With the massive number of layoffs occurring during the current pandemic – the Federal Reserve estimates unemployment could reach 32% nationally – debt collectors are going to have to make some tough choices over the next few months. Our industry should consider whether pursuing collections is both a positive morality and a positive business decision, particularly with respect to the use of aggressive collection methods.
The morality stems from the fact that many debtors whose debt is written off in collection are likely to have lost their jobs, making it much more difficult to pay for basic necessities despite government assistance. Kicking debtors while they’re depressed and forcing them to pay during times when they can barely afford food and rent may not be a good moral choice. It would also put debt industry employees in difficult work ethic positions and could lead to the loss of good collectors.
Aggressive collections would not only have moral problems, but would also be likely to be financially counterproductive. Even unpaid debtors would be more likely to be reluctant to deal with aggressive collectors, in my view, and less able to provide payment if they were unemployed. Collectors would pressure more and more and earn less and less. Fundraising groups could make just as much net cash if they slowed down fundraising and focused on bringing in easier money without aggressive methods and full staff.
Also, aggressive tactics could result in legal action, even under a supportive government administration. Aggressive collections during national financial instability also tended to increase written laws against debt collections. For example, the Fair Debt Collection Practices Act, or FDCPA, originated in the late 1970s in response to heavy-handed tactics used by collection agencies, practices that even modern aggressive collectors may view as overbearing. The Consumer Financial Protection Bureau was also born in 2011 under similar circumstances, when rogue collection agencies failed to meet FDCPA standards and enforcement was lax. Agencies need to think long term and ensure they have a business model that can survive in the long term.
Collection groups would also be well advised to reduce the volume of calls, but there may be a solution to help in the short term. Agencies can find remaining business by offering a substantial discount for a lump sum payment to debtors who can do so with their recovery funds. The time value of money has a big advantage here, because agreeing to a short-term settlement now would be similar to the tedious effort of pushing for a larger payment later down the road.
Organizations should also use omnichannel options for debtors to make payments, and possibly even consider offering discounts to do so. Mobile and online payment options via smartphone and PC should be standard procedures for collection companies. When customers can easily make payments, they are more likely to do so, in my experience.
Collection groups need to take a step back and reflect on their methodologies over the next few months. Using aggressive tactics could turn out to be a bad business decision down the road. All business methods and practices should be examined for best use, profitability and true profit.