Consideration for a
Litigation Recovery Strategy in the
Current Regulatory Environment for
U.S. Based Customers
Presented by:
Rob Yarmo, EVP
POLL
1. Raise your hand if you or your company is
a lender or manager of a U.S. based AR portfolio.
2. Keep your hand raised if legal recoveries
are an integral part of your overall recovery strategy.
3. Keep your hand raised if you employ a
robust legal management process and Compliance
Management System.
Legal Recovery Channel Options
Accounts
Qualifying for
Legal Recover
Five Times
Agency at 48
Months!
Differences in U.S. Collection Environment
• Heavily regulated at federal and state levels
• CFPB and FTC have completely reshaped debt collection
industry
• CFPB to lay out collection rules in 2017
• Penalties for non-compliance are severe
• Hanna, Pressler, Midland, PRA, Navy FCU and other consent
orders and lawsuits have remade the debt collection
industry
• Significance of nuisance lawsuits in litigious U.S.
• Servicers must have a robust Compliance Management
System
• Lower moral obligation to pay compared with Canada leads
to higher litigation instances
Differences in U.S. Collection Environment
• When considering legal recovery strategy, consider the
following:
• Do not use broad approach to threatening legal action verbally or in
writing… reality is that a narrow perimeter exists
• Accounts should be pre-qualified
• Does your contract provide you with legal contractual authority? I.e.
hidden language in your contract that would prohibit standard
litigation? Small claims court or arbitration clauses?
• If you threaten potential legal action even passively (we may refer
your account to an attorney), the ‘intent’ must be there
• If intent is there, what is an acceptable referral rate or suite rate?
• NAVY FCU consent order implied that 3% rate for a ‘pay or be sued’ message
wasn’t acceptable!
Options for Revenue Maximization from Bad Debt Recoveries
In-House
Collections
Outsource
1st/3rd Party
to Collection
Agency
Legal
Collections
Debt Sales
Decision Considerations
•
•
•
•
Collection Industry trends:
Debt sales have been in a deep decline
Collection agency and legal businesses
continue to evolve and shrink considerably
through consolidation and in some cases
close
Agencies and attorneys are faced with rate
pressures, higher costs due to compliance
expenditures, considerable volume
decreases
Agencies typically do a less than adequate
job managing legal portfolios
Decision Considerations
Challenges
Opportunity
vs Risk
Decision
Revenue maximization
Debtor/customer loyalty and goodwill
Exposure to regulatory oversight
Judicial/state trends
Possibility of lawsuits- valid or nuisance
Non-core part of your business
Brand protection
Economic conditions
Cost of infrastructure to maintain
various options
Most Effective Model?
Considerations:
Do you have the right infrastructure in place to
manage administrative needs, recovery
expectations, vendor management and
compliance oversight?
Can you demonstrate arms length ‘meaningful
engagement’ of your service providers? (Vendor
Mgmt.)
Most effective model maximizes net return and
mitigates risk… of course!
Why the Legal Process is the most effective method
1. Psychological- debtors will know that it is the ‘end of
the line’
Prime motivational tool
2. For the debtors, it is costly to defend and requires time
commitment
3. When file reverts to manual review, most creditors
deem judgments on credit bureau reports to be more
detrimental when credit decisioning
4. Can involve involuntary recovery methods- wage/bank
garnishment, seizure/sale of property
5. Delivers historically long recovery curves
6. Protects statute rights!
Keys to Developing a Robust Legal Channel
Years of data demonstrate on average a legal channel will
liquidate significantly higher by selecting the right accounts
and effective management when compared with control
group or BAU models.
What are the considerations in selecting the right accounts?
 Age of account (Statute of
Limitations)
 Balance
 Court costs at state/county level
 Demographics- state, county and
zip
 Absence of negative attributes
from Recovery Score
 Assets confirmed including POE
 Right party contact info
confirmed
 Media availability
Keys to Developing a Robust Legal Channel
• Managing attorneys is much more challenging
than managing collection agencies
• What does ‘effective management’ mean?
Pre-legal phase
Legal phase pre-suit
Legal phase post suit
Legal phase post judgment
Do You Have all of the Media/Documents?
