Banking, ordering a pizza, calling a taxi—these mundane tasks, and countless others, used to require a telephone call, if not an in-person errand. Now, they can be done online: whether through an app, a digital portal, text messaging, or email.
Debt collection, though, has been slow to adapt to the digital age, due in part to the risk that lenders and debt collectors might operate outside the ambiguous boundaries of dated regulation. These regulations — from the foundational Federal Debt Collection Practices Act (FDCPA) of 1977 to the Telephone Consumer Protection Act of the early 1990s — honed in on telephone calling, not allowing phone calls to borrowers at unusual and inconvenient times, for example. Failing to comply with the quilted patchwork of regulations that have accumulated over the years, in the name of protecting consumers, can result in substantial sanctions.
Ironically, the well-motivated objective of ensuring compliance has meant sticking with an outdated form of communication — one that consumers don’t prefer any longer — even as other more effective channels have emerged.
The good news for credit unions is that the Consumer Finance Protection Bureau (CFPB), formed in the aftermath of the Great Recession, has announced new proposed regulations, which modernize and clarify these existing rules. As part of the CFPB regulation review, new guidelines and rules will be introduced in 2020. For example, it is expected that rules about contacting delinquent members at unusual and inconvenient times will apply to text messaging, not just phone calls.
Industry participants may be apprehensive about these rules, and that’s understandable; the CFPB is likely to introduce significant policy changes which requires industry participants to adapt. We believe that the CFPB is also putting the industry on notice to improve the overall experience for Customers. Luckily, the shift to a modern, digital-first strategy will actually improve customer experience and collection rates alike, which is a win:win for credit unions that place significant value on the member experience.
Omnichannel outreach campaigns are far more effective than cold-calling delinquent members, as it meets people where they already are, whether that’s on email or text message. Just as easily as they can order a pizza through GrubHub, they will be able to pay down their debt with just a few taps.
According to an industry report, successful collection efforts for outbound calls were between 18% and 20% ten years ago. That’s been cut in half in the wake of robocalls, spam, and the mobile revolution. And it is likely to continue to show diminishing returns. According to a recent McKinsey report, however, digital-first communications improve response rates by up to 30%, as delinquent members prefer to be contacted by email or text. Not only is it more convenient, but it also avoids the embarrassment some borrowers feel when discussing past due accounts.
What does digital-first debt collection really look like, though? I believe sincerely that this creates an opportunity for this industry to offer the debt collection equivalent of integrated platform experiences like GrubHub or Uber. A debt collection portal can be streamlined and easier-to-use than typical websites. It can also leverage omnichannel communication to reach members on the platforms they use most and which can make it simple to pay past-due balances with a few clicks.
We recently introduced a standalone mobile payment portal for lenders and their debt collection partners called EasyCollect, which is an easy-to-use digital-first portal that is a prime example of the opportunities that exist under the new rules to ease repayment for members. Lenders simply log into the portal, upload their past-due account information, choose basic parameters (minimum payments, for instance), then choose from compliant email templates and campaign messaging. Lenders have a full audit trail; all the more reason not to fret over the new regulations.
Members then get payment reminders right to their mobile device and can log in to make a payment in just a few steps. Credit union members want to repay their debts and remain in good standing, but will respond better to digital-first communications than traditional methods. Credit unions are doing themselves and their members a disservice by continuing to rely on outbound calling when modern alternatives are available — particularly since the rules of the road regarding digital communication are now clearer.
In all, embracing omnichannel communications will be table stakes: for improving collection rates, for aligning with CFPB regulatory guidance, and for fulfilling your mission for members. Digital-first communications are the norm in countless other industries. In 2020 and beyond, the same will be true for debt collection.
Ray received a BA from Georgetown University and an MBA from Georgetown’s McDonough School of Business, where he is currently Chairman of the MBA Alumni Advisory Council.
Ray Peloso is President and CEO of Katabat, and sits on Katabat’s Board of Directors. He brings 25 years of diverse consumer lending experience to Katabat, having held executive leadership roles at Royal Bank of Scotland, Capital One, Citibank, and MBNA. Ray’s prior expertise in consumer credit and lending underpins a clear vision and understanding of the challenges faced by Katabat’s clients in today’s rapidly evolving digital economy.