The topic of risk mitigation and compliance is always at the forefront of any contact center operations. Managing federal and state regulations has become increasingly more difficult in the past couple of years. Add that to the staggering number of requirements and subsequent reporting needs to actually prove compliance and now you have yourself a full-time job, or even a fully-staffed department. But, of course, compliance is not your sole primary objective. You must also develop and execute contact strategies to increase right-party contacts and, ultimately, revenue.

I recently hosted a joint webinar with LexisNexis, Best Practices for Collections Risk Mitigation, highlighting the current state of risk mitigation as it pertains to database and platform management. It was clear by the litigation statistics that the trend of lawsuits is not going to slow. FDCPA compliance is clearly the greatest concern, as 87% of the lawsuits filed under consumer statutes this year pertained to it. The analysis of the root problem shows a clear inability of most organizations to control functions that are necessary at the platform level; and a need for automated processes to reduce risk and error.

Are you capable of adapting to an ever-changing landscape? Does your infrastructure give you the flexibility? Here are some of the functions that we see as necessary to addressing the main issues of compliance, as both you and the payer base evolve with technology and regulation changes:

• Safe Window Dialing – In the age of phone number portability – it’s extremely important to understand that the number obtained for your contact is not necessarily representative of their physical location. Detecting these mismatches and dialing in a “safe window” is the key.
• Phone Type Identification and Campaign Treatments – The ability to determine a phone number type allows you to select specific treatments within campaigns. Unique to the SoundBite Engage platform, you can take a single list, split it by device type (wireless vs. landline) and then run concurrent passes with different channels – preview and dialer, for example. This creates a competitive edge while ensuring compliance at the device level.
• Automation Efficiency – Timeliness of data and processes relating to automation can protect you in a variety of ways. This could be your Do-Not-Call/suppression lists, or even a mid-day scrub from a third-party provider where you have identified some risky debtors in lists that have already been loaded to your dialing platform. This automation can also include your call history or detail export for processing on your host system.
• Preference Management – You gain a greater and deeper understanding of your payer base and uniquely support the growing need to manage and honor evolving customer preferences, across all the communication channels – voice, text and email. Collecting and tracking consumer opt-ins to honor permissions provides a record – which keeps you compliant with FTC regulations and leads to a path of building an opt-in database.

We understand the importance of product and development of the compliance suite, but, in addition, SoundBite has feet on the ground – working hard for the contact center industry. We have focused our efforts in attempting to advance change in the regulations – change that makes sense for both the industry and the consumer.

In the end, we all need to be able to comply. One of the benefits of being a cloud-based provider is the flexibility in software development and the ability to create tools that help you gain a level of control in the platform. This will lead to risk mitigation, and ultimately, let you get back to your job at hand.

To learn more about risk and compliance from SoundBite and LexisNexis, please listen to the podcast Best Practices for Collections Risk Mitigation.

As a Senior Solutions Consultant in SoundBite’s Contact Center Business Unit, Jeff works directly with our clients to develop and implement communications strategies and solutions. Jeff stresses the importance of delivering solutions that are not just functional, but streamline processes that are directly correlated to client initiatives, business acumen and strategic vision. He plays an active role in the product, sales and marketing strategy as well as long-term positioning of the Hosted Dialer product. Jeff has over a decade of experience in the Collections and Telco industries, most recently as a Director of Telecommunications and Quality Assurance. Jeff can be reached at jstroum@soundbite.com.

As more consumers become accustomed to conducting business online, and are ever more trustful of electronic payment security, debt collectors are recognizing that giving debtors the ability to self cure on their own time will result in more dollars collected.  Most ARM companies now have robust online payment and acceptance platforms, regardless of their size.

But there are emerging technologies that take the payment portal concept to the next level. Not only can collectors point a consumer to a portal where they can pay at their own convenience, but there are platforms now that can help with some of the negotiation work.

Payment platforms with Web Agents are virtual online payment portals through which collection organizations can interact with consumers intelligently, accept debt payments, and even negotiate settlement terms automatically, based on flexible rules set by the organization. Most often, these systems are accessed through the Internet as Software-as-a-Service (SaaS).

