Collection Compliance – “C” suite New and Growing Challenges
“Collection Compliance, isn’t that a concern about collectors, making sure that they say or do not say the right thing?” “In the weeds”, it kind of still means that. From the corner office, it now means much more.
If you have responsibilities to your institutions net income, you should read this article. If you have overall institutional compliance responsibilities, you should read this article.
In an environment of rapidly growing compliance challenges, the collections area is not often viewed as “compliance heavy”, especially from the “C” suite. That has changed dramatically in the past few years.
“We in-state collect our own debts. We sell servicing with our mortgages. So, we don’t need to worry about FDCPA or most collection compliance issues.” That can be a costly and often incorrect perspective.
Yes, recently, Freddie and Fannie made significant changes to required collection steps for their serviced loans. Yes, most core systems native collection capabilities are not allowing institutions to comply. For example, if you ask your collection manager or compliance officer how your institution is complying with the 3, 9 and 15 day required calls; and you do not get a firm answer instilling confidence in your institutions compliance, make sure that you increase your collection compliance failures budget for 2014.
Having Freddie or Fannie reject a foreclosed home, sold at the auction for a loss, as your institution did not comply with their required collection steps can be a significant unexpected hit to your institutions income.
State and Federal regulators too are adding a deeper review of the collection area to their examines. Although slower and less immediately financially impactful to an institution, some institutions are seeing pertinent write ups post state or federal exam. Proactively preventing problems is a superior strategy than urgently reacting to “the” letter.
The VA, FmHA and other government mortgage programs are all reviewing both their past due account collection requirements (and key audit trail of these activities), and institutional compliance to their required activities. Insurers too are managing their risk, controlling their costs, in part by responding with tighter collection step/action requirements. “Reviewing” and “managing” here mean increasing collection steps, your institution documenting those steps; and their review of your institutions compliance to those steps.
Twenty years ago, bankers thought it was tough to make money in the then regulated competitive banking environment. Today, most bankers would happily go back twenty years. Net Interest Margins are fully compressed. Operational efficiencies (operating costs, FTE’s) are about as realized as is possible.
The last new challenge that bankers need is growing uncontrolled risk and expense associated with failures at collection compliance. However, that is exactly what many are now facing. Or worse, are exposed to and do not yet appreciate their exposure…
Unlike many areas, at least this risk is fairly easily contained by leveraging proven high end, cost effective technology.