Inside ARM Article Worth Reading

Collection Agency Layoffs Reach Highest Level of Downturn in Q2

August 17, 2009

Collection agencies and debt buyers reported layoffs at a record pace in the second quarter, according to the results from insideARM's latest Credit & Debt Collection Industry Confidence Survey. But collection performance is improving from late last year.

by Patrick Lunsford
insideARM staff
August 17, 2009

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Accounts receivable management companies reported a record level of layoffs in the second quarter of 2009, according to the latest insideARM Credit & Debt Collection Industry Confidence Survey.

The Summer 2009 survey showed more collection agencies and debt buyers reporting layoffs since the beginning of the survey in mid-2008.

When asked, “Did you eliminate any positions or layoff workers in your company in the 2nd Quarter of 2009?” more than 32 percent of collection agencies answered yes and 41.4 percent of debt buyers said the same, a record high for any group taking the survey.

The previous Confidence Survey, 25.7 percent of collection agencies reported layoffs in the first quarter with 33.3 percent of debt buyers cutting positions.

In and open response follow-up question, many survey participants gave their rationale for the increased layoffs:

"60% of our expenses are people. Only place to significantly cut costs."

"Only employees that share the desire to show up on time and produce consistently at a profitable level should expect to remain employed."

"Leveraging technology instead of hiring more staff to cover the inflated business. Although business is up it is uncollectable currently."

"We down sized to align with our revenue flow. We do anticipate improvements in the 1st and 2nd quarter of 2010 and will staff up to accommodate growth."

The Summer 2009 confidence survey was taken by 401 ARM industry professionals from July 17 through August 6. The full results, with all data and comments from the survey, can be found at http://www.insidearm.com/go/survey-results. Results from past surveys can also be found in the new section.

ARM companies did report better levels of performance in the second quarter. Although performance ratings were lower than in the first quarter, they significantly outpaced the performance reported in the fourth quarter of 2008, when the economy was seemingly in freefall and panic was the order of the day.

On a scale of 1 to 5, with 5 being the best performance, collection agencies rated second quarter performance with an average of 3.08, down from the 3.35 reported for the first quarter, but up from the 2.81 reported in the fourth quarter of 2008. Debt buyers gave second quarter performance an average rating of 3.03.

First quarter collection and liquidation performance was likely helped by early tax returns in late February and March, a typically good time for recoveries.

To view the complete results of the survey, including responses from creditors, collection law firms and vendors to the ARM industry, please visit http://www.insidearm.com/go/survey-results.

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NOTE: Even with national numbers continuing to look bleak for agencies, Alliance Collection Service remains strong and continues to break records almost monthly. We have had no lay offs and do not foresee any at this time. Maybe the hard work that Mr. Chambers and Ms. McLemore did in the fall of 2008 had everything to do with this. The question now is, how are these other agencies going to make up for their losses because laying off employees is usually a bandaid where a large bandage is needed. Most will likely revert to old collection tactics to increase collections and as a result, put their clients at great risk. We continue to receive reports, as lately as this morning, of horrific tactics being utilized by agencies nationwide.

Red Flag 101

For those of you that might not be knowledgeable about "Red Flag", the Red Flag rules are our government's latest response to the identity theft crisis.

According to the rules, any company that extends credit in any fashion, must comply by implementing a complete program by August 1, 2009. What does this mean for the consumer? Well, hopefully it will mean that you can worry a little less about having your identity stolen; however, the ultimate responsibility rests with you. Under the rules the covered entities must put into place a program that can do three things:

1. Identify potential identity theft threats
2. Respond to those threats through an established set of guidelines and policies
3. Report the threats to the appropriate authorities.

Each covered entity must have a program in place that is approved by their board of directors and must appoint a "Red Flag Officer".

The Federal Trade Commission is the governing authority over the program. Each violation by a covered entity will be worth a penalty of $2500 as the rules stand right now.

Please feel free to post any questions or comments here and I will do my best to respond quickly and accurately.

FTC EXTENDS RED FLAG DEADLINE TO AUGUST 1, 2009

The following was released by the FTC on Thursday, 04-30-09. You can view the entire document on at www.ftc.gov. We will continue to keep you posted. KEN

For Release: 04/30/2009
FTC Will Grant Three-Month Delay of Enforcement of ‘Red Flags’ Rule Requiring Creditors and Financial Institutions to Adopt Identity Theft Prevention Programs

The Federal Trade Commission will delay enforcement of the new “Red Flags Rule” until August 1, 2009, to give creditors and financial institutions more time to develop and implement written identity theft prevention programs. For entities that have a low risk of identity theft, such as businesses that know their customers personally, the Commission will soon release a template to help them comply with the law. Today’s announcement does not affect other federal agencies’ enforcement of the original November 1, 2008 compliance deadline for institutions subject to their oversight.

“Given the ongoing debate about whether Congress wrote this provision too broadly, delaying enforcement of the Red Flags Rule will allow industries and associations to share guidance with their members, provide low-risk entities an opportunity to use the template in developing their programs, and give Congress time to consider the issue further,” FTC Chairman Jon Leibowitz said.

