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

TDX Launches in North America, Marvin Gay, Disney, and “Going to PLATO”

In the words of the famous singer Marvin Gay, I would like to address the question of “What’s going on!”

As many of you may know, following on from TDX Group’s successful launches in Spain and Australia, we have entered into the US market. Our head office has been established in 'Old Town' Alexandria just outside of Washington DC, and we are well on our way to building a great business. As we move forward, I want to thank you all (our existing clients, staff in Nottingham, and many global partners) for the enthusiasm and help in our set up.

As anybody who has been to Disney knows, 'It’s a small world', indeed when we look at collections globally, the challenges facing creditors are remarkably similar. Let me share with you a little of what those look like here in the USA:

• Our primary regulatory body the CFPB (Consumer Financial Protection Bureau) has aggressively started putting creditors and collectors on notice on a wide range of issues regarding the treatment of consumers.
• Fines and penalties have started to be levied in the range of millions of dollars.
• Creditors lack the tools to effectively operate in this environment, specifically to manage and be compliant in their outsourced Debt Collection Agency (DCA) activity.
• Challenges include: lack of visibility into activity, lack of ability to effectively place and recall account, ineffective management of queries, lack of the ability to truly test and learn strategies, lack of the ability to effectively place compliantly and confidently with a wide Agency panel.
• Our view and analysis shows that creditors are making irrational choices because of lack of appropriate systems, including consolidating the number of Agencies on their panels leaving them in a downward spiral that will negatively impact returns by 10-30%.
• IT resources are constrained and the majority of tools require long integration time frames.
• Agencies are consolidating and many are ill equipped to take advantage or 'win' in this environment.  They have spent the last several years on low cost off shoring and dialler technologies instead of smart data and analytic strategies.

That all leaves us in a very familiar place . . . going to PLATO!  We believe strongly that we have a good story to tell.  PLATO (our SaaS based debt placement and management solution) has been developed with the goal of driving performance at the granular account level, exposing data so that all consumers get treated fairly through the complex strategies creditors need to deploy. We built it because we knew that visibility and data drives performance. As it turns out, that same visibility and data now helps assure compliance and organizational efficiency.

Over the course of the next couple months I will try to dive deeper into these issues, but for now thanks again for the warm welcome back.  John

By John Telford, CEO - North America, TDX Group

Global trends - it’s a small world, even in collections and recoveries

The US remains the world’s most developed Recoveries marketplace but, perhaps for the first time, the challenges faced within the US are also being faced by issuers around the globe creating an opportunity to take a global view of potential solutions.

A recently published IMF report reminded us of the increasing inter-dependence of global economies, with the most obvious example of this being the recent economic crisis which spread instantly around the globe. This global crisis of 2008 is also the key driver of the alignment of market trends within the worldwide Receivables Management markets, as the resultant increased focus on the banking sector can be directly linked to the shift in priorities towards compliance and regulatory adherence.

One commonality across a number of markets has been the introduction of new regulatory bodies including the CFPB in the US and the FCA in the UK who are at the forefront of driving the customer agenda in their respective geographies. A number of recently introduced regulations are comparable, e.g. the US Validation Notice and UK Notice of Assignment, both of which outline a debtor's rights with respect to third party collections activity. However, there still remains a significant difference surrounding how these are applied, with creditors in the UK continuing to be self-policed to a greater extent than those in the US.

The initial reaction to the regulatory challenge has also been similar across the globe with some swift decisions being made without consideration being given to the impact on the underlying collection rates. These include the immediate barring of secondary sales by a number of creditors (although this is a significantly smaller factor outside the US) and the consolidation of third party collections suppliers in an attempt to ease the compliance burden. There is a need, however, to effectively balance compliance and performance, and those issuers who are starting to see third party suppliers as an extension of their internal collections teams are finding that the increased visibility and control of supplier activity which is required by regulators is exactly what is also needed to drive performance.

The key output of the IMF report was a requirement for closer collaboration between countries with regards to economic policy. The ‘globalization’ of Receivables Management means that we should look to do the same; learn from each other to gather global insight into solutions to the common challenges. Our view from across the globe is that those issuers with sound fundamentals – data, process and technology – are those that are able to remain pro-active and drive both performance and compliance improvements out of regulatory changes. Without these basics in place, creditors continue to react to requirements and are forced into sub-optimal decision making which is likely to result in compromised performance levels.



