Improving Lending with Best of Breed Collections with or Without Dodd-Frank Reform
Regardless of the extent and outcome of Dodd-Frank reform, and other legislative changes, bank collection system software still needs flexible and robust capabilities to accommodate any changes to existing regulation or lending volume; investor, guarantor, insurer collection requirements, competition pressuring net income require today’s banker to employ every tool available.
There may be good reasons to overhaul parts of the sweeping Dodd-Frank financial reforms, enacted in 2010 in response to the 2008 financial crisis two years earlier. However, concern about a slowdown in bank lending due to the regulation is up for debate.
President Donald Trump and Congressional Republicans promised to rollback a wide range of federal regulations — with Dodd-Frank a top priority. Some proponents of the Dodd Frank change say small businesses need reforms to encourage community banks to lend more, while still protecting small business owners from detrimental loans.
Opponents of the law argue that it has clamped down too hard on financial institutions and restricted the availability of credit for businesses and consumers. While sweeping in scope, the law Congress enacted left the precise rule-making to a patchwork of regulatory agencies.
According to CNBC: Statistics on bank lending since the passage of Dodd-Frank doesn't back up claims. Since the law took effect in July 2010, bank lending to businesses and consumers continued to hit new highs. Former Massachusetts congressman Barney Frank, the Democrat who co-sponsored the law, said that only one provision in the more than 850-page law directly restricted lending.
"It's one that says 'Please don't lend money to poor people, you can't lend money to poor people who can't pay you back for their mortgages,'" he told CNBC on Monday. "Literally that restriction on irresponsible subprime mortgages is the only lending restriction." Other parts of the law, he said, promoted lending.
Regardless of where the legislation is heading, for financial institutions, leveraging technology, putting checks and balances in place – preferably a fully automated protection – and integrating compliance to handle lending requirements is a key to containing or reducing collection compliance breakdowns and optimizing collections; and establishing the positive financial impact this can have on a bank’s bottom line.
Technology Improves Lending for Community Banks and Credit Unions Regardless of Current Regulations
Recent years have seen a tremendous focus on financial institutions collection operations. State and Federal regulators, investors, insurers, guarantors; all entities with regulation or financial responsibility related to loans have tightened collection obligations, and amplified their review of financial institutions lending environments.
This emphasis produces operational anxiety. Community financial institutions often lack staff depth and experience to comply with amplified collection requirements; and may lack the technical aptitude to guarantee compliance. Reliance on people and manual processes to get the right things done, on time and properly documented is often not the most cost effective strategy.
However, a best-of-breed collection system offers:
- Strong compliant collection documentation (eliminate/prevent fines and penalties, keep compliance costs down).
- The capability to keep delinquencies down, prevent charge off growth, and manage risk (reduce outstandings to lower ALLL, increase recoveries).
- A 360-degree view of each account relationship to alleviate the debt and preserve the relationship (collectors tailor strategies tuned to that debtors total relationship).
- Collection specific scores (contact-ability, collectability, overall recovery) during the loan servicing life, versus loan origination scores (maximize collection effort impact).
- The capability to deliver the best channel appropriate to serve collection workflows and yield the best possible results for the financial institution (communicate when and how each debtor prefers).
- Automated collector, portfolio performance tracking and reporting (track performance).
- Powerful collection technology that keeps outstanding delinquencies down, thereby lowering allowances for loan and lease losses (ALLL), preventing some charged-offs, providing for improved recoveries on prior charged-offs.
Modern Collection Software Allows Financial Institutions to Communicate Optimally, Improving the Collection Process
Best of breed banking collections software also allows the financial institution to offer various and flexible means to communicate with debtors.
Here are some elements collection departments should expect from different channels.
- Letters, Notices – Every action concerning sending a letter, a notice, a form, any documentation to the debtor, configured in your collection system for these to be completed automatically, based on the institutions selection criteria for each such form. For each document, the system identifies a required debtor action within a specified time frame, configures the next step to also happen automatically within the collection system; and creates a tickler in the collection system on the appropriate next action date, directing the collector to take the required manual next step.
The system also ensures the creation and storage of an electronic copy to the institution-wide document imaging environment.
- Emails — All actions allowing email communications configured in the collection system based on each bank or credit unions selection criteria for each such message. The system creates and sends the emails automatically with no human intervention required. The system also ensures documentation with the date, the time, and who sent what communication to which borrower.
For each document identifying a required debtor action within a specified time frame, it configures the next step to also happen automatically within the collection system; and creates a collector tickler created in the system on the appropriate next action date, directing the collector to take the required manual next step.