The Fair and Accurate Credit Transactions Act of 2003 (FACTA) directed financial regulatory agencies, including the FTC, to promulgate rules requiring “creditors” and “financial institutions” with covered accounts to implement programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. FACTA’s definition of “creditor” applies to any entity that regularly extends or renews credit – or arranges for others to do so – and includes all entities that regularly permit deferred payments for goods or services. Accepting credit cards as a form of payment does not, by itself, make an entity a creditor. Some examples of creditors are finance companies; automobile dealers that provide or arrange financing; mortgage brokers; utility companies; telecommunications companies; non-profit and government entities that defer payment for goods or services; and businesses that provide services and bill later, including many lawyers, doctors, and other professionals. “Financial institutions” include entities that offer accounts that enable consumers to write checks or make payments to third parties through other means, such as other negotiable instruments or telephone transfers.

During outreach efforts last year, the FTC staff learned that some industries and
entities within the agency’s jurisdiction were uncertain about their coverage under the Red Flags Rule. During this time, FTC staff developed and published materials to help explain what types of entities are covered, and how they might develop their identity theft prevention programs. Among these materials were an alert on the Rule’s requirements, www.ftc.gov/bcp/edu/pubs/business/alerts/alt050.shtm, and a Web site with more resources to help covered entities design and implement identity theft prevention programs, www.ftc.gov/redflagsrule. The compliance template will be available on this Web site.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

MEDIA CONTACT:
Office of Public Affairs
202-326-2180

From ACA Newslink: Consumer Delinquencies Continued Rising in Fourth Quarter of 2008

The American Collector's Association (ACA) is our trade association. News continues to point to lower recovery percentages for businesses across the nation and the Southeast. It is important that we, as your agency, help you to capture every dollar as credit tightens even more and consumers become more sensitive to abusive collection tactics. The ACA just sent us the following information:

"Job losses continued taking their toll on consumer finances during the fourth quarter of 2008, as evidenced by rising delinquencies in almost every loan category. The U.S. economy lost nearly three million jobs in 2008, with nearly two million of them occurring in the fourth quarter.

The Consumer Credit Delinquency Bulletin reported the composite ratio, which tracks eight closed-end installment loan categories, rose 32 basis points to a record 3.22 percent of all accounts. The bulletin is published by the American Bankers Association.

According to the bulletin, home equity loan delinquencies rose 40 basis points to 3.03 percent of accounts, setting a new record. Home equity lines of credit delinquencies also reached a new record, rising 31 basis points to 1.46 percent. Every category saw rising delinquencies except mobile home loans. The report defines a delinquency as a late payment 30 days or more overdue.

Credit card delinquencies also increased from 4.20 percent to 4.52 percent, but still remain near the four year average of 4.47 percent. This is likely due to the ability of card holders to adjust their monthly payments, unlike other loans with fixed payments.

The composite ratio is made up of eight closed-end installment loan categories: home equity, property improvement, indirect auto, direct auto, marine, RV, mobile home and personal. All figures are seasonally adjusted based upon the number of accounts."

Economic News Affecting Collections

According to the U.S. Bureau of Labor Statistics: Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1 to 8.5 percent. Payroll employment has decreased by 3.3 million over the past 5 months. In March, job losses were large and widespread across the major industry sectors. (Source: http://www.bls.gov/ces/)

The Financial Forecast Center released the following projections through October 2009 on March 9, 2009 on unemployment:

U.S. Civilian Unemployment Rate Forecast
Percent Unemployed Seasonally Adjusted.
Month Date Forecast

0 - Feb 2009 - 8.10 - 0.0
1 - Mar 2009 - 8.5 - 0.3
2 - Apr 2009 - 8.8 - 0.4
3 - May 2009 - 9.1 - 0.4
4 - Jun 2009 - 9.4 - 0.4
5 - Jul 2009 - 9.7 - 0.5
6 - Aug 2009 - 10.0 - 0.5
7 - Sep 2009 - 10.2 - 0.5
8 - Oct 2009 - 10.3 - 0.6
Updated Monday, March 09, 2009 (Source: http://forecasts.org/unemploy.htm)

These numbers and other factors will dramatically affect the recovery percentage of collection accounts nationally. Alliance continues to see a steady recovery rate to spite the economic downturn.

The one thing the we find most interesting is that consumers are responding to positive treatment and respect. There are countless reports of collection agency abuse in the news, and numerous agencies utilizing abusive tactics are believed to be experiencing a drop in recovery.

Self Defense: A Practical Approach

TUPELO BRAZILIAN JUI JITSU.COM (click here)
As you may know, a lot of blogs consist passionate posts. A person finds an issue that gets them revved up or frustrated or excited and they run back to their computer and blog about it. Well, this is one of the few times I will do that; however, I feel compelled to share with you something that I just saw.

Jeff Chambers, our Company President, is involved with MMA (Mixed Martial Arts). Now I will be the first to say that I was skeptical. How in the world can a 40 year old man get into something so dangerous and put his own health at risk? Today, I got an answer.