By Stuart Bungay, Director of International Expansion and RM, TDX Group

Council tax collection rates headed for a fall – in terms of results and reputation?

Listening to the radio on the way into work this morning, I heard a news story about ‘Bailiff’s chasing working parents for debt’. The CAB, whose research created the story, doesn’t mince their words when it comes to the use of bailiffs. Gillian Guy, Citizens Advice Chief Executive commented:

“We’re concerned that all too often debts, like unpaid council tax, are passed to bailiffs too quickly without recognizing that the person may be struggling and need help like repayment plans.”

Their press release goes on to state:

“Evidence from CABs has found private bailiffs frequently overstate their powers, act aggressively and bump up debts by levying excessive and illegal fees and charges.”

This got me thinking about the challenges the public sector face when it comes to collecting debt.

In recent years, and in the wake of elevated scrutiny, an ever increasing focus on adherence to regulatory standards and ensuring that we all treat customers fairly (TCF) has meant a revolution in the way that financial services companies have recovered debt.

In contrast, amid a climate of austerity and biting budget cuts, Local Authorities seem to have evolved very differently. The release of last year’s English councils’ collection rates for council tax and national non domestic rates (business rates) was met with much fanfare, however, the marginal improvement overall (0.1% percentage points on 2011/12) seems somewhat underwhelming when compared with the pace of change experienced in the private sector since 2008. What’s more, there is an argument that council tax collection rates are actually likely to fall in the present year because of the impact of welfare reform and the localisation of the council tax support scheme, meaning many people will be getting a bill for the first time. If this proves to be the case, clearly headlines will be very different. Interestingly, reading the facts and figures supplied by CAB on their website, 87% more people sought online advice about council tax this April compared to the same month in 2012 – and that’s before the real  extent of the changes start to kick-in.

So why do most councils have such a reticence to change? Having met with a good number of local authorities around the country I certainly don’t take the view that lack of change is due to any perceived public sector passivity - quite the contrary, in fact. The main problem here is a system that makes the ‘recovery method of last resort’ – bailiffs – the cheapest option. When compared with other methods of collection the cost of bailiffs is extremely high, however, these fees are born by the debtor so, from the councils’ point of view, the service is free. As a result, the innovative services and technologies widely used across the private sector have not been widely adopted because, whilst their overall cost is lower, they represent an incremental cost to the authority.

I appreciate the obligations of public sector bodies when spending tax-payers money, however, allocating all defaulted accounts to a bailiff relatively early in the process may be a short sighted view. Field enforcement has its place; however, a diverse recovery strategy can have significant benefits in terms of increased revenues and time to recovery. What’s more, engaging with citizens in a way that it is tailored to their situation is not only morally right, it creates an environment where the problem is less likely to recur the following year.

Local government is undergoing significant change and revenues departments are not exempt. The impact on recovery of the imminent setting of bailiff fees into statute under the Tribunals, Courts and Enforcement Act is as yet unknown. Whilst it is a long overdue shake-up of the enforcement industry, those councils with diversity of strategy will be best placed to manage the regulatory change. I do think, however, that these changes will offer a wider opportunity for local authorities to take a look at their collections and recovery strategy as a whole. By way of example, Most are already performance managing bailiffs to some extent; however some of the tools used in the private sector could greatly improve this process. In addition authorities should also consider initiatives such as e-collections, data sharing with the private sector and utilising the huge experience available through the specialist debt collection industry (DCAs). With the new charging structure coming into force in April a single bailiff visit is likely to cost the debtor £400 (assuming an inflationary rise and the addition of VAT) this will be politically very challenging for many debt types and the availability of alternatives will be crucial.

As has so often been the case in the past, challenges around procurement and contracting should not be used as a barrier to progression. In a climate of increased financial hardship, only by having a well-designed strategy, properly segmenting debt and having multiple channels for recovery can authorities increase collection rates, reduce operational cost and improve the citizen experience.

Paul Fielder, Strategic Account Director, TDX Group