Debt collectors are notorious for their bully tactics — the endless barrage of phone calls, the threats of litigation, you name it. But it doesn’t have to be this way. CFS2, for example, uses a much gentler (and more successful) approach to collecting its monies: kindness. Instead of harassing debtors, the firm helps them find what they need most: more money and better jobs. By writing their résumés, prepping them for interviews, and shepherding them through the application process, the company has managed to bring in twice what most other debt collection agencies can collect. Maybe virtue is more than its own reward.
Bank’s Collection Companies Risk Drawing RICO Actions
By Bill Bartmann
NEW YORK (TheStreet) — Big banks are facing unprecedented pressure to rein in the behavior of buyers of their charged-off credit card debt. This pressure is coming from two sources, one well known and one almost no one has talked about — yet — and that will put fear into the heart of every banker who hears them: the CFPB and RICO.
The Consumer Financial Protection Bureau is the nation’s protector of consumers in all matters financial. An outgrowth of the financial crisis beginning in 2008, the CFPB is charged specifically with supervision and regulation of two interrelated industries — banking and private debt collection. This is the first time these two industries have been supervised by the same agency.
The intersection of banking and private debt collection rises when a bank sells defaulted credit card loans. The sale of these loans is common and serves a real purpose for the bank. According to the Nilson Report, last year the banking industry sold $51 billion in delinquent credit card loans. Those loan sales produced approximately $5 billion in recoveries for the banking industry.
The CFPB sent a message recently that it plans to hold banks responsible for the actions of third parties, including those who buy delinquent loans. The agency has promised new regulations and enforcement actions in an effort to encourage major banks to reform their historical practices of selling charged-off debt to companies who file millions of lawsuits each year based on inadequate supporting information.
This practice, called robo-signing, gained infamy during the past few years’ mortgage loan crisis, costing the banking industry more than $35 billion in fines and penalties from the AGs and the Office of the Comptroller of the Currency. Essentially, the debt buying company, now the owner of the debt, files a lawsuit against a consumer and swears an oath to the court that all the claims made in the petition are true and accurate — although there is frequently no documentation to support the affidavit. More than 90% of the time, the debt buyer is relying purely upon a string of digital data and has no proof of the facts of the debt.
Courts have ruled repeatedly that robo-signing is illegal and a fraud upon both the court and the consumer.
Yet robo-signing continues unabated. Why? Because it is so highly profitable for the company who bought the debt from the bank.
“The wholesale transgressions of the debt collection industry present the most significant consumer protection issue of the decade,” said Drew Edmonson, former attorney general of Oklahoma, in a recent letter to California Attorney General Kamala Harris.
Edmonson is on target. Robo-signing in debt buyer credit card litigation far exceeds the scope of the mortgage robo-signing that drew so much attention. No one knows for sure how many mortgage foreclosure lawsuits were robo-signed — the best guess is somewhere around 5 million, an injustice for certain. But over that same period there were about 25 million robo-signed credit card lawsuits — five times the robo-signed mortgage foreclosures that created such scandal. And the problem of robo-signed credit card litigation is growing; there will be about 15 million so far this year alone.
The CFPB has made its intentions very clear. Likewise, the state attorneys general who previously fined banks tens of millions of dollars for mortgage robo-signing have announced a new multi-state action against those same banks for credit card robo-signing abuses. It is highly likely that the AG settlement with the banks this time around will be much larger — some expect $50 billion or more.
If banks think the CFPB and AGs are scary — and they do — they should be terrified of RICO. The Racketeer Influenced and Corrupt Organizations Act was intended as a tool to fight organized crime but turns out to have far wider implications. RICO makes illegal any conspiracy to commit a crime. If a bank sells bad debts to a debt buyer who has a history of robo-signing — which is itself a fraud — logically there exists a conspiracy. The bank becomes a party to the conspiracy because they know of the debt buyers’ practice of robo-signing. The result is RICO. This very argument was the subject matter of a recent law review article.
No bank can withstand a RICO conviction. The damage to the bank’s reputation would be irreparable — a cost far exceeding the treble damages and significant monetary penalties that would be assessed.
There is a simple and elegant solution to this risk of CFPB action and exposure to RICO: Banks should sell their delinquent loans only to those debt-buying companies who have pledged not to use litigation as a collection technique — there are plenty of them and they are capable. If the debt buyer does not sue, there can be no robo-suing, no concerns about inadequate documentation and no vicarious liability for the seller.
