Fooling Around with Fees

 

By now, you probably heard the one about the collection agency based in NYC that defrauded its clients of more than $1.6 million. No, this is not an April Fools Day joke. Yesterday news broke that the Manhattan District Attorney charged two New York City men with collecting more than $1.6 million on behalf of clients and failing to remit any of the money collected ("DA Says Collection Scam Netted Two New Yorkers $1.6 Million," March 31). This went on for six years. The crooks targeted local businesses for collection contracts by presumably using attractive rates. Once the creditor turned over accounts for collection, they never heard from the thieves again

There are bad apples in every industry. The collection industry is certainly not immune to schemes such as this one, where unscrupulous individuals prey on vulnerable small businesses that are seeking to recover past due accounts at potentially attractive rates. The rates don’t matter to the dishonest collectors, because they never intend to remit back to the client anyway.

If you’re a credit grantor, you’re probably thinking this can’t happen to you. Many credit card issuers have developed a bullet-proof on-boarding process for collection vendors, believing that prevents unscrupulous agencies from getting in. The reality is that creditors can be their own worst offender when it comes to letting the “bad guys” in through the back door – by cutting rates down so low that it is impossible for reputable agencies to generate enough revenues and profits to properly capitalize their business and maximize recoveries for their clients.

What do you think is the number one concern among senior executives who are in charge of recoveries for their company? If your answer is maximizing net-back performance you’re dead wrong. The number one concern among recover managers is waking up one morning and finding their company on the front page of USA Today because of extreme cases like the one above – or more commonly, from aggressive collection tactics that violate FDCPA. Front line news about their collection vendors may cost a recovery executive his or her job. That is a risk they simply can’t take.

In short, you get what you pay for. If the creditor works with their collection agencies to keep fee rates at appropriate levels, the agency can generate profits without sacrificing performance, and everyone wins. The client will maximize recoveries while staying out of the headlines. The agency will grow a profitable and sustainable business. We just might keep the bad guys out of the industry once and for all.