Banks, get ready: A new debt collection rule is coming

Savvy banks are working hard to comply with the Consumer Financial Protection Bureau's new rule that revises the Fair Debt Collection Practices Act of 1977.

Although the rule, which becomes effective on November 30, 2021, currently only applies to third-party collectors, many of the banks and financial institutions we've talked to anticipate that they'll be expected to comply and are undertaking proactive transformation efforts today. They are expanding their use of advanced analytics to reimagine customer outreach, enhancing support and training for collectors, making themselves more accessible to customers, and automating payment plans. These are all good ideas.

The new rule limits collectors to a maximum of seven attempts at customer contact (including ringless voicemails and limited content messages) within seven days. This means that organizations will need to drive higher recoveries from fewer customer interactions. So, the new rule requires substantial shifts in practices and the adoption of new technologies to ensure compliance.

Improving your collections operation now increases the odds of being top of wallet when customers start paying back their debts. That's especially critical for banks serving customers who have lines of credit from multiple institutions.

Here are a few ideas on how to get a head start on the new rule:

A successful collections conversation is determined by a number of factors, all of which must work together. Based on a customer's behavioral cues, banks must identify which outreach channels to use, sequence those channels correctly, and make sure both the tone and content of their conversation are on point.

This is a difficult balancing act, but banks have access to a variety of data sources – including customers' publicly available digital footprints – to inform their collections approach. Using advanced analytics, banks can turn this information into critical insights about when and how they should approach a customer to drive a successful collections outcome.

Front-end digital channels are increasingly handling lower-complexity customer interactions. So, customers who require support for higher-complexity issues will need to speak with live agents. This means it is critical for banks to hire better and assist them during customer interactions so they can make more informed and efficient decisions.

Banks can use conversational artificial intelligence to do this. Digital aids for the agent include dynamic negotiation scripts that change in real time based on customer feedback, along with automated risk indicators that proactively flag high-risk customers. This kind of intelligence helps agents customize each conversation, which elevates the interaction and helps boost promoter scores.

A well-trained and responsive collections agent can turn an adversarial conversation into a collaborative one. Highly skilled agents are also more likely to achieve collections goals. Identifying areas of improvement for agents and checking for compliance infractions should not be left to manual, sample-based quality assurance efforts. Speech analytics allows banks to automatically monitor, record, and objectively analyze 100% of calls. Banks can use the resulting insights to create unique training plans for every agent and highlight compliance red flags.

A poor customer experience today can easily become a collections nightmare tomorrow. If a bank's website, app, and other digital channels are intuitive, informative, and connected, its customers are more likely to self-serve. Considering the new CFPB ruling, good customer experience is more important than ever. As the number of outbound customer contacts decreases, banks need to make inbound contact easier.

Targeted restructuring plans have higher adoption rates than generic cookie-cutter plans, and the banks that offer them experience greater success closing out delinquent cases. Whether communicated to customers digitally or through an agent, instant payment or hardship plans enable customers to act quickly to close out debts.

In our report, Banking in the Age of Instinct, we predicted that societies would increasingly demand that banks take an active and ethics-driven role within communities and a stand on the issues that matter to them the most. Validating that prediction, the CFPB ruling reflects the government's expectation that financial institutions do more to protect consumers.

It's in every financial institution's interest to assess, strengthen, and modernize its collections program. You'll be doing yourselves – and society – a big favor.

A version of this article first appeared in BAI. Jason Osborne is global head of consumer banking and auto finance at Genpact, and Puneet Wadhwa is global head of fraud and collections.