Simple and elegant wins every time.
To read the original article: http://bit.ly/CFS2RICO
As you can imagine, I was thrilled to work with Harvard again. Harvard Business Review did a case study on the original CFS back in 1999 and now Harvard Business Review is writing about our new business model. We are changing the industry and helping thousands of Americans get back on their feet.
Bill Bartmann, CEO of debt collection company CFS2, does things a little differently. Instead of just calling, hounding, and suing debtors to pay what they owe, he calls them “customers” and provides them with free job-search services, such as resume help and interview prep.
Perhaps the reason Bartmann runs his company differently is because he himself has never shied away from living life differently. A high school dropout who later put himself through college working at a hog slaughterhouse, he found himself $1 million in debt himself after his first business collapsed. He clawed his way back up by building CFS, the subject of this HBS case study — but then, that too, imploded. Now he’s back (again), and doing things differently (again). What follows are edited excerpts of our conversation.
What’s it like running a debt collection company that’s so different from the rest of the industry?
It’s a little bit like telling everyone that the world is round, when they’re still in that flat-earth society. The debt collection industry believes that you have to beat people up to get money out of them — that’s in their DNA. We all know pleasure and pain are what motivate people, but the debt collection industry has only ever focused on pain. In our company, we’ve reversed that, and quite frankly it works wonderfully.
Maybe some of the people we work with made bad decisions, and maybe some you wouldn’t want to hang out with, but most of them are people like you and me, and they just got swept up in an economic tsunami that literally knocked the blocks out from under them.
You’ve said the idea came from your employees. How did that happen?
Well, there was this emphasis on litigation by the debt collection industry. We saw that as a train wreck. The banks that sell these loans have so much reputational skin in the game, when the banks become aware of how exposed they are by the tactics of these agencies, we believe the banks will want to change course. So we had decided that we really needed to focus on the pleasure principle.
We knew we needed to be more than just nice, but we didn’t know exactly what to do. I went to my employees. I said, “How do we create pleasure for the customer?” This was my plea to 120 employees at a company-wide meeting. What can we do to have them respect us, like us, to “friend them,” for lack of a better term, to want to work with us? So ideas started coming from the audience. Some people suggested raise their FICO score, or help them get their credit back, get a credit card. So then we went to test these ideas with our customers: did they want these things? The customers did not. The customers said, excuse the French, “We want the damn phone to quit ringing.” It was an epiphany. They didn’t want the things we thought they wanted. Maslow’s hierarchy? These people were not even on the bottom rung.
So we huddled everybody together again. They said, “The number one problem we hear from customers is that they don’t have enough money to pay their bills.” We realized if we help them get a better job, they’ll have more money. It’s one of those really simple things where you wonder, “Why didn’t I think of that earlier?”
So how did you take that idea and actually put it into practice? We tried a number of different approaches which didn’t work early on. It was mostly advice and suggestions, things of that nature. So we huddled again. And then an employee said, “We’re going to have to do it for them. They can’t do the heavy lifting themselves — they’re so beat down they have no get-up-and-go left.” So now we get the customer on the phone, get their info, write a resume for them. We realized we were on to something, and we said, “OK, let’s do more of that.” We start with a petri dish and if something doesn’t work, we don’t do it anymore. If something does work, we replicate it.
So tell me about that. How did you take what you’d learned about the resumes and replicate it?
We started doing job interview prep. We put customers on Skype before their interviews, show them what to wear, do mock interviews.
Then we said, “We’ve got to do more than hope they hear about a job, let’s help them find one.” So we created a job network. We take their resume and look for openings that fit their skill set. We’d find one, call up the customer, and ask them if it’s of interest. Then we’d fill out the application. We’d schedule an interview. And then we would do the mock interview. And then at 8:00 am on the morning of the interview, we call our customer to get them out of bed.
Our success rate has been phenomenal.
How do other companies that are hiring your customers see this? Do they know they’re being helped by a debt collection company?
It never comes up. The companies do not know that’s how that person ended up there, and nobody really cares where the application comes from.
Were there any surprises you ran into, in implementing some of these ideas?
Not all our customers have the same buttons to hit. We’re all different. So one of my employees said, “Why are we trying to figure out what they want; why don’t we just ask them what they need?”
Early on, requests came in for food stamps, child care, a new hot water heater, fixing a leaky roof, a new wheelchair. Someone wanted a tree in his backyard cut down. Someone needed a casket for their father’s funeral. And we said, “OK, we’ll do that.”