Requirements by state vary significantly. To
commence legal action you will/may be required to
produce the following:
 Pay History or Statement of Account
 Contract
 Deficiency calculation
 Copy of title
 Right to Cure letter
 Proof of mailing
 Repo Bill
 NOIS (Notice of Intent to Sell)
 Auction Sales Receipt
Do You Have all of the Media/Documents?
type
AUTO
ADEF
ADDF
LDEF
LEAS
ADEF
ADDF
LDEF
AUTO
LEAS
AUTO
LDEF
ADEF
ADDF
LEAS
AUTO
LEAS
ADDF
ADEF
LDEF
AUTO
ADEF
ADDF
LDEF
LEAS
AUTO
ADEF
ADDF
LDEF
LEAS
STATE
AK
AK
AK
AK
AK
AL
AL
AL
AL
AL
AR
AR
AR
AR
AR
AZ
AZ
AZ
AZ
AZ
CA
CA
CA
CA
CA
CO
CO
CO
CO
CO
Docs Required
CTR,SOA
CTR,DFN,RTC
CTR,DFN,RTC
CTR,DFN,RTC
CTR
CTR,RTC,NOI,ASR,DFN
CTR,RTC,NOI,ASR,DFN
CTR,RTC,NOI,ASR,DFN
CTR,SOA
CTR
CTR,SOA
CTR
CTR
CTR
CTR
CTR,PMH,SOA
CTR,PMH
CTR,DFN,NOI
CTR,DFN,NOI
CTR,DFN,NOI
CTR,SOA
CTR,NOI,DFN
CTR,NOI,DFN
CTR,NOI,DFN
CTR
CTR,SOA
CTR,DFN,NOI
CTR,DFN,NOI
CTR,DFN,NOI
CTR
Applicati
Pay
on
Contract History
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
PMH
CTR
PMH
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
CTR
Deficiency Copy of
Calc
Title
Right to Proof of
Cure
Mailing
DFN
DFN
DFN
RTC
RTC
RTC
DFN
DFN
DFN
RTC
RTC
RTC
Aff of
Repo
Notice of Auction
Intent to Sales
Repo Bill
Sell
Receipt
NOI
NOI
NOI
SOA
SOA
ASR
ASR
ASR
SOA
SOA
RST
SOA
DFN
DFN
DFN
NOI
NOI
NOI
DFN
DFN
DFN
NOI
NOI
NOI
DFN
DFN
DFN
NOI
NOI
NOI
SOA
SOA
Legal Recovery Channel Options
Managed
Network Model
10
9
8
Forwarding
Attorney
RECOVERY
7
Forwarding
Network
6
5
Direct Attorney
4
3
Agency
2
1
1
2
3
4
5
6
7
RISK MITIGATION
8
9
10
Vendor Oversight and Audit Requirements
Compliance
Management System
•Roles & responsibilities
•Risk assessment
Document
Management
•Retention
•Complete and up to date
•Controls
Fees & Interest
Vendor Management
Complaint & Resolution
Management
Communication With
Consumers
•Logging, reporting
•Trend tracking
•Authentication
•Training
Physical & Data Security
Training
•Firewalls
•Surveillance
•Required programs
•Verification of test results
Employee Screening &
Hiring
Licensing & Insurance
Cost & Payment
Handling
•Due diligence
•Contractual rights
•Certificates
•BAR cards
Litigation Management
•Attorney practicing meaningful
involvement
•Defined affiant process
•Suit decisioning
•Consumer refunds
•Payment order
•Background checks
•Testing / compensation
Trust Account Review
•Recons
•Remittances
Account Work Effort
Audit
Collection Call
Evaluations
•SLA adherence
•Regulatory adherence
•Required oversight
•Remediation & training
How do you Protect Your Company Against
Potential Negative Consequences?
Steps necessary to protect your company from
regulatory scrutiny:
Create separate compliance team
Develop comprehensive monthly management process,
audit program and gain vendors’ buy-in
Audit program should be CFPB compliant
Institute annual audit program, including 1-2 day site
visit
Develop affirmative action strategies for non-compliant
vendors
Or… Outsource the process to a team of experienced
professionals that specialize currently doing the above
Are Defect-Free Compliance and
Superior Recoveries a Pipe Dream?
• Both goals are certainly attainable if you have
committed sufficient resources to either build out
an effective infrastructure with experienced
auditors (and travel budget!) or hire a highly
qualified partner to whom you have outsourced the
process.
• A commitment to either option will ensure that
revenue maximization is realized, your brand is
protected, you’ve mitigated possible nuisance
lawsuits and that you have a competitive edge in
your marketplace.
Four Take- Aways
1. Don’t even think about litigation unless you can confirm
availability of 100% of media/documents
2. Don’t rely solely on collector selected accounts*
3. Attorney activity must be managed*
4. Implement a lock-down CMS*
* consider outsourcing to a specialist
*CONSIDER OUTSOURCING TO A SPECIALIST
Summary
• A well managed legal recovery strategy will net many multiples in
incremental recovery
• Develop a consistent, disciplined legal account selection process
• Set realistic recovery expectations, it’s a long, profitable runway if
managed effectively
• Develop infrastructure to support program to manage attorney
activities, track/report results, support compliance OR outsource
to a competent partner that has the infrastructure in place
• Keep the ‘wolves at bay’ by implementing a proven CMS OR
outsourcing the function to a competent partner
• This can become a reality:
Contact info
www.harveststrategygroup.com
Rob Yarmo
[email protected]
(416) 669-5490
also find us on LinkedIn