Customers login to a user-friendly website branded with the client company’s name and authenticate their identities according to pre-set criteria. Once logged in, the Web Agent — a virtual avatar — guides customers with a customer-friendly emphasis through an interactive experience similar to a typical collections talk-off session. Most Web Agents come with standard session rules templates, but those rules are customizable so collection managers can adjust settlement criteria and limitations.

This experience allows a consumer to address their delinquent accounts on their own time. After receiving traditional collection communications, like letters and calls, directing the consumer to the portal, they can access and cure their account at a time most convenient to them. Not only does a system like this allow collection agencies to take all forms of electronic payment, it extends the collection day beyond the 8am to 9pm local times mandated by the FDCPA.

Giving consumers the most options to pay you is obviously important. But with leading edge technology, you can stretch your collection floor beyond the physical boundaries of your offices.

Bill Wells is Market Planning Consultant, Receivables Management for LexisNexis and is a 20-year credit and collection industry veteran on both the customer and vendor side.  He has been involved in every aspect of the industry including active collections, operations, agency management, sales, and IT.  Bill is currently supporting the LexisNexis Collect Point application through business development and implementation.

Emerging contact channels like email and SMS (text messaging), and new service technologies like payment and self cure portals represent an exciting opportunity for ARM operations to interact with consumers. But simply investing in platforms for these systems will not instantly drive the results companies are looking for. In fact, if not properly integrated, they could cause more headaches.

A fantastic new self cure, self pay portal for debtors is useless without live collectors, traditional mailing, or IVR campaigns to steer consumers to it. And would it make any sense to set up a new payment resource that does not utilize the existing acceptance infrastructure of a collection agency?

Likewise, giving collectors the technological ability to send a consumer a text or email is a dangerous proposition if the communications aren’t automatically noted in a company’s existing collection software suite.

We have been listening to our ARM clients work through these issues and now offer a single-platform receivables solution for managing collections and payment processing. There is no doubt this will be an ARM technology trend going forward.

The concept of process standardization is critical to integrated systems. Disparate systems can lead to data that is hard to read or understand, or worse, is corrupted. A standardized format system will ensure data integrity when segmenting portfolios, assigning accounts, executing correspondence, managing the skip tracing process, processing payments, and documenting all interactions.

Collection professionals should also consider assessing systems delivered through a Software-as-a-Service model. Leveraging the Cloud means that updates, upgrades, maintenance, and support are handled remotely, rather than requiring an internal team to monitor the system. Running the system though online servers also offers users a level of redundancy and protection of sensitive data.

Technology has already, and will continue to, change the ARM industry. But with all of the advancements, it’s important to remember the current tools that drive the best results. By taking the time to integrate new technology with the old in a standardized system, collection professionals can use what they need while leveraging a platform that can be expanded to accommodate emerging technologies with seamless integration.

Rob Fite is the Vice President of Collection Solutions for LexisNexis® Risk Solutions, and brings with him nearly 20 years of experience in the fields of collections, credit, and risk management. At LexisNexis, Rob is responsible for leading LexisNexis collections market strategies, product development, business direction and revenue growth.

A huge sector of vendors has been in place to supply accounts receivable management operations with analytics packages to score and route accounts to the right collection departments. Many software suites are used by collection managers to effectively predict a portfolio of account’s likely revenue. These projections are critical to collection business planners in the budgeting and forecasting process.

But ARM organizations are now using a new set of tools to identify accounts that require special treatment before they are routed to collectors and before they are factored into predictive equations. And they are doing it not only in the name of revenue, but to mitigate risk and ensure legal compliance.

By accurately identifying and updating accounts that are mostly likely to cause legal trouble, collection departments can confidently forward remaining accounts to predictive analysis and collection.

Increasing the Likelihood of Call Compliance

First, cell phone numbers must be identified for special handling. It is, of course, illegal to call cell phones with an autodialer. But the recent proliferation of mobile phones has led to compliance issues on other fronts.

Call time violations – calling consumers before 8am or after 9pm, local time – have traditionally been the easiest to avoid. Reputable collection agencies have always gone to great lengths to prevent collectors from calling accounts outside of mandated hours; and it’s typically been easy since the vast majority of Americans live in only four time zones.