Alliance sponsors and teaches a lot of seminars and today Jeff and Chris Gates, of Tupelo Brazilian Jiu Jitsu, were doing a simple self-defense class for one of our clients free of charge. I watched.

I was blown away and very impressed. The class was well taught and kept very simple so the thought of getting into something complicated that I had, simply evaporated. This is a very disciplined art but seems very practical. The fundamentals can be used in everyday life and builds character, provides a more relaxed attitude, and allows one's confidence in themselves to grow in a truly healthy way.

If you have the opportunity, I suggest that you visit a local MMA class. Tupelo Brazilian Jiu Jitsu is located just off of Coley Road in Tupelo. Click on the name above to go to their website. It might come in handy some day and who knows, you might be able to shed a couple of pounds if you want to do so!

10 TIPS ON COLLECTION AGENCIES

With troubling times seemingly ahead, many people will be dealing with a collection agency, maybe for the first time in their lives. The following information is provided to you in an effort to help you understand how to better manage communications from an agency.

A few facts and suggestions for those dealing with collection agencies: First, all agencies have access to the same tools. We all utilize the same credit reporting companies to affect credit and if a debtor does not pay a debt that is valid, we may sue that account in civil court to receive a judgment. Most good agencies use professional collectors whose job is to talk to debtors to insure the valid debt is paid. Some agencies use different strategies and tactics but all are governed by the Fair Debt Collections and Practices Act which is enforced by the Federal Trade Commission and in place to prevent deceptive, abusive and unfair tactics. Now that you know a few facts, let us share with you 10 things to keep in mind should you get a call from a collection agency:

First and foremost, the best way to prevent getting a communication from a collection agency is to call your creditor immediately at the first sign of a problem. Most creditors do not want to place your account for collection. If you call them and keep them up to date on your situation honestly, most are willing to work with you. Remember, you aren’t the first person to be in this type of situation.

1. Don't panic and don't get angry, this isn't the end of the world, as you know it.
2. Call the agency and get the facts. If the debt is valid, work with them to figure out the best way to approach the problem. Be straightforward about any financial situation you may be in. Collectors are trained to help consumers with collection issues.
3. Be respectful and expect respect. You have the right to be treated with dignity but the debt still needs to be taken care of.
4. Attitude. As with most issues in life, attitude determines outcome. If the attitude of the collector is rude, simply ask to speak with their supervisor. Rude collectors have no place in most collection organizations.
5. Remember, the company that extended you credit, counts on that money just as you count on your paycheck.
6. Ask the agency what their intent is. If they are going to affect your credit, they will tell you. If you refuse to pay or fail to keep an arrangement, they may place the account with an attorney and yes, they can sue you; however, they cannot do it overnight and they can't come and take your first-born.
7. In the case of a civil suit, the court will determine whether a debt is owed. It is not the jurisdiction of a court to determine how the debt is to be paid out. If you fail to pay or work out an arrangement within a specific time frame, then your wages may be garnished. No agency can take your entire paycheck. Wage garnishment laws determine how much can be withheld.
8. If you believe you do not owe a particular bill, you have the right to dispute a debt, which should be done in writing, to validate the debt for you. You also have the right to request an itemized statement; again it should be in written form.
9. Understand that the agency has a job to do, just like you do, and that they want a resolution to the problem that is a win/win for everyone.
10. Keep your promises. If you cannot make a scheduled payment, don't wait for the agency to call you. Call and keep them posted on what is going on in your world. This might not save your credit from being affected, but it will help to create a good rapport with the collector who will work with you as much as possible.
Keep in mind that we all owe money at some point in our lives. If you communicate with your creditors and be proactive, you will find that the process can be relatively painless.


Jeff Chambers
President
Alliance Collection Service, Inc.

Ken Dulaney, Sales & Marketing Director
Alliance Collection Service, Inc.

RED FLAG RULES

The deadline for organizations to have their "Red Flag" program in place is May 1, 2009. The Red Flag Rules are designed to detect, prevent, and deal with identity theft and will be regulated by the Federal Trade Commission. The penalty for a single violation under the new Red Flag rules is $2500 per occurance at this time.

Healthcare providers got a shock when they found out they were covered by the rules. The original deadline was November 1, 2008; however, as news reached healthcare providers and the panic began to set in, the government pushed the deadline back to May 1, 2009.

If you don't have a Red Flag program in place, get one. It isn't hard to do but will take some work. You must have a written program in place and that program must be authenticated, or signed off on, by your board of directors or owner. A Red Flag Compliance Officer must be appointed also.

If you would like more information on Red Flag, I will be happy to share what I have. Just leave a note here or email me at kdulaney@alliancecollectionservice.com.

Alliance Collection Service Blog "Welcome"

This blog is meant to be a forum for discussions about any issue related to the collection industry. I encourage you to place your opinion or information here as long as it is done with a professional attitude and is respectful of others.

I hope to put as much useful information into this blog as possible but your input will make it invaluable, so check back often and let your opinion or questions be known.