Want to make a difference in the Industry

[WannaMakeADif]

Hey guys,

Ive been reading all of these posts and I am very intrigued. Intrigued because I have never seen into this world of “debt collectors.” I know nothing about the business but I am trying to learn.

My situation is much different then what is being posted here.

I have been offered the opportunity to start a debt collection business from scratch and build it from the ground up. I am a business major right out of college and the offer to run a start up is practically a dream for me.

My question to all of you is: where can I find information that discusses the LEGAL process of debt collecting. I feel that for someone to get into this industry and actually maintain their integrity is something that doesnt happen anymore. Instead of using coercion to get the consumer to pay debt why cant the collector try to work a plan of action for the person to pay. This reduces the stress for the consumer if they feel they can trust the collector on the other end. Especially, if the collector shows sincerity with getting the consumer out of debt. I also feel that a company can still be profitable while maintaining their veracity. Is there something I’m missing?

All feedback will be greatly appreciated.

Thank you.

[WannaMakeADif]

I live in New Jersey....Sorry for not including this.

[heightsgirl]

For the legalities, just google FDCPA. It's all there.

As far as doing collections "nicely." Sometimes, no matter how nice you are, they can't pay or the won't pay. With some customers it will go a mile, in others, it won't get you anywhere.

Good luck.

[debtcollector`]

Originally Posted by WannaMakeADif

I have been offered the opportunity to start a debt collection business from scratch and build it from the ground up. I am a business major right out of college and the offer to run a start up is practically a dream for me.

My question to all of you is: where can I find information that discusses the LEGAL process of debt collecting. I feel that for someone to get into this industry and actually maintain their integrity is something that doesnt happen anymore. Instead of using coercion to get the consumer to pay debt why cant the collector try to work a plan of action for the person to pay. This reduces the stress for the consumer if they feel they can trust the collector on the other end. Especially, if the collector shows sincerity with getting the consumer out of debt. I also feel that a company can still be profitable while maintaining their veracity. Is there something I’m missing?

All feedback will be greatly appreciated.

Thank you.

Collections isn't coercion. If a collector or company take that approach as a policy, they will be sued and most likely not last. Ideally, every debtor wants to and is capable of working out a reasonable payment plan -- but realistically, few do and are.

Collections is the effective application of psychology to arrive at a desired result. That result being getting paid. There have been some interesting tests in debtor-friendly collections; but I believe you need to maintain the full compliment of tools. Every person has a trigger that will lead them to some action -- it is the collector's job to find that trigger.

Your suggested style of collections has been shown to work quite well with certain types of portfolios and within a specific demographic. It also fails miserably with others.

That said. Your presumption that collectors have no integrity is way off-base and frankly quite offensive. A successful collector and a successful manager/owner of any business must maintain their integrity. I know of no truly successful person with failures in integrity.

You might want to start with a job as a collector or skip tracer with a mid to large size agency.

DC

[Chien]

For me, this is one of the most fascinating posts in some time. While I agree with DC across the board, allow me to add some information, an invitation and an anecdote.

The invitation is to send a PM for further, direct discussion. I’m feeling that it’s time for another hiatus, but I do “check in” and a more complete response than provided by DC would be too long and specific to your issues. Therefore, it would be of no benefit to other/subsequent readers.

The information:
If you’re joining the industry, join the forum at [url]www.insidearm.com[/url]. It’s by and for professionals and everything – business structure to legal issues - is discussed.

You don’t say whether your start-up would be retail or commercial collections. There are big differences, and the on-going dynamics, implications and demands are profound. You must make a choice. Trying to do both is overreaching for a start-up and very few established agencies do both well.

DC is owner/manager - retail; I’m litigation – commercial. heightsgrl's reference to the FDCPA assumes retail. This forum is retail. I post here because I consult for retail and am grounded in FDCPA, FCRA, HIPAA etc. They are not a part of my daily practice and (if you don’t do anything healthcare/HIPAA-related) are not part of commercial.

Being offered a start-up must be a dream for a B-school grad. I think it could become a nightmare in this very tough industry, which will have more opportunities and more problems in 2008-2009. It’s not what a B-school grad wants to hear, when offered the opportunity to head a start-up, but DC’s suggestion to learn from the lowest rung of collector/skip-tracer is sound. Your alternative is to immerse yourself in the industry to the point that you know more than 30-year pros by the first day or incur the cost of seasoned professionals who can CYA. That’s probably an operating expense that a start-up can’t afford.

