5 Steps to Perform Systematic Due Diligence

Anyone who has kept up with recent industry news is aware due diligence is a hot topic of conversation. The general public and regulatory organizations want to know what agencies are doing related to due diligence, if is it sufficient, and if is there proof of it. Considering many collection agencies perform credit card collections, I believe there are ways to manage and track your due diligence using technology already in place. The manual steps to have in place include: making a due diligence list as well as developing milestones and inspections.

The five steps to systematically track due diligence in your existing collection software are described in the following sections: proof of debt, statute of limitations, licensing and debtors’ state of residence, pending or potential legal issues, and thirdparty vendors. (In the event your software cannot be customized at these levels, consider an external application as a bolt-on to your collection software.)

1. Proof of debt

Before taking legal action to collect on behalf of a debt buyer, you must be in a position to supply proof of debt. Design and build out account level, and in some cases consumer level, proof of debt data points in your software. The location of these proof of debt data points is crucial. First, add custom fields (examples noted below) at the account and consumer levels. I also recommend making these read-only fields. In most cases, the data for these fields can be collected at the time of placement and should never change. Second, add the new fields to windows or screens that are easily accessible. You will want key personnel to have immediate access to this information when it is required. Use role-based privileges to grant and restrict user access. Next, make an attempt to segregate these data points from other sections in the software that house more typical fields used in everyday collection efforts. Doing so will make any auditing situation easier when you can simply navigate to the proof of debt window. Use the software to track and maintain date of acquisition, the amount paid to acquire the account, previous account owners, and images of contracts, statements, or anything else related to chain of title.

2. Statute of Limitations

It is imperative to know the state laws that set the statute of limitations. Having that knowledge is nice. Having it and making that information readily available for each account in your system is better. On the collector’s screen, add visible fields for the statute state and statute date. Train your representatives on how to use that information or restrict out-ofstatute accounts from even being presented.

3. Licensing and debtors’ State of Residence

Related to the previous point, it is important to capture and display fielded data for state laws based on the nature of the debt, time zone and call time restrictions, and permitted collection activity are important to capture and display. For agencies, make it clear in which states you are licensed to collect. For debt buyers, know where your agencies are licensed and build your placement strategies accordingly. Track state licensing at the client and account levels. Licensing can change so use alerts or even temporary holds in your software to monitor and validate collection licensing.

4. Pending or Potential Legal Issues

Whether your agency is working accounts from a debt buyer or directly from the original creditor there should be systematic processes for identifying legal issues or flagging for potential legal issues. Consider the legal or potential-legal areas you are accountable for maintaining. Are you protected against legal issues, which arise from bankruptcy, deceased accounts, or consumers currently in litigation? Use scrubbing services to track the data you receive and build your workflow around it.

5. Third-Party vendors

Agencies use third-party service providers not only for scrubbing but scoring and sometimes outsourcing collection activity. What do you know about these partners? Effective collection software includes vendor setup and maintenance modules. Demographic items like company name, address, and phone number are common, but adding items from your due diligence checklist can prevent some headaches down the road. Simple yes/no fields and free form text fields are beneficial. Checklist questions should include: Have you met this partner in person? Have you toured their facility? What levels of compliance or security are achieved? They should also include subcontractor information, and insurance information.

Collection agencies can discover the most common types of deficient collection activity by systematically following and tracking due diligence activity in their software. Following all the important steps every time will provide a record of your due diligence steps, and protect your agency from inadvertently sailing into dangerous waters.