- Text Messages — Text messaging, a very effective communication method, produces extremely positive contact rates. Nevertheless, it is one of the most scrutinized collection steps, to which precise compliance is an absolute condition.
In this area, adding a message to the core-account servicing system allows for recording a debtor’s home, work and probably mobile-device number. Normally the collections team does not know if the phone number in these fields are for a cell phone, a Voice over IP phone or a landline. This is vital information because calling different types of phone numbers requires different regulations. The collection system must be able to define each phone number (cell, VoIP, land); to follow necessary requirements for each phone type.
Leveraging the collection system provider’s resources to operate with compliance staff safeguards the institution while staying on the right side of the compliance line. It also preserves all the benefits of this communication channel. The collection system vendor should guide the organization through both seeking debtor approval to text them, as well as maintaining records of that approval. Importantly, the vendor can also automatically block targeted text messages to cell phone numbers the institution lacks debtor approval to use; including “stop” requests interactively set by the debtor (the cell phone number owner) after granting approval.
Like other communication methods, the best of breed system creates and sends these text messages automatically with no human intervention required. The system also ensures documentation with the date, the time, and who sent what communication to which borrower. For each text identifying a required debtor action, within a specified time frame, the robust software configures the next step to happen automatically in the collection system, if it can be fully automated. Otherwise, the system creates a tickler file on the appropriate next action date, directing the collector to take the required manual next step.
- Voice Messages— Historically, calling debtors was the primary action for collectors. Today, most homes don’t even have a landline. More than half have wireless only when it came to phone service according to the U.S. Health Department. Only 6.5% of homes are landline only.
It is a false understanding that debtors cannot use automated calling to cell phones. Like all debtor calls, it is critical however that automated cell or VoIP calling be compliant.
For example, delivering an automated voice message to a mortgage holder where the mortgage involved a sale to Freddie Mac or Fannie Mae. During delivery of that voice message, if the debtor can press a button on their phone to connect to a live agent, that automated message is compliant.
Financial institutions can still save all the wasted collector time – dialing, listening to a phone ring, listening to a greeting; before leaving a voice message; or hearing a disconnected number error. Additionally, clear documentation for every call (attempt); and corresponding call result, is compliance mandatory. These robust collections systems provide power, flexibility; and personalized messaging. Some large institutions have loan officers prerecord messages in their name to the borrower they signed up.
High quality digitally recorded messages, combined with intelligent messaging leverages this high-end technology to improve service and deliver tailored communications to the confirmed right person, all at a fraction of the cost of manually doing this job. The collections system vendor should offer this strategy as a service without the need for a special phone or dialing equipment.
Modern voice message delivery has become so powerful, that “traditional” views that still are present are simply not correct. These systems provide such power, such flexibility; allowing message to be personalized.
An outbound message plan executes a compliance policy, delivering compliant per an institution’s call schedule. Some message may be simple one way “alerts”, to one segment of borrowers, while other messages may be more comprehensive, directed to a different group of borrowers.
Should you prefer to automatically leave a message, to a machine or a debtor, that includes confidential information, implement the right party verification process within your collection systems voice messaging engine, that meets your institutions requirements while remaining compliant.
Work with the collection system provider, to define the nature of groups of messages, so the out bound messaging system can monitor and run-time adjust its outbound message pace to maximize debtor-to-collector contact, and not loose debtors seeking to speak with a live person yet hanging up due to unacceptable hold times.
Like all debtor message channels, ensure your collection system clearly documents each outbound message (the date, time, who left what message to which borrower); as well as the clear next step required by your institution as a tickler within your collection system.
All in the Channel
A flexible and robust collection system should allow engagement with customers in their channel of choice automatically without totally removing old fashioned human contact even if loan volume increases substantially. It's key for financial institutions not to allow technology to totally replace customer engagement and connectivity.
In addition, review the collection system reporting, to ensure it delivers necessary reports for all needed parties.
Virtually every core system has some native collections module. Often the vanilla version’s capabilities are inadequate for today’s environment. In the mature highly competitive merger-acquisition market of core account processing systems, it is not realistic to expect these vendors to invest research and development money into core collection modules, keeping them up to today’s very dynamic, demanding segment of the market.
Look for a full-blown version rather than a low end/entry level version, serviced by knowledgeable collections system support professionals. Integrated robust collections software improves net income by holding and reducing costs, preventing some charged offs, and increasing increase recoveries improves compliance.
Your collections department and ROI will thank you.