But population migration combined with ease of phone number porting has led to a dramatic increase in consumer complaints about collectors calling in prohibited hours.  Since a consumer can open a cell phone account in California and keep that number when they move to New York, more care has to be put into verifying a consumer’s residence than simply relying on an area.

Add to the mix the increased ease of porting landline numbers to cell numbers and the situation becomes very sticky. An absolute verification must be made on a place of residence when a cell number is identified, especially one that has been ported from a landline.  Collectors no longer have the luxury of assuming an address originally attached to a phone number is still valid.

In addition to identifying cell phone numbers, collection portfolios must be scrubbed for all of the other types of accounts that have special limitations. Bankruptcy is the highest on this list. If a consumer is in bankruptcy, it is imperative that debt collection operations know. In addition, data about deceased debtors, incarceration, and potential fraud must be run against any collection portfolio.

Reducing Consumer Litigation Risk

The “low-hanging fruit” in the litigation risk mitigation world are accounts belonging to consumers that have previously filed legal action against ARM firms. There are a handful of services — many of which integrate with current analytics suites — that can identify such accounts in any portfolio. Here, collection agencies are taking a proactive extra step to ensure they are not unknowingly calling on a person that has previously filed a lawsuit claiming FDCPA or other consumer statute violations.

After those few accounts have been identified, the task becomes spotting accounts that could lead to lawsuits from consumers that have not previously been involved in litigation. This is a little trickier.

Recognizing consumer data patterns that may lead to litigation is an art that is not yet fully fleshed out. But a good rule of thumb is to stick to behaviors that govern collection call compliance. After all, a consumer can file a suit much easier than a state attorney general for a violation of the FDCPA.

By spending more time and effort before a collection call is ever made, recovery departments can dramatically mitigate some of the risk inherent in collection work. And with so many vendor options available, it is relatively easy to start the process.

The most important thing creditors should do is to have a good bankruptcy notification process in place, so that they can stop credit card use or shut down accounts that have open credit. They can also be aware of multiple filings if they have a notification process in place.

For larger balance accounts, they will want to review the bankruptcy schedules and the plan. If a customer’s loan is for property that is mostly in a vacation home area, creditors can make sure that the property is listed properly in the schedules, and if they aren’t they should contact the Trustee immediately. If your customer deals largely with commercial debt, they should watch these accounts extra closely, especially those with large balances,  because businesses are where the larger bankruptcy fraud cases take place; and it usually takes place in conjunction with other white collar crimes.

In particular, creditors should watch for the following bankruptcy fraud warning signs:

• Concealment of assets
•  Multiple bankruptcy flings
•  Unusual depletion of assets shortly before the bankruptcy filing
•  Unanswered questions or incomplete information on debtor’s schedules and statement of financial affairs
•  Frequent amendments to schedules, statements of financial affairs and monthly operating reports.
•  Inconsistencies among recent financial statements, tax returns and debtor’s schedules and statements of financial affairs.
•  Frequent dealings in cash rather than recorded transactions
•  Transfer of property to relatives or a real estate management company
•  Payoff of loans to family members

In the end, it’s really a case-by-case decision on whether to report bankruptcy fraud. If your balance is small, is it worth having your name in the news for going after a consumer?

Bankruptcy fraud cases are investigated by the Internal Revenue Service’s Criminal Investigation’s Bankruptcy Fraud Program. Cases are then referred to the Department of Justice for prosecution

If you report, you need to make sure to have enough proof so that the IRS can do its job and take the action needed to bring the fraudster to justice. If you do suspect bankruptcy fraud, and do want to report it, information can be reported to:

USTP.Bankruptcy.Fraud@usdoj.gov

Or by mail to:

Executive Office for U.S. Trustees
Criminal Enforcement Unit
20 Massachusetts Avenue, NW
Suite 8000
Washington, DC 20530

There are 4 main types:

1. Concealment of Assets:  This is the most prevalent type of bankruptcy fraud and constitutes approximately 70% of the bankruptcy fraud that takes place. Concealment of assets happens when a person either hides assets (property, vehicles, etc.), or transfers them to another person just prior to filing bankruptcy. Concealment of assets is on the rise because of the new “means test” that a person has to go through before filing for bankruptcy. For the means test, one thing a person has to prove is that they don’t have enough assets to pay off their debts. While they are not required to sell their primary residence or their main mode of transportation in order to pay their creditors, things like vacation homes, cabins, boats and collector cars could be considered an asset that could be liquidated in order to pay off creditors. If the bankruptcy debtor wants to keep these things they will often times try to hide these assets or temporarily transfer them into someone else’s name.
2. Multiple Filings:  Multiple filings take place when individuals file for bankruptcy in more than one state, using their real names and information (such as Social Security Numbers), false names and information, or a combination of the two to file the claims. The filers tend to list the same assets on each fraudulent claim but deliberately fail to include every asset. This, like concealment of assets, fraudulently protects their valuables from total liquidation when debts are paid. Another type of multiple filing occurs when a debtor files one bankruptcy right after another in order to not pay a debt that was found non-dischargeable in a previous bankruptcy filing.
3. Petition Mills:  Petition Mills are a fraud in which the perpetrator poses as a financial advisor, sometimes as a credit counselor or paralegal, filing hastily-prepared bankruptcy documents in the name of victims who come to the advisor as clients. The bankruptcy filing is often both incomplete and inappropriate for the victim’s condition; and, often, the victim does not even realize that a bankruptcy has been filed. This happens a lot in situations where the debtor is about to be evicted, and the perpetrator proposes to help them avoid the eviction. This also happens a lot in situations where the victim does not speak English.
4. Bustouts:  A Bustout is conducted by a company that is set up to fail from the outset. The operator obtains merchandise from creditors, disposes of the goods (usually for cash), does not pay suppliers and then files bankruptcy. Another type of  Bustout and one that that our credit card clients would generally see is a debtor who racks up high bills on luxury items on credit cards and then files bankruptcy shortly after the items are purchased.

These are the most common types of bankruptcy fraud, but how should creditors address the problem? We’ll tackle that in our next post.

There were just over 1.4 million bankruptcies filed in 2009 and almost 1.6 million filings in 2010. The Bankruptcy Act change of 2005 was meant to reduce the number of people filing for bankruptcy, and for those who did file, it was meant to push more towards chapter 13 so they would repay their creditors rather than discharge their debts in a chapter 7. However, just 5 years after the Act went into effect, we are back to pre-2005 filing rates, and even higher. Additionally, as a result of some of the changes in the act, a new situation is coming forward; bankruptcy fraud. According to the Department of Justice, approximately 10% of the bankruptcy cases filed contain some sort of bankruptcy fraud.

While creditors can be pro-active and monitor for bankruptcy filings, bankruptcy fraud is something that isn’t as easily detected. Even if they know the warning signs to look for, it is often too much work to try to bring a fraudster to justice.

If the Department of Justice’s figure is correct, and 10% of the case field has some sort of bankruptcy fraud, that means that in 2009, when there were 1.4 million cases filed, there would have been 140,000 cases of bankruptcy fraud. However, according to figures posted by the IRS in 2009 only 18 investigations were initiated and only 13 people were sentenced.

So why don’t more people get prosecuted for bankruptcy fraud?  Well first, they have to be caught.  Bankruptcy attorneys and trustees take the debtor at their word when they file for bankruptcy. They generally don’t do any checking for assets. Although more recently, trustees have been starting to dig a little deeper to look for assets on chapter 7 cases. This is because the rules have changed as to how trustees get paid for chapter 7 cases. It used to be a flat fee, but now they are given a percentage of the assets they find that can be liquidated.

Another reason that more people aren’t prosecuted is that they simply aren’t reported, or if they are reported there isn’t enough information available to proceed. While the reporter of the fraud doesn’t have to give their name or company info, if they don’t give that info, and there isn’t enough info to proceed, the IRS will simply drop the case. If the reporter gives their name or company info, then there is a chance for bad press if the info gets out to the public. So much of this fraud continues to go undetected.

For these reasons it is absolutely critical that creditors understand that risks of bankruptcy fraud, and the steps they can take to try to mitigate them. In our next post we’ll look at the 4 common types of bankruptcy fraud.

The economic downturn that began in 2008 dramatically changed the lives of consumers and the future of many businesses. It also significantly altered the landscape of the receivables management industry and created a new normal for those businesses. While the U.S. seems to be in a recovery period, market conditions and collectability are still in flux due to the economy. Collection professionals are facing changes in their portfolios due to the new mix of business and the volume of collectability, and legal and compliance challenges continue to mount.

