2020 Collections: What Success Looks Like

January 16, 2020

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    The successful financial institutions in 2020 will be using digital collections to weather an economic downturn

    Andrew Domino, blog Andrew Domino, Chief Operating Officer

    By now, you’ve probably noticed that there are no shortages in the number of predictions regarding the scale and timing of the next economic downturn.

    While we can’t accurately predict how this negative macroeconomic event will play out, we do know what’s ahead in 2020 for debt collection: More consumers will default on their loans. That means that we’ll see more lenders collecting—for the first time—through digital channels.

    2020 promises to be a game-changer for the debt collections industry.

    If you’re lagging behind in digital, opening a digital channel is a critical step to both safeguard and boost your debt collection revenue in 2020.

    New rules in 2020 could signal the end of the phone channel for collections

    Last spring, the Consumer Financial Protection Bureau (CFPB) proposed a new rule that significantly reduced how many phone calls debt collectors can make to debtors. At the same time, the agency provided guidance on how to communicate with debtors digitally.

    To our inhouse experts and legal associates at Ballard Spahr, these proposed new rules signal the end of the phone channel for collections.

    At the same time, they do offer a new path forward to engage with consumers where they are—digital. And, while the proposed new rules initially focus on third-party agencies, we believe the CFPB and other agencies will leverage UDAAP to apply these changes to first-party collectors—and that means you.

    A new path forward: 3 steps to shoring up your digital collections in 2020

    What can you do to prepare for 2020’s double whammy on debt collections—a possible downturn and new rules limiting telephone collections? Your financial institution should take these steps now to determine your readiness for weathering both the economy and changes to how you conduct collections:

    1. Assess how well your digital banking capabilities meet your customers’ needs in today’s digital world

    • Understand which functionality you already have in place for current customers
    • Determine the gaps—how that functionality falls short—that prevent you from effectively serving consumers in financial hardship

    2. Prioritize your gaps

    • If you have limited digital capabilities, identify which digital channel to open or improve first and execute on that plan flawlessly
    • Build your plan around delivering user-friendly, efficient functionality and superior customer experience, whether via email, SMS, mobile or self-service online portal

    3. Make your customers’ journey through the different channels smooth. The success of your digital engagement hinges on it

    • Your channel should be fully functional (able to handle all customer actions and requests) when you open it
    • Practice holistic communication—use both digital and conventional channels. Digital-only communications (e.g. text notifications, emails or pop-ups) won’t be successful

    Simply opening digital channels won’t be enough

    The steps above will position your organization to turn challenge into opportunity during a period of deep change and uncertainty. But the impact of these changes on the industry is more complex than simply engaging a digital channel.

    Financial institutions must first identify—and address—all the regulatory and operational gaps that prevent them from being effective and compliant under the new digital landscape.

    That’s why we recently launched a Joint Initiative for Digital Collections with Ballard Spahr. Together, we’re helping financial institutions be efficient, effective and successful in third-party and first-party digital collections for customers experiencing financial hardship.

    2020 promises to be a game-changer for the debt collections industry. For companies that proactively embrace digital and operationalize to the new compliance requirements of the proposed new rules, the new year will also bring opportunity.