We’ve now delivered 203 services that are just as eclectic as you could imagine. In the case of the leaky roof, we called up Habitat for Humanity. The guy who needed a water heater, we called up Salvation Army. Cutting a tree down in the backyard, that was even more simple. We now keep a database of 6,000 agencies around the United States so that whenever we have a customer that wants or needs anything we can find someone who cares about that customer. There are organizations that care about every race, religion, gender, military service, and so on. We care about one person, the customer. So find out everything about who our customer really is so that we can target the organizations that care about some aspect of who they are.
I know you said the point wasn’t to have it make money, but I read that you actually do make good money with this model.
This company is only 3 years old, so we’re still growing, but our results today are two times that of any peer in the industry. That is shocking. Note to industry: There is a better model.
So what if other debt collection agencies start copying your model? Would that be a good thing? How will you adapt?
First, I hope they do copy my way. I’m not afraid of competition. We really think the world is a better place if we could get every debt collector to follow this model.
Secondly, we think there’s enough debt out there that we don’t’ have to worry about competition. If somebody catches up to us, that’s not their fault — that’s our fault. We’re first movers, and it’s our job to stay ahead.
You know a few things about losing money, as well as making money. Advice for those out there who may be facing down failures, business or otherwise?
Somebody once told me that failure is not final. I thought that was just another cute little cliché thing. I didn’t give it much shrift. But then I had the good fortune of failing a couple of times. And here’s what I found out: he was right. Failure is not final. It is an awkward, uncomfortable, anxiety-filled portion of your life; it is not your whole life. It isn’t who you are, it’s what happened to you, and once you get that distinction, then you realize, “I can change that. I can come back. I can do again.” Isn’t that was capitalism is all about? We have the freedom in America to try anything we want to, and most of them do not work. But entrepreneurs say, “I just want some of them to work.”
I really hope I end up being a role model for businesses and businesspeople who failed. Then I would look back at all of my failures and scuffed knees and bruised elbows and know it was worth it.
Click here to see the original article: http://blogs.hbr.org/hbr/hbreditors/2013/08/the_debt_collection_company_th.html
I’ve just received word from Thomas Hinton, President of the non-profit American Consumer Council, that they have selected CFS2 as the recipient of their 2013 Friend of the Consumer Award. Here’s what he said:
“The American Consumer Council is pleased to recognize CSF2 with its 2013 Friend of the Consumer Award for its commitment to helping a large segment of consumers get back on their feet through employment assistance and debt negotiation services. As a financial recovery company, CSF2 is offering valued services that millions of consumers desperately need as we emerge from one of the longest recessions in our nation’s history.”
Here’s the strange thing. While I’m grateful and my team certainly deserves to be recognized, my overwhelming feeling is one of frustration. Specifically, frustration that we’re not touching enough lives quickly enough. We can do even more …and we will.
The case of Richard Cordray, who’s had to be re-nominated to lead the consumer protection agency, he’s already been leading since its inception, is a perfect case in point.
Reporter John Michael Spinelli does a nice job of illustrating in his article just published today The Examiner. I’m pleased he chose to interview me for it as well, there’s a lot at stake with this nomination as it portends not just the future of one individual, but the protection agency itself.
The collapsed housing bubble, high unemployment and the high cost of health care have left consumers with not enough money to go around.
This article in the Huffington Post illustrates the real world path that will allow us to avoid a major social crisis: dlvr.it/2mZ04Z.
The politics we typically get to see are “made for tv” pomp and posturing. The real politics are going on behind the scenes between key staffers empowered to negotiate on behalf of their elected bosses.
The “Fiscal Cliff” – a set of severe tax increases and across the board budgetary slashing – is set to happen at New Years Eve. Now that the election is over, Democratic leaders have vowed to stop “kicking the can down the road” and deal with our deficit issues once and for all. If a negotiated settlement is not reached by this deadline, the financial after-effects will be felt globally.
If you want to understand what’s REALLY happening I’d suggest you watch this fascinating interview by economist John Mauldin as he miraculously get’s two of the key staffers involved in the negotiations (David Krone, Chief of Staff, Senate Majority Leader Harry Reid; and Rob Lehman, Chief of Staff, Republican Senator Rob Portman) to share in a civil, thoughtful but blunt conversation about these negotiations. It’s riveting.
Watch the Video: http://www.financialsense.com/node/9865
We need more TV like this.
