, was to be avoided if at all possible. Debt = bad. OK, well it wasn’t quite that basic, but fairly close to that, and indeed what I think the media would have us believe.

Working in an organisation that sits in an advantageous position centrally in the debt industry - and I say advantageously because TDX is positioned to comprehend the perspectives of participants from all sides – has definitely expanded my understanding of all things debt-related.

My original understanding was rather myopic, but reinforced by countless news stories detailing the miseries experienced by debtors struggling to get out or stay out of debt. Yet, paradoxically, it seems that many are actually clamouring to become debtors – all those people struggling to get a mortgage for example. Clearly debt can be good in some instances – it can be an opportunity. This may be in the form of a student loan that enables further education, or a mortgage that gets you onto that first rung of the property ladder – which is probably one of the largest debts someone acquires over a lifetime.

I have also realised that debt can be essential. A normality. Using a credit card or payday loan to assist with the timings of getting paid and paying overdue bills, or even technically being ‘in debt’ to utilities providers as I pay off my debt to them (having already used the gas and electricity they provided).

When I first mentioned my new job at TDX to friends and family, they joked that I was about to become a debt collector and go around knocking on doors. Obviously this is not true, but it made me realise that people outside the debt industry have very little realistic knowledge of what actually goes on!

I couldn’t possibly list all the many things that have pleasantly surprised me as I’ve been working at TDX – but here are just a couple of examples:

I didn’t know the extent to which organisations in the industry are quickly trying to respond to our changing culture and society, for example, the development of online e-collections tools and platforms that are already widening the methods people can use to make repayments - especially at times and in ways that are more convenient to them.

I also wasn’t aware of the degree to which compliance (treating all customers fairly and in accordance to their circumstances) is seen as fundamental across the industry. Nowadays creditors and Debt Collection Agencies (DCAs) think hard about the ways they treat their customers so that they can ensure fairer treatment for all.

So, to sum up, just a few months of working at TDX has transformed my understanding of debt as an entity, and its varying meaning within a context. I continue to understand that the debt industry as a whole, which may seem superficially basic or simple on the surface, is, in reality, a highly complex and multidimensional industry. I must admit I am grateful for having my eyes opened to an interesting industry that is a hugely important part of many peoples’ lives.

Liz Crosland-Taylor, Consultant, TDX Group

US market trends – is the world spinning slower?

My daughter returned home from school this week to inform me that the moon is causing the earth to spin slower, although the lengthening of the day by 2 milliseconds every century does not feel like too much of a cause for concern!

This did cause me to draw a parallel to the Receivables Management sector which has been spinning faster and faster over the past 10 years driven by developments in technology and a focus on low cost fast spinning dialler sophistication, low cost focus on pure contact ratios, and low cost off shoring. Our world however, is now also being impacted by wider forces and starting to ’spin slower’ with the onslaught of regulations and sensitivity on how customers are treated.

While no creditor is completely immune to the implications of new regulations coming from the CFPB, FTC, or other regulatory bodies, perhaps for the first time the challenges faced within the US are being better handled by others who have not been so dialler reliant. Are there lessons to be learned globally from less dialler intensive environments?  Are there new technologies being deployed globally to sustain liquidation rates and enhance the customer experience? Will these new technologies result in far superior insights and better customer experiences?

Answers to these questions can be taken from markets and sectors which have remained customer-centric, rather than focussing on creating the most effective one-size-fits-all approach. These markets utilise niche strategies and suppliers to manage accounts at a granular segment level rather than at the wider portfolio level. They utilise technology to ensure disputes and complaints are responded to in a timely manner and they have controls in place to manage any exceptions to the process.  An additional benefit to this customer-centric approach is that it not only improves adherence to regulatory guidelines but also underlying portfolio performance.

In summary, creditors with a generic approach to collections will carry on being heavily influenced by external regulatory factors and will continue to be required to make difficult decisions which damage performance in favour of adhering to increased regulation. Those with a customer-centric approach, however, will continue to ’spin at a steady rate’ as a result of being well placed to deal with the external regulatory factors.

By John Telford, CEO - North America, TDX Group