In many respects, 2011 has mimicked 2010, and it seems 2012 is poised to be another year of the same. Unemployment continues to remain in the 9 percent range and shows no signs of decreasing. Liquidity is down from traditional norms of anywhere from 25 to 50 percent, depending on type of debt.

Historically, consumers would either raid their savings accounts or use their home equity to pay off debts. However, in today’s market, consumers have exhausted their savings—many have even dipped into their retirement funds—and homes no longer have equity. In addition to the problem of liquidity, the volume of debt against which consumers can collect is also starting to shrink. For collection professionals, this is the worst-case scenario—there are fewer accounts to collect against and the liquidity consumers need to repay their debts has rescinded.

Another reality of the new norm is the heightened focus on regulatory compliance and the associated scrutiny that comes with it. Both the federal government and state lawmakers are enacting new legislation geared toward further protecting consumers. The federal government recently created the Consumer Financial Protection Bureau, which is tasked with rulemaking, supervision and enforcement of federal consumer financial protection laws, as well as taking consumer complaints. Many states are going above and beyond federal measures as well.

Many collection professionals and businesses are succeeding in this new reality, largely by accepting that success means doing more with less. Right now, the ability to effectively maintain and grow a business and do more with less in the receivables management industry is dependent upon changing your business strategies, specifically:

• Improving your technology and adopting new technologies.
• Gathering and using increasingly advanced insight about consumers.
• Stepping up efforts in risk mitigation compliance.

 Investing in Technology

When the economic downturn began, businesses pulled back on their investments in technology. This reaction occurred predominantly because technology upgrades require capital investment, and other priorities took precedence. As a result, many businesses are using legacy technology platforms that restrict the ability to drive efficiency and automation.

Every organization can benefit from streamlining processes, increasing automation and optimizing efficiencies.

In order to achieve the benefits of more advanced technology capabilities and features without the capital investment, many businesses are turning to cloudbased technology.

The benefits of cloud-based technology include minimal upfront capital investment coupled with minimal set-up and implementation time. This allows collection agencies to replace or enhance their current platforms more quickly while managing costs more effectively. Cloud-based technology also offers the option of moving your entire platform onto the cloud or augmenting your current system with new “bolt-on” functionality to extend its life.

Adopting cloud-based technology also enables collection businesses to increase their effectiveness by taking advantage of market opportunities. For example, right now data security is a huge priority for individuals and businesses alike. Many legacy technology systems don’t adequately address security concerns, and implementing a new system through traditional means (via hardware and software purchases) can take up to a year. By moving to cloud-based technology, a collection agency can add new customers by showing that it provides greater security coupled with greater efficiency. In addition to gaining new customers, agencies will reap other rewards—increasing security comes at a high cost that clients aren’t willing to pay, and cloud-based technology offers a way for collectors to absorb this cost in a way they can live with.

Consumer Insight

In the credit and collection industry, you often hear people talking about the need for more data. The truth is, it’s not more data that’s needed—it’s more insight into the data. Understanding consumers and their behaviors can drive your competitive advantage. The key is to gather more insight by working with fewer people. There are more benefits to be gained by consolidating data suppliers and working more closely with a select few to leverage the data they provide more fully. Insight comes in different forms, but it starts with understanding the individual with whom you are dealing.

There are four primary consumer categories that collectors (from both a first- and third-party environment) may encounter in their recovery efforts:

• Slow Payers: Slow payers are habitually behind on payments. There are many historical reasons for slow payers (young people tend to pay slowly early in their credit lives, for example), but since the onset of the recession, this group has expanded. For instance, many consumers have been turned into slow payers by a loss of income or extraordinary debts—such as a large medical bill—exacerbated by economic stagnation.
• Consumers with Willingness but No Ability to Pay: This is arguably the group that has expanded the most since 2008. These are individuals who really want to honor their obligations but do not have the resources to do so. Unemployment is the main driver here.
• Consumers with Ability but No Willingness to Pay: These are people who are trying to work the angles to avoid debt payments. These consumers, despite full employment and minimal deterioration of assets, will try everything to avoid paying what they owe. They also tend to be very savvy when it comes to credit use and collection practices.
• Credit Criminals: This group includes fraudsters, habitual offenders and professional litigants. Individuals in this group—which is rapidly growing, thanks to the Internet— often never pay, even with a legal judgment.