In my experience, those who seek political office usually come in two basic “flavors.” There are those who aspire to great power and influence; and those that aspire to serve.
The pleasant irony is that those who serve best are often the ones that end up with the most power and influence.
I believe there will be no better current example of this than the Massachusetts Senator Elect, Elizabeth Warren. Ms. Warren has gone from a middle class upbringing as elementary school teacher to respected Harvard professor and tireless crusader to reform Wall Street, in order to better protect the average American. She is today’s “Mr. Smith Goes to Washington.”
Even before she takes office she has sat down with me to work on debt collection problems. Our meeting could have been the typical perfunctory meeting politicians have all the time. It was anything but. What most people will never see or know is her level of engagement and desire to fix problems. You heard it here first, she is going to be a phenomenal and important Senator.
Though in the coming weeks we face the daunting “fiscal cliff,” I am steadfastly heartened and hopeful about our county’s future. With thoughtful, caring (and tough) people like Ms. Warren working on our behalf, I know everything is going to work out just fine.
Sometimes it just can’t be business as usual. A natural disaster striking a broad swath of people is one of those times. Here’s how we handled it, as reported by The Journal Register:
CFS II division assists clients with jobs, debt
by Kirby Lee Davis
Published: November 12th, 2012
TULSA – Two days after Hurricane Sandy swept
through Washington, D.C., and New York City,
CFS II founder Bill Bartmann shared his
2-year-old debt-collection reform campaign with
National Economic Council Deputy Director Brian
Deese. While that White House meeting developed,
CFS II delivered an even more humane message to
clients suffering in Superstorm Sandy’s wake.
“Rather than calling them with our typical
collection call, we called them instead with an
assistance call,” said Bartmann. “We asked them,
‘What can we do to help?’”
Such effort reflects a little-known side of the
2-year-old Tulsa debt collection company. Six
CFS II client services employee Connie Quinn chats
months ago CFS II launched a Client Services
with a customer. (Photo by Rip Stell)
division under Bartmann’s son-in-law, Jason
Barry. Bartmann said the 12-employee division
provides three services: It help clients with their debts,
their jobs, and finding government assistance.
“We take our approach to our clients as a holistic experience,”
said Bartmann. “We don’t think of it asmerely transactional. We’re
there to help that person get out of debt, pay their bills. In doing that,
you have to go beyond anything that has to do with the debt.”
Since many customers find themselves owing money due to
reduced income, Bartmann said a natural solution is to help clients
either find a job or improve the one they have.
“It makes so much sense, when you think about it,” said Bartmann.
“We know just telling someone to get a job isn’t going to do any
good. Most of these people really want to improve their lot in life.
They just don’t know how.”
Bartmann said the Client Services division helped customers write
more than 1,000 resumes since its launch. It also aided numerous
clients in determining eligibility for government assistance.
That parallels efforts to help Sandy victims contact food banks, get
medical assistance or obtain other aid.
“Most customers don’t know what other help is available,” said Bartmann.
“If the law says you are eligible and the only reason you are not utilizing
it is because you don’t know how and you don’t know where, then let me
assist you make an application. If indeed you are legitimately eligible,
then terrific. You will be able to get the assistance the government wants
you to have.”
Although the company has no way of knowing what bottom-line effect the
efforts have, Bartmann said he expects the approach to prove a tremendous
benefit to CFS II in its quest to become profitable.
“The more we do for our customers, the more we literally help them and
substantively help them, the more they appreciate how much we have
done for them, and when they are able to pay, they pay us more than they
were likely to have paid,” said Bartmann. “We actually are reaping financial
benefits and financial rewards out of being nice to people.”
The 140-employee Tulsa company now manages about $400 million in
charged-off credit card loans from 70,000 individual accounts, said Bartmann.
99.9% of debt collection cases come from well meaning people borrowing funds that they unquestionably intend to repay. Then something happens to make this difficult. Typically it’s the loss of a job or a major health/family issue. When this happens, best intentions must give way to the new reality of not having enough money to pay all the bills. Priorities must be put in place. Food before cable. Rent before car. Electricity before credit card bills.
As debt collectors we must collectively not just acknowledge this reality but encourage it, because we can only get repaid once a consumer can get back on their feet. Suing people into oblivion doesn’t change the fact that you can’t collect money from people who don’t have any.
I think this recent news story is instructive as to how humanity can be brought back to the debt collection business: