CFPB Reg F: Rocket fuel to an industry transforming

“If you don’t like change, you’re going to like irrelevance even less”

General Eric Shinseki

The collections industry has faced two transformative challenges in the past 12 months; coping with the Covid crisis and now leaning into implementation of CFPB Reg F. Combine those two drivers with an already underway technology transformation of debt collection and it seems clear that this is a highly consequential era for the structure of the industry.

To loosely apply Moore’s Law to the debt collection industry, it now seems likely that the pace and structure of change in these few years could be quite exponentially different than, say, the past 20 years.

This shows up in the unique drivers of industry change as well as the rapid pace of change. But the good news is that these drivers actually show the way to a path forward.

Drivers of change

Change is being imposed on the industry from the outside, like so many other industries. I often say “landline revenue was great (through the 1990s), until it was gone.” Covid, obviously not on any business forecast a mere 12 months ago, has caused many core assumptions and plans to be quickly discarded. 

Scenario planning, usually handled by corporate staff and therefore not likely to be prevalent in the industry, would have created low-probability scenarios of a crisis like Covid with roughly zero practical plans built. Industry players were hit from all sides.

Debtors and consumers experienced waves of unemployment, followed by stimulus and then forbearance; an unprecedented zig‑zag occurring in just a matter of weeks. Delinquency levels (lowest in decades) and savings rates (highest in a lifetime) literally jumbled the business models of incoming flow of accounts.

Entire organizations flipped to “work-from-home” in weeks, dusting off Disaster Recovery plans which seemed to have worked quite well for most. Clients were equally consumed with their own crisis management.

Not to be outdone, the CFPB continued on schedule to release Reg F, the first significant regulatory framework update since the 1970s.

Almost a decade in the making, it arrived in late 2020 as a fully vetted road map for regulatory expectations for an industry striving for clarity for decades. And while the regulations are complex and very detailed, at a macro level they are designed to structurally shift the nature of the interaction between the debt collector and the consumer, with of course greater power and control to the consumer.

Last but certainly not least, the era of digital transformation has unambiguously stormed the beaches. In a normal cycle the effect of massive regulatory change might be sufficient to move an industry, but in this case the CFPB is mostly walking through the open barn door to chase the consumer horse that is running ahead.

Pace of change

It is obvious, then, that the simultaneous arrival of these macro transformations has resulted in extraordinary pace of change required of industry participants. Any factor on its own would be considered a significant business stressor, the combined effect of these changes is essentially a tsunami.

Consider that many agencies actually reported “better-than-average” collection results in 2020 despite implementing wholesale work-from-home operational plans, perhaps due to highly liquid debtors enjoying stimulus checks and having nowhere to spend the money during the Covid lockdowns. This happened over the course of a few months. Not quarters, or years.

So the really good news is that there is tremendous innovation and resiliency built into the industry, as the “winner” stories seemed quite common and the industry showed a high ability to adapt.

Not to be overlooked is broader innovation occurring, including technology service providers. There are many smart and capable companies out there building products to help the industry stay ahead of these changes.

The path forward

As a technology company our view is biased. The effects of Covid should wane, but the double whammy of CFPB Reg F and the consumer digital transformation are genies that are out of the bottle. And they are in basic ways two sides of the same coin.

“Change is inevitable, but transformation is by conscious choice.”

Heather Ash Amara

Regardless of your views of Reg F, it seems clear that the intent is to create greater power in the hands of the consumer and challenge the industry to engage with the consumer on different terms. And if you don’t find Reg F sufficiently persuasive, just look at any form of recent consumer research.

The digital transformation was well underway prior to Covid, but Covid has been a rocket fuel turbo booster to an already fast-moving missile. According to a recent McKinsey survey1, “Companies are three times likelier than they were before the crisis to conduct at least 80 percent of their customer interactions digitally.” Wow.

Even if McKinsey were wrong by half, this is a staggeringly fast transformation. Are you ready?

1 McKinsey: ‘How COVID-19 has pushed companies over the technology tipping point—and transformed business forever”, October 5, 2020

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