Mike Ginsberg: A Mixed Bag for ARM Professionals

Mike Ginsberg

The latest rumblings about the debt collection and accounts receivable management industry are a mixed bag for credit and collection professionals:

Cheaper gas prices means more disposable income in the hands of consumers. Tax season started late this year due to delays on Capitol Hill caused by the debt ceiling impasse. Income tax refund checks did not get into the hands of the American tax payers until after January 30^thand much of the benefits were offset by increased payroll throwing off first quarter liquidation results for bill collectors. Now in May, the benefits of tax season are behind us until next year. Additional disposable income in the hands of consumers, as a result of lower gas prices, will give a much needed jolt to collection efforts this spring. Gas prices eased in March and April after surging earlier this year.

Last week’s Collections and Recovery Solutions (CRS) conference was abuzz with regulatory concerns as ARM companies prepare for CFPB audits. Compliance, not performance, is the collection world’s hotest topic and this was reinforced during virtually every session throughout the conference. Since the release of the FDCPA in 1977, the single largest game changer in the debt collection industry has been the impact of the CFPB. The Bureau’s Debt Collections Program Manager, John Tonetti, shared his perspective during his crowded session, including such comments as:

The CFPB is the first regulatory agency to look at financial services exclusively on behalf of the consumer.
The CFPB’s focus is on the use of accurate and current data when collecting debts and how collectors process disputes with consumer credit bureaus.
John said that the CFPB recognizes the critical role that debt collectors play in the US credit economy.
The CFPB will not publicize results from their individual investigations of agencies nor could agencies use favorable results for marketing purposes.
Collection agencies are responsible for up to 4^th party surveillance and monitoring of all of its vendors as if the agencies themselves were providing that service.

State and local governments are shrinking their staff, creating a great opportunity for ARM companies positioned to service their collection needs. State and local governments cut approximately 1 million workers from their own payrolls since 2008. They cut another 3,000 workers last month even as some 165,000 were added to the US labor force overall, as the Federal sequestration sets in. Budget strapped states and municipalities expect to add fewer, if any jobs in the foreseeable future. They are reserved about new hires in large part because inflation-adjusted revenues are still below 2008 levels and obligations for Medicaid and pensions are accounting for a greater percentage of budgets. This problem will not go away overnight and neither will their mounting collection needs. Past due taxes, moving and parking violation payments, and numerous other recovery needs are in high demand as more governments are faced with challenges of balancing their own budgets. ARM companies, especially those based in a particular region where they employ hundreds of collectors, are well positioned to sway governments to refer their non-core and escalating collection needs to 3^rd party experts.