The following is an article brought to you by Bayview Risk Management Capital, a company that specializes in working with debt buyers and sellers. Learn more about Bayview at www.bvs-llc.net.
All eyes in the collections industry are glued to the next five days on the calendar. But what about the next five years?
The collections industry stands at a precipice as the Consumer Financial Protection Bureau preps its field hearing later this week that will mark the next step in its rulemaking process. But debt buyers need to look beyond the next five days, and plan for the next five years.
Aside from the CFPB’s rulemaking process, the presidential election in November could also re-shape the regulatory landscape and dramatically alter the breadth and depth of the debt buying industry.
Debt buying has undergone a sea change in the past five years, with banks pulling back on the supply of defaulted credit cards, overdraft accounts, and other consumer loan products that have forced buyers many buyers to close up shop and those who are still working to look for alternative sources of supply and new asset classes to buy.
Five years ago, the debt buying industry was largely riding high, but times today are much different. How will the industry look five years from now?
“If you think about what the industry was like five years ago, if you had predicted the shape of the industry then would have been wildly wrong,” said Tom Good, the managing attorney at Barron & Newburger, a law firm. “Right now, there is no clear idea of what the regulators are going to be asking for five years from now. The requirements won’t be less; they will be more. Anyone holding out hope in five years we’ll be past regulatory requirements are foolish.
“The cost of entry are going to be much higher. Things are going to be more technological; compliance requirements are going to be higher. That will drive people to be bigger to be profitable.”
Higher costs will lead buyers, sellers, and brokers to use more technology, both as a means of driving costs down and driving efficiency and information security up. Those firms that are not able to accept and adapt to the new paradigm will not be around for long, a trend that is already starting, said Ohad Samet, the founder and CEO of TrueAccord.
“There is going to be consolidation among the more traditional debt buyers,” Samet said. “Some are going to fail because their traditional way of doing business is not going to be profitable anymore. We are seeing that already. We’re going to see mid-level debt buyers emerge and grow to be significant players. It will be a smaller market, with less players. But it will be more sophisticated.”
There are some who think that the industry will be exactly the same five years from now as it is today, with regulatory challenges leading to issues with supply and the confidence from financial institutions to participate in the market.
Another problem that could be as bad five years from now as it is today is payment processing for debt buyers, especially new entrants into the industry. Many payment-processing companies have become risk-averse in recent years and are either not approving applications from new companies looking to be able to process credit and debit card transactions, or are shutting down current clients, especially those working with payday lenders. An inability to process debit and credit card transactions creates a huge barrier to entry that is impacting the industry and could continue to do so for years to come, unless payment processing companies change their outlook on debt buyers.
“I think it looks five years from now pretty much like it looks today; I think it’s bad for debt buyers, bad for consumers, and bad for financial institutions,” said David Mertz, the chief compliance officer at Global Debt Registry. “I think the people that benefit from it don’t have any incentive to change and those that are hurt by the way things currently are don’t have the market power to make that change. They are not going to get support from regulators or legislatures. I don’t see anything that is going to cause structural change.”
MORE DEBT BUYING CERTIFICATION
The growth and evolution of DBA International’s certification program is expected to continue, and Jan Stieger, the executive director of the association, along with Adam Park, a board member and CEO of ComplyARM, both said that certification will provide clarity, transparency, and consistency to the debt buying industry.
“We will certainly embrace any new technologies that provide consumer protection and at the same time makes the business more efficient,” Stieger said.
The election in November — specifically a win for Donald Trump and the Republicans — could have a major impact on the industry moving forward, Parks said. A Republican president, coupled with a Republican majority in Congress, could abolish or downsize the CFPB, and make it less of a regulatory hurdle than it currently is.
“Regardless of who gets elected, there is going to be more of a push for certification and self-regulation,” Parks said. “If the CFPB were to disappear tomorrow, it would not change how the industry is trying to self-regulate itself. Five years ago, had anyone ever heard of a chief compliance officer? Everyone has to have one now.”
While the industry remains focused on what happens later this week in McClellan Park, Calif., industry participants must put some time into thinking longer term and how this industry is going to change. And start preparing for that change today.
Again, a special thank you to Bayview RMC for sponsoring this article series. Please visit them at www.bvs-llc.net.