Regulating Debt Collection
Bank collection and recovery departments face increasing scrutiny over regulatory issues from the Consumer Financial Protection Bureau. Advanced software systems can help keep things in line to prevent problems.
In the past several years, the CFPB entered into consent orders with banks, debt buyers, and other lenders to regulate increasing information needs, debt sales and assorted practices. The CFPB's enforcement actions helped eliminate problematic practices involving debt sales and data loopholes as well as limiting the call volume to borrowers.
Although most bank debt-recovery departments try to follow the law, because regulatory bodies have yet to define acceptable practices when it comes areas such as electronic communications, it makes following the rules tricky. For instance, new communications routes, such as texting and sending emails to consumers, require clearer guidelines to address common issues.
Bank collection software can address numerous challenges such as automating important tasks during audit planning, fieldwork, reporting, and follow-ups. Systems permit employees to store and collect data on continuing investigations. Innovations, for example, can automatically recognize past due accounts and speed up the process thereby freeing up officers to perform other tasks. The systems also allow for flexibility in addressing regulatory issues as well within the process.
Evolving and new regulations have challenged financial institutions in many ways. Those adapting have a competitive advantage.
Regulatory hazards have become major and constant concerns for financial-institution executives. Additionally, the scope of regulatory focus continues to expand. Areas including mortgage servicing, anti-money laundering, and third- and fourth-party hazards, among others, have seen expanded scrutiny from regulations.
Organizations used to broadcast regulations and internal bank policy mostly in a consultative capacity with a narrow focal point on real risk identification and management. Often, business managers deciphered what explicit controls dealt with regulatory requirements, typically requiring labor-intensive control activities with uncertain success.
It is no wonder many financial institutions struggle with the basic problems such as regulatory literacy, accountability, performance incentives, and risk culture.
The Compliance Challenge
An emerging best-practice model for compliance in banking needs to rely on three core principles to address these challenges, according to an article from McKinsey & Company.
- An expanded role of compliance and active ownership of the risk-and-control framework
- Transparency into residual risk exposure and control effectiveness
- Integration with the overall risk-management governance, regulatory affairs, and issue-management process
In CFPB’s fifth annual report summarizing activities to administer the Fair Debt Collection Practices Act, the agency highlighted multiple areas of concern in the debt gathering space. Some of the top issues were the integrity and flow of information within system; time-barred debts; unfair, deceptive and abusive acts and practices; and first-party collectors.
It is expected new language will emerge as to what conduct is deemed unfair, deceptive or abusive in and bring into greater focus activity that may have been in a grey area under the FDCPA.
When will that shoe drop? Will your organization be ready to handle those changes?
In addition to providing the right technology, IBS offers clients with ongoing and dependable training for your staffs to assure regulatory observance. Our Online Self-Guided User Training Modules provides interactive training at no additional cost to support IBS clients.