Actionable insight leads to understanding what type of consumer you are dealing with, and in turn this allows for segmentation, prioritization and setting a strategic course of action. If a consumer is single, doesn’t own any assets and has had four addresses in the last seven years, you can assume he or she is going to be harder to contact than someone who is married with two children, owns a home and has relatives living nearby. The difference in these two individuals is stability, which often correlates with contactability—and contacting a consumer is the key to debt repayment.

Another example of actionable insight is staying abreast of trends. According to Monster’s 2009 and 2010 Annual Job Survey, 40 percent of college graduates who have graduated in the last five years are living at home with their parents. Knowing this, if a collector is trying to locate a 25-year-old consumer, obtaining contact information for not just the individual but his relatives will likely yield the best results.

Valuable insight is not limited to individuals; insight into the market helps businesses with their strategic planning. For instance, the fact that the volume of bankcard debt has dropped tremendously has led many receivables management firms to redo their business plans to include seeking out new customers in different industries. The collection firms that are able to grow their businesses right now are doing so because they are diversifying into other types of debt, such as health care, municipalities, telecommunications and utilities.

Ultimately, insight provides collection agencies with the ability to segment and prioritize across the business with the goal of focusing limited resources—time, money and effort—to drive the best results.

Risk Mitigation

 Certainly, there is always a level of risk in the business world. However, in the receivables management industry, risk has spiked in the last few years due to heightened regulatory compliance, increased scrutiny and the financial ramifications at play. Collection professionals are actively looking for ways to reduce or better manage their risk. At the core, improved risk management comes from having better controls in place coupled with a better understanding of the strategies you are invoking.

Traditional reporting and tracking used to be enough, but it’s not anymore. In today’s world, for every action or step taken, a collection professional must note what occurred and have rules in place that allow for quick course correction if needed.

The ability to implement more advanced controls comes from having an infrastructure in place that continuously takes into account your collection strategy and tracks the details and outcomes on each interaction with each customer. Monitor at a granular level and adjust quickly when needed. Without the proper metrics tracking, strategy monitoring and associated controls of real-time risk mitigation, a collection firm is highly exposed to legal action, financial penalties and reputational damage.

Collectors who can leverage the latest technologies, drive greater insight and optimize operational effectiveness while mitigating risk are the winners in today’s new norm. Anyone operating in the receivables management industry who doesn’t adapt will have limited longterm success.

The thought is that having “all of your eggs in one basket” is a bad thing. But the challenge for most agency owners who are grappling with this decision is how long it will take to actually execute.

For collection agencies focused on the credit card sector, in most cases, it took them a couple of years or more to obtain the business from one of the top five credit card issuers, and those years included many hurdles: the endless phone calls/meetings, dealing with attrition within the recovery department, endless paperwork, meeting data and physical security requirements, obtaining SAS70 or PCI certification, waiting for volume to finally be placed, working their way to better volume that is more collectible, etc. Those that have done it know exactly what I am talking about.

When a collection agency finally lands a big client, the hope is that it is going to be profitable in 6-9 months and this client will act as the next reference to obtain the next big issuer logo. Once you have obtained them as a client and have gained all of this experience preparing to service them, now how do you then leverage it into another asset class?

Building your brand and establishing yourself as a player in a completely new asset class requires an action plan and a capital commitment on the agency owners’ part. With a different work flow and collection techniques, a whole new set of decision makers to build relationships with, and many other variables, any move will take time.

Diversification Options

Agencies who are being impacted by the volume declines in the credit card sector are considering the following options:

1. Leverage the existing platform, relationships and prior collection experience into a complementary vertical such as auto or student loans.
2. Focus on going after business from well-capitalized debt buyers that are buying volume your agency has experience servicing.
3. Hire a sales person who has a network of contacts in another vertical.
4. Purchase debt either on a forward flow or one-off basis from its existing credit card clients to tie them into a relationship.
5. Merge with another agency to become a larger and more scalable player in the eyes of the credit card clients.
6. Make a strategic acquisition to enter a new vertical market.