You don’t mention your objectives. Make a career or build a company and flip it. You don’t flip retail that easily, if at all. You don’t find a niche in retail (you can in commercial), and your initial competition in retail may be some guy who works from home and has a friend who owns a department store.

I suspect Texas Pooh’s practice incorporates your “collection without coercion” philosophy, when possible. I’m a state and federal court-appointed mediator and settlement officer and believe in it. Debt Guy’s advice best exemplifies your philosophy here. All of us, including DC, would like to do it the cooperative way all the time, and all of us know that DC is right. Sometimes it takes a slap up the side of the head.

The anecdote:
About three years ago, somebody like you approached me with an expressed desire to get into the collection industry. After the initial questions (Are you crazy? Why would you want to do that?), we discussed his ideas and intentions. He had a bit more experience, had done a start-up, made acquisitions and flipped a technology company. He had immersed himself in the ARM industry and came to me with more “academic knowledge” than seasoned pros. He is a present client and a very savvy businessman. He built an initial acquisition into a holding company for three and is moving from a state to a national presence. But he started by acquiring a 20-year old agency, with a reputation, client base and revenue stream. Contrary to my suggestion to go commercial, he found a retail “bargain” and took it. I monitor compliance and he is spit-shine clean, but he gets sued regularly anyway. (It comes with the territory – review the forum.) His is a growing success, but not as fast, easy and headache-free as expected.

My suggestions are to not let your dream cloud your perspective and to learn everything you can the industry. At the moment, there are more people trying to get out than get in.

[Debt Guy]

I've been involved in start-ups. I did a major consulting project with a guy who wanted to do nice-guy collections.

So, I'll just share some observations of my experiences.

1. Bad debt is growing like crazy. Our culture of "immediate gratification" and "damn the future" consumer psychology ensures a steady and continuing flow of consumers who are upside down and crashing on the rocks of despair.

2. So far as I am concerned, the more profitable side of the business is as debt buyer rather than contingency collection. However, the latter is much less risky as the capital requirement is magnitudes less.

3. The contingency business is very competitive. Creditors who place accounts are continually "benchmarking" this agency against that agency. Business was once upon a time based more on long-term relationships. There is still some of that but more often today it is driven by plain old results. Creditors say they care about how those results are achieved -- and to a degree they do -- but only to the degree that their name stays out of the headline -- otherwise, blood can flow for all they care.

4. The debt buyer business is different in that the one mistake you can make that is not fixable and from which you cannot recover is ---- paying too much for the debt. You better know what you are doing. There are no "overs". Conversely, there is the potential for enormous gain. As a really rough rule of thumb, some debt buyers operate on the "1/3rd principle". Whatever they collect on a given pool of accounts -- not more than 1/3 should go to the cost of the debt -- not more than 1/3 should go to the cost of operations -- that leaves 1/3 for cost of financing, taxes and profit. If you can do that in scale, the numbers get big.

5. Start-ups are tough. Start-ups without a lot of hands-on experience is extremely tough. Book smarts or raw intelligence is a great foundation. But, that is all it is until you have learned all those difficult lessons the hard way. The problems you know can be dealt with. What you don't know is expensive learning since you more or less make it up as you go along. Importing experience is a mixed bag -- people who have "been there" help you avoid problems but they also have built-in bias that you may or may not want.

6. The secret to your success will be the training and recruiting of your employees. People in the collection business tend to be outgoing aggressive types -- salesmen, if you will. It takes something unique to ask the same debtor over and over to pay up. They need that something special that makes them believe that this next time they ask, the debtor will say yes -- even though the last 25 times the debtor said no.

7. Your biggest headache will be your employees. Burnout is high and turnover is high so you are constantly in a recruit and train race, especially if you are trying to grow. Keeping the great ones is a matter of stroking their ego and fattening their wallet or supplying them with a constant flow of new toys -- the byword is "what have you done for me lately?" Keeping the ones that are not great but good enough is hard since they will get discouraged when they don't get toys and attention like the stars. The ones who tried but could not cut it must be washed out of the system and replaced with fresh faces.

8. A good collector does not a good manager make. Managers are team leaders and ego fixers and motivators. Good collectors usually do not have those attributes. But, good collectors look at it as their right to be promoted. Weak managers use promotion as a carrot to induce performance. It can become a cycle where the best at one skill is transformed into the worst of a different skill.

9. Regulatory issues require a lot of attention. Until you know differently, assume that every state has a different set of rules for licensing and bonding -- as I recall one or more of the NYC Burroughs has special licensing. Some states are open and some states require every collector to be licensed in that state and some states require managers to be tested. Some states have DCPA rules that are different than FDCPA. Those state laws are constantly in motion. I think the ACA has people on staff to oversee these things but having in-house compliance people is important, I think. These days, when there is a core of highly knowledgeable debt avoiders who are teaching others how to avoid their debts, it is easy to run afoul and get sued more often than is the normal every-day flow of lawsuits where debtors are delaying.

10. If you take the path of debt buyer, I think it would be important to make sure the OC has supporting media and you can establish the chain of ownership for the debts you buy. This problem will grow as more and more consumers, fully knowledgeable that they owe the debt, will trip you up in these documentary gopher holes. Some debt buyers play the percentages on this stuff and if you buy cheap enough you can just abandon the cases where the debtor fights back. I think those days are numbered.

11. Nice guy collections have been tried. I worked closely with a debt buyer who really and truly believed in that method -- he never sued anyone and he had zero tolerance for FDCPA violations. He was a very charismatic figure and he had pretty good results until the company grew to the point that he could not keep his thumb on every single detail. His own ego drove him to a mission of rapid expansion and to conquer the competition. When he could not longer focus at the micro level, his subordinates, committed people all, gradually backslid because of the unrelenting pressure for "hitting the numbers" in order to finance all that growth. Eventually, his dependence on Wall Street for financing and the difficulty of making everything work as fast as he wanted to go, created an internal pressure-cooker that drove a senior underlying to the ultimate sin of cooking the books. In the end, all was lost.

12. Nice guy collections are, I think, still worthy goals. All consumers say that is what they want. Some consumers actually do respond to it. Unfortunately, most do not. One must keep in mind that the consumer is in the soup generally because a collision of their habit of financial irresponsibility (no savings, shop till you drop) and a financial calamity (loss of job, business closure, illness or medical calamity, etc.). Only rarely have I ever met a consumer who borrowed the money with the intent of never repaying it -- those guys you should not waste even one minute on. There is another group of debtors are are greedy creatures of convenience -- something unforeseen happened and they are determined to not get stuck with the tab (you will find them and they will typically be professionals -- doctors, ministers, lawyers, real estate developers, rental property magnates). Everyone else falls in the category of a poor schmuck to whom something rotten happened and they feel really bad about it -- they owe 10 people and have the ability to pay 3 -- and all 10 call constantly and make the debtor into a turtle whose defense is to withdraw and ignore. The goal of any collector is to figure out how to get the turtle to stick his head out long enough so he can one of the 3 that gets paid at the expense of the other 7. If nice works, great. If mean works, not great but merely OK. In the end, results count.

13. You will face a variety of lesser problems that can all be solved with money and competent subordinates who understand the technology challenges. Having a solid information system that integrates with your autodailers is a given. Having someone who can effectively manage that information system and develop and oversee the dialer strategies and campaigns is much more difficult. Most executives understand the buzzwords but not the technology. The techie types are masters at obfuscation and making you think they know a helluva lot more than they really know. You can pour millions down a rathole before you figure out your IT guru is building his own little empire and impressing his friends in the IT community with all the toys your money paid for.

14. If it were me, I would want a core of 3 "partners" heavily invested in the success of the business and thus able to put business ahead of personal ego. You need a strategic thinker and deal maker who becomes the public face of the business. You need a first rate finance guy to make sure the controls and systems are in place to measure the key metrics minute by minute -- ideally a real time "dashboard" that shows how the company is doing hour by hour. You need a common sense technology guy who is more interested in results than in trashing all the stuff you bought last year so he can install all the newest whiz-bangs. With that core, you can hire a profession HR person and a professional collection manager. Everything else should fall into place.

I don't mean to rattle on. I agree with Chien that this is one of the more interesting questions that has been posted in a long time. Let me know how it goes and what you decide. Good fortune.