4 Compliance Areas Debt Buyers Must Address

For years, debt buyers could operate outside the scope of compliance and regulation in the accounts receivable management industry. This was not because debt buyers were attempting to be deceitful, rather this sector of the industry was so new and innovative that too much was unknown to attempt to govern it. Those days are over and no longer are debt buyers overlooked. In fact, they are now very much on the radar of the CFPB. It was only a matter of time as compliance administration was on the rise with larger creditors and other first parties. The CFPB is already visiting the organizations. Most would agree that debt buyers are not far down the list.

What can debt buyers do to prepare themselves for a call from the CFPB? Debt buyer certification programs are fairly new in the industry and several options are available. The standards for most of these certification programs focus on the primary areas of concern debt buyers are facing these days. Topics including media, chain of title, agency management, and credit bureau reporting all make the cut. I would like to examine these four primary topic areas and present some solutions for capturing and maintaining the compliance related information using the same technology debt buyers are using to manage their inventory. Let’s set the precedence that present day debt buyers are managing their inventory with proper, enterprise level software. Any debt purchasing operation still managing inventory using spreadsheets is destined for compliance violations and trouble with the CFPB should there be an audit.


Also referred to as account and debtor documentation, media is crucial for debt buyers and it is important to have software that will allow for media attachments on a per account basis. Often, media is not included in the actual purchase agreement. It usually must be requested from a separate entity, or if the seller does have the media, it comes with an additional cost. In many systems, media attachment components are not included but hopefully your software allows for custom configuration and you are able to add media attachment options.

Make sure media attachments are available at both the account and consumer levels. For example, there may be a contract at the account level but separate credit reports if there is more than one responsible party on the account. The setup should be able to store the credit report for the respective responsible party. Most media is large in file size and because of this, disk space will be consumed quickly. Proper system sizing is often overlooked and needs to be planned accordingly. Lastly, in the event a consumer pursues litigation, the debt buyer will need to be in a position to confirm the consumer opened the account and is a responsible party by presenting media.

Chain of Title

The history of account ownership is referred to as chain of title. When a debt buyer purchases an account from a creditor or another debt buyer, the ownership is transferred. Like media, chain of title is additional documentation for the account. It should be requested at the time of purchase and any information or media related to chain of title should be stored in the software at the account level. You will want to have this information for compliance purposes, in the event of litigation, or if you eventually sell the account. Storing the chain of title in your software will also position you to set up your placement strategies with external agencies and provide them with chain of title for each account in the placement file.

Agency Management

As a debt buyer, knowing the agencies you are placing with is almost as important as knowing your own agency. At least that is what an auditing entity will expect. Until sold and ownership changes hands, debt buyers are responsible for all their accounts regardless if being worked inhouse or placed with an external agency. There is some very nice software available for debt buyers that will not only allow for automated account placement strategies, but will also include features for ranking an agency, certifying an agency, and tracking compliance related data points for an agency. If you cannot find the latter in your current software, it is in your interest to build out the agency management module to capture compliance related information. For example, you may be expected to know any certifications your agencies have achieved, how they enforce and maintain data security related to your inventory, and their backup and restore procedures. In most cases, this is not only a single field of data. You should be able to capture and store short text descriptions of the processes or attach documentation to the external agencies that are configured in your software.

Credit Bureau Reporting

How debt buyers report to the credit bureaus is one of the most common violations in the industry. Far too often, workflow elements for credit bureau reporting is not detailed enough. Ensure your credit bureau reporting workflow is not re-reporting debtors and is also deleting debtors from the bureau’ s file upon resolution of the debt or in the case of bankruptcy. Be ready with documentation that details your process. It is much easier to hand an auditor a detailed document and walk through it together than attempt to explain your process for others to appraise. Credit bureau reporting practices are also key processes debt buyers should understand about each of their external agencies.

Understanding and documenting compliance standards such as those described above will help prepare you for a visit from the CFPB. At the very least, you will have addressed and standardized some important, compliance related business processes should the CFPB never call or visit.


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.