Conquer the 5 Failures in Collections Litigation

Walker White

October 21, 2020

The Collections Market is currently experiencing the first credit cycle in the CFPB era. In February 2020, according to the St. Louis Federal Reserve, consumers were expected to default on at least 2.3% of outstanding debt, costing creditors over $325B. However, that prediction was PRIOR to the any impact of the pandemic. If the 2008-2009 recession is any indicator, defaults almost doubled. And many feel we are headed that direction.

Creditors, law firms and master servicers are looking at what they need to do today—to keep progressing—while preparing for an inevitable influx of debt collection in the near future.

Most collections litigation strategies lack the built-in agility needed to manage the changing dynamics of the market, bringing to light clear failure points in the process. Each time creditors hit a failure point, they leak value out of their strategy, directly impacting their bottom line.

Want to get a 360° view from a creditor, lawyer and technology experts on conquering these failure points? Watch our on demand webinar with Heidi Staloch, Vice President and Assistant General Counsel at US Bank , Stefani Jackman, Partner at Ballard Spahr and Walker White, CEO of Oliver Technology.

In the meantime, here is a brief review of the five failure points and recommended fixes.

Failure #1: The Data is Fractured
Antiquated data formats and data collection with limited access across the parties.

Creditors system of record comes in many forms. While standards exist, many were designed decades ago and they are not flexible enough to handle dynamic environments like we see today. Additionally, due to the number of sources and systems, these processes raise the risk of inaccurate or incomplete information, either for the Creditor deciding if a particular account is suit-worthy, or for the law firm taking action upon it. We have an opportunity to improve in this area and really modernize.

The Fix: A modern, holistic Platform
360° view of data across all relevant parties

There are three key categories to fixing a fractured data model.

  • Consolidation: Bring the data together into a litigation master record visible to all parties; don’t just throw it over the fence.
  • Automation: Use modern technology to automate many of the tasks you perform manually like loading data, transforming data, cleansing data and even redaction of documents that we want to share with various parties.
  • Accessible: Using proper permissions, having the ability to share the same data with all interested parties, making it more functional for everyone.

Failure #2: Operating on Disparate Platforms
Inconsistent, ineffective file management impacts cost and risk

Historically, there’s a lot of data and systems involved. Files are tossed over the fence to law firms to operate inside local matter management system and codes are sent back and forth. Matter-specific communication is often relegated to separate emails, texts, and phone calls. It’s inefficient. It also creates potential compliance risks for creditors and law firms, as they are updated about changes after the fact. Any time you lack a master record – a single source of truth – you leak value and efficiency from the process.

The Fix: Collaboration and execution in a single streamlined platform
Management of all activity by all involved parties within the context of the file.

Here are the critical capabilities needed to move from a disparate system to an agile solution:

  • Collaboration: Create a single place that holds the litigation master record, accessible to all parties all the time, allowing near real-time interaction.
  • Orchestration: Effectively automate the many handoffs, approvals, and reviews to accelerate the process and capture a standardize audit of the “who, what and where” of each transfer.
  • Visibility: End-to-end visibility for creditors of the entire channel.

Failure #3: Efficiently Maintaining Rigorous Compliance
Maintaining compliance requirements has increased the need for more FTEs, while slowing time to revenue.

Keeping up with all the federal, state, local and venue specific laws, rules and procedures is a huge cost to manage. Since the formation of the CFPB, the amount of quality control checks and audit requirements have grown exponentially. And currently, there’s just no easy fix. You either hire more people or you slow down the volume.

The Fix: A Platform with Compliance Built-in
All federal, state, local and venue specific laws plus all regulatory, creditor and law firm rules and procedures are built into one platform and managed across the channel.

With the technology that exists today, there’s absolutely no reason we cannot codify these rules. So, let’s start there:

  • Codify Compliance: Think about Turbo Tax, which codified the tax laws to make it very simple for someone to file taxes. The same is possible with the laws, rules, and procedures that govern collections.
  • Simplify Audit: Pairing codified compliance with a single system that allows for a comprehensive audit makes rigorous compliance a breeze because each step and timing is documented, including attorney meaningful involvement.
  • Customization: Compliance is a framework, but there are many paths to maintain it; law firms must maintain the ability to practice the “art of litigation” while preserving a consistent approach from the creditor to the consumer.

Failure #4: Litigation Lacks Economy of Scale
Individual law firms maintain their own knowledge base making it difficult for creditors to scale within and across states.

Since creditors partner with law firms in each state, essential business logic about how to litigate in a given state is distributed and is not accessible to the creditor. This makes it difficult for creditors to develop a consistent process across the channel to achieve an economy of scale. When a creditor can integrate law firms onto one platform using a consistent litigation process all parties realize an economy of scale. Even more, creditors are provided end-to-end visibility and control of the process.

The Fix: A Platform with integrated law firm knowledge
Integrate law firm knowledge into a consistent litigation process on a shared platform.

Let’s look at three ways to fix this problem:

  • Standardize: allows creditors to capture all data during pre-placement and then share that data based on the needs of the firm and states.
  • Consolidate: Bring law firms onto a single operational platform or set of processes.
  • Visibility: Provide dynamic and comprehensive dashboards for creditors to be able to see how those files are moving and either assist the firms to keep them going, or bounce them to another firm that can move the file faster.

Failure #5: Stalled Inventory
Stalled files equate to lost revenue. When the percentage of stalled files increases, profitability dwindles.

Today, inventory is distributed to individual law firms in batches. With limited to no oversight of all files across the channel, inventory can become buried or under-utilized. Each file has many moving parts and inevitably, active files garner the most attention, while higher value files may go unnoticed.

The Fix: Automation of Inventory Management
Automating inventory is a new solution, in a unique way, to a common problem.

Let’s look at three ways to fix this problem:

  • Actionable views: A consolidated view allows all relevant parties to see which files are active and which are not. By adding actionable and consumable views of inventory, creditors can rely less on people and more on automation to keep files moving.
  • File Granularity: Workflows should be based on individual files verses pools/batches. A platform should automatically manipulate, test and compare individual matters to determine if the file should be placed and then evaluate multiple variables of data simultaneously to make a data driven decision regarding where to strategically place files. Automatically processing files to the next step is critical to prevent inventory from stalling; yet some files need human interaction, requiring the platform to flag those files and automatically notify the appropriate person that action is needed.
  • Visibility: Better visualization ensures more inventory will move in a consistent manner to create more value. When a creditor can visualize the value of each file (including the stage each file is in and why files are not advancing) they can proactively address issues like rebalancing load across firms or rebalancing files based on probability of success. Creditors need a comprehensive view of the inventory and an agile platform that can quickly modify the flow of inventory to generate higher value.

Think about it. With your business under a microscope of regulators, most creditors are forced to manage their business with caution. While the debt is mounting, the pressure is building. At some point, the storm is going to pass, and the economy will expand. Now is the time to re-tool your collections litigation process into an agile system so you can cost-effectively scale your operation to capture more revenue in a shorter timeframe when the opportunity arises.

Learn more with a 360° view from a creditor, lawyer and technology experts on conquering these failures.

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