After you’ve made the move, the really tricky part starts: successfully collecting on a new debt type. Consumers treat their credit cards much differently than their cell phone bills. All of a newly diversified collection agency’s internal processes will need to be reworked to accommodate a different type of debtor. This will require new investments in training, and even hardware and software.  But if it were easy, everyone would do it, right?

Michael D. Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly from Kaulkin Ginsberg’s Philadelphia office at 240-499-3808 or by email. You can also read his blogs on insideARM.com.

So what’s the decline we’re talking about? Simply: total credit card debt outstanding fell more than $180 billion from mid-2008 to May of this year. Charge-offs certainly had a huge impact on this decline, as average writedown rates at all banks topped 10 percent for four straight quarters from Q3 2009 through Q2 2010. But I also think that those consumers who can pay down debt have been attempting to do so.

These individuals – we’ll call them “payers” – are who all collectors look for when placing calls: those willing and able to make debt payments. Recently, many have been forced into this behavior due to the nature of the card market (lower credit limits, attractive consolidation options, etc.). But these people are still payers.

It’s the non-payers that ARM companies worry about.

I’ve identified four primary debtor categories that collectors (from both a first and third party environment) encounter in their recovery efforts, and ways to deal with each:

Slow Payers – Traditionally speaking, slow payers are habitually behind on primary payments and arranged payments. There are many historical reasons for slow payers (young people tend to pay slowly early in their credit lives, for example), but since the onset of the recession, this group has expanded. Normally-prudent debtors have been turned into slow payers by loss of income, or extraordinary debts – like a large medical bill – exacerbated by economic stagnation. Since slow payers are still payers, gentle, frequent reminders to pay often work best.

Debtors with Willingness but no Ability to Pay – Probably the group that has expanded the most since 2008, these are people who really to want to honor their obligations but honestly do not have the resources to do so. Unemployment is the main driver here.  Legitimate members of this group naturally engender empathy from collectors, and as a strategy, recovery efforts should focus on an empathetic approach. More long-term payment plans, post-dated checks, and patience will do the trick.

Debtors with Ability but no Willingness to Pay – These are people who are trying to “work the angles” to avoid debt payments, despite full employment and minimal deterioration of assets. These debtors are very savvy when it comes to credit use and collections practices.  As such, they may use phrases like, “Where’s my bailout,” threaten bankruptcy action, or launch into lengthy prosecutions of the legality of debt itself. Regardless, they are putting up verbal roadblocks to paying. Firm reminders that their debt is legal and that they do owe it tend to work here. If not, there’s always the legal channel.

Credit Criminals – This group includes fraudsters, habitual offenders, and professional litigants. If you identify members of this group – which is rapidly growing thanks to the Internet – avoid them at all costs. They will not pay…ever. Even with a judgment. For credit criminals, effective account scrubbing tools that search for lawsuits and incarceration can help.

There is no silver bullet for every type of debtor out there. However, by gaining more insight about which of the above categories a debtor most likely falls into will help collection strategists chart a course for their frontline workers.  With that said, many firms are employing “listening and learning” techniques and are leveraging  multiple external data sources (public records, demographic / lifestyle data, and credit data) to help them better segment their debtors into these primary debtor types.   Once the accounts are segmented into the four debtor types, the key is continuous champion / challenger testing of different collection approaches for each debtor segment, in a never-ending effort to optimize collections results.

Rob Fite is the Vice President of Collection Solutions for LexisNexis® Risk Solutions, and brings with him nearly 20 years of experience in the fields of collections, credit, and risk management. At LexisNexis, Rob is responsible for leading LexisNexis collections market strategies, product development, business direction and revenue growth.

EDITOR’S NOTE: This article originally appeared in Know Your Debtor, a FREE quarterly email newsletter published by insideARM and LexisNexis that focuses on understanding trends impacting consumers.  To view the most recent issue of Know Your Debtor, please visit http://www.insidearm.com/newsletters/know-your-debtor-9-29-11/. To receive the newsletter, please sign up at http://www.insidearm.com/go/subscriptions. For more insights on trends that impact consumer payments, please visit www.debtcollectioninsight.com.