Garnet Capital Advisors Blog

July 25, 2022

How Debt Sales Can Address Compliance With Varied State Collection Laws

The collection of nonperforming accounts has taken on more importance as the economy turns. These collection efforts, however, are regulated by a patchwork of federal and state laws that can be difficult to follow. Unpaid accounts are a drag on earnings and a drain on personnel. Building a compliant collection process is costly and time-consuming and may be a distraction from the front-end loan generation machine. Selling these accounts may be a way to accelerate cash flow and decrease risk.

With new federal and state regulations regarding debt collecting, a creditor is far safer selling their accounts in collections to a well-funded debt buyer who specializes in compliance. Compared to tracking these delinquent accounts in perpetuity with an internally maintained collections platform and team, many businesses find the alternative to be the most efficient, profitable, and productive.

The Debt Regulation Landscape is Changing

In 2018, the Practice of Law Technical Clarification Act was passed which excluded lawyers pursuing collections litigation from the conduct rules for debt collectors. In response, 20 separate state attorneys wrote a letter of protest together, expressing their concern for fair treatment and FDCP enforcement. Since then, many states have expanded or refined their own state-level debt collection laws, which has resulted in widespread and inconsistent changes in debt collection regulation.

With all the new and varied regulations regarding debt collection, most creditors would like to continue their business practices without the massive cost and effort to build a compliant collections process.

A safer option is selling those debts to a debt buyer, whose business model is built around properly executing debt collections in perfect compliance with both federal and state regulations.

The Challenge and Cost of Adaptive Compliance in Collections

As states take a more proactive approach to local debt collection laws, many lenders and creditors find themselves in a situation of required restructuring and increasingly taxing regulations on collections conduct. While the FDCP and state laws are designed to protect debt-holders from abusive practices, the measures used to prevent these practices can take a toll on any business' internal collections team - and overhead.

Federal and State collection restrictions may require you to restructure the methods of your collection in deep and pervasive ways. Not only will you need to consider each element of debt collection regulation, but also how that regulation may vary from state to state - especially for multi-state lenders.

  • When to contact
  • The possible contact channels
  • How to document
  • Required legal responses
  • What can be said
  • Who can be spoken to
  • Lifespan of debts
  • Negotiation requirements`
  • Ability to litigate

Adapting your internal collections platform and procedures to meet state requirements, especially over multiple states, may no longer be efficient. This adaptation can increase your costs, require employee re-training, and even one non-compliant account handling may not be worth the risk.

The Assurance of Working With a Highly Compliant Debt Purchaser

At the same time, many organizations prefer to handle their own collections as part of taking good care of their customers - even the delinquent ones. Because there are so many bad actors in the debt collection niche - the reason these laws and regulations have become increasingly necessary - it is vital to find trustworthy and highly compliant partners. No business wants their collections accounts and past clients to wind up on the bad end of those very practices that the laws enumerate against. The purchasing ecosystem has developed into a customer-centric, consumer-helpful industry.

Knowing Your Collections Accounts are Properly Managed

Handling your own collections is a reliable way to ensure that your delinquent accounts are never subject to abusive practices  - simply by never ascribing to those practices internally. However, when maintaining all your collections accounts in perfect compliance is no longer feasible, you can rely on the assurance of working with a highly compliant debt purchaser. Debt buyers who specialize in compliance can build their entire business model around compliant handling of collections accounts and remaining compliant within the unique landscape of every state's debt collection laws.

See ROI on Collections Accounts Immediately

Creditors also gain the benefit of seeing the value of collections accounts immediately - instead of waiting in perpetuity for clients to pay and close the debt. Holding onto collections accounts can be valuable because a small percentage of people do come back to clear the debt in order to reactivate their account or to make a clean step into their next financial stage. But with a reliable debt buyer partner, you don't have to wait for that eventual day of conscience or necessity.

Your company gains clean records and peace of mind from permanently closing old collections accounts, and the financial benefit of selling the debt promptly.

Reducing the Burden of Extended In-House Collections Management

Finally, partnering with a highly compliant debt buyer gives you the opportunity to reduce your own collections overhead. If you have a solution for aging and inactive collections accounts, you can reduce the resources and staff hours needed to operate your collections procedures. Many lenders prefer only to focus on accounts that have recently gone into collections, as these are the most likely to be paid and restored by a returning client. Your collections team is likely already adept at the re-engagement and report-filing process for early collections accounts.

A trusted debt buyer allows you to significantly cut the overhead for maintaining old collections accounts that are unlikely to be productive, increasing your overall efficiency by replacing dead weight with immediate revenue.

Master Collections Compliance With Garnet Capital Advisors

Garnet Capital Advisors is a financial group that is proud of our highly compliant approach to facilitating multi-state debt purchasing. If you are a lender or financial organization facing the challenge of recent changes to debt collection regulations, we are ready to find a debt buyer for you to ensure that each one of your collections accounts is expertly handled in federal and state compliance. Reduce your overhead, increase your revenue, and rest assured that each of your former clients will be handled with the due respect and care that your on-staff team would provide in reaching out, providing information, and requesting debt resolution.

Contact the Garnet Capital team to consult on finding the right debt buying solution for your financial organization.