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Finer points of debt collection best practices

Jul 03, 2013 Philip Burgess

The debt collection industry has come under increased scrutiny in recent years, which is likely the product of more market saturation and a variety of new firms sprouting up almost constantly. Firms that have been in the sector for years know the importance of maintaining strict internal oversight of all processes and communications, especially with regard to the upholding of statutes under the Fair Debt Collection Practices Act.

New technology has been both a blessing and a curse to the industry, as more tools continue to surface that allow debt collectors to either refine operations or potentially enter uncharted territory. For example, some organizations have started to use social media channels such as Facebook and Twitter to locate and communicate with debtors. However, this type of action might simply be too risky currently, as little guidance has been released by regulators.

On the flip side, some new technology has helped debt collectors completely refine their practices to enjoy better operational efficiencies, increased returns and stronger overall customer service. When it comes to adopting new technology, though, debt collectors should first ensure that all existing policy frameworks are aligned with applicable laws and best practices, then supplement a strong foundation with useful and progressive tools.

A note on collection letters
InsideARM recently pointed out one event that illustrates the importance of fine-tuning practices and procedures in the collection industry. According to the news provider, the U.S. Court of Appeals for the Second Circuit ruled that a collection letter in a fairly large-scale case violated the FDCPA, while the issue was directly related to the language used.

The source explained that the letter worked under the assertion that the debtor could only dispute the debt in writing. This is one of the latest instances that reveals just how complex collection proceedings can be in court, as the language in the FDCPA is sometimes treated as entirely literal by judges and juries, though at other times it is up for interpretation.

InsideARM explained that the Second Circuit cited a component of the FDCPA that does not require written disputes to avoid a ruling. This issue has been extremely complicated in the past as well, as the news provider noted that the Third and Ninth Circuits had issued opposite rulings related to the same portion of the FDCPA.

However, the Second Circuit decided that the Ninth Circuit's legal precedent was more reasonable and subsequently upheld the decision to rule against the collector in this trial.

Honing in on communications
One of the most common reasons for a debt collection dispute is the use of abusive or illegal language when making phone calls or sending emails. For this reason, collectors should take a second look at all of their policies and training protocols to ensure that employees are not running the risk of causing headaches for the firm.

Privacy Rights Clearinghouse explained that debt collectors must thoroughly communicate all information related to the outstanding loans, such as when the account was started and transferred from the original lender. Additionally, the website explained that the FDCPA clearly outlines which types of language are illegal.

Policies should clearly reflect the need to track the chain of custody for each debt in as comprehensive a fashion as possible, as this will improve the efficiency and accuracy of communications.

The source added that policies for client-facing communications should also include information from the Fair Credit Reporting Act to ensure that customer privacy is maintained throughout the entirety of the collection process.

While simply adhering to the law is a good start, debt collectors should consider going above and beyond the call of duty to improve customer relationships and break the stigma currently attached to the industry.