Rethinking Debt Placement - Four principles to drive compliance and performance

No longer can first-party organizations simply sell or place accounts with a third party without clear account handling visibility In the US the Office of the Comptroller of the Currency (OCC) released new guidance Bulletin 2013-29 calling for wide-ranging third party risk management and oversight This bulletin comes on the heels of a sweeping consent order between a major US bank and the OCC covering the bankrsquos collection practices notably third-party collection activities

This guidance as well as a groundswell of negative press and penalties has altered the course of agency placements First partiesmdashwho have always had limited insight into daily agency operationsmdashwill need to increase their visibility into the information and actions taking place at the agency to continue to place delinquent accounts

The core benefits of what third parties can deliver havenrsquot gone awaymdashbetter performance for less cost and the ability to scale The key is determining how to implement agency management to ensure that both the financial and regulatory risks are well managed

wwwficocom Make every decision countTM

Rethinking Debt PlacementFour principles to drive compliance and performance

copy2014 Fair Isaac Corporation All rights reserved page 2

For organizations that seek to improve third-party placements FICO recommends that four principles are included in their agency management program These principles are based on knowledge gained working with businesses across the debt management spectrum and encompass strategies and technologies (including new analytic innovations) that can help organizations drive stronger placement outcomes At the same time this foundation will provide the flexibility to rapidly adjust to the evolving business economic and regulatory landscape These include

1 Establish clear enforceable placement policies

2 Use the optimal criteria to assign the right accounts to the right agencies

3 Automate and log the communications to and from agencies

4 Take the guesswork out of performance and operational monitoring


To manage risk make the best use of resources and drive collection performance businesses need to establish clear strategies for when to place accounts with a third party and the set-up rules that govern the relationship between agency and credit grantor

Placement success starts with a clear policy that balances results versus risk while managing constraints Historically the decision to work an account inside place the account with an agency or sell the account was based on intuitive rules This approach is no longer sufficient The decision should be solved analytically to maximize the revenue and ensure the highest retention Once this decision is made the next step is to make sure the right account gets delivered to the right agency for those accounts that are not worked in-house or sold


After segmenting the portfolio to identify the best accounts to place with an agency the placement system should use optimization to pair each account with the agency that will deliver the greatest return while managing business constraints Some lenders use agency performance reports to make these decisions however this method will not yield the best result across the entire portfolio Reports alone are not adequate to predict future agency performance or understand how agencies perform with different types of debt quality

Some agencies are more proficient working low quality (hard to collect) debt or other segmentations like product type (eg auto loans vs credit card debt) Placement optimization can spot these trends and apply the best allocation far better than rules By using advanced analytic techniques a credit grantor or other entity can determine which accounts should go to which agencies depending on portfolio debt stage or other criteria and constraints the lender wishes to apply The optimization technology can also solve other business problems like how much commission should be paid to an agency based on the debt quality they are working or the optimal settlement offer that maximizes revenue and uptake of the offer

After accounts are placed with the agencies best positioned to collect on them itrsquos vital to track the information and decisions related to the relationships and contacts between credit grantor agencies and debtormdashto audit both financial and compliance performance


Agency Placement Best Practices



With all the complexities of consumer preference economic factors compliance and other factors simply sending accounts to an agency with basic instructions isnrsquot enoughmdashespecially with regulators complaint databases and social media closely watching the millions of actions from both agency and credit grantor that can put a companyrsquos brand and profitability at risk

For example consider a utility that offers a low income assistance program for qualified subscribers Typically the utility might work delinquencies in this risky segment of customers themselves to carefully manage risk Changes such as downturns in the economy or other natural disasters however might rapidly increase the size of this population overwhelming available resources

In this instance the utility may outplace certain accounts including some of the assistance program accounts Now suppose this agency has little or no experience working with the low income demographic where the guidelines of the assistance program specifically dictate what strategies to use (settlement vs full pay payment plans etc) Applying their default approachmdashparticularly with chronic late payers who are used to speaking with a particular agent at the utilitymdashmight be a shock to the customer and ultimately lead to complaints social media postings and even possible regulatory activity What started out as a customer care program could quickly turn into a regulatory nightmare

A combination of clear directives and automation can help Ideally the utility has established criteria for its own agents in terms of how to collect debt for customers enrolled in the assistance program These criteria can be communicated to the agency via account notes in the placement system (ldquoThis customer is enrolled in the Utility X Assistance Planrdquo) If the agency has questions about whether to settle vs arrange a payment plan real-time messaging via a work queue allows interaction between agency and utility to determine the best option for all parties

The placement system should be able to maintain all agency activity in a database so it can stand up to auditing and enable performance tuning When results are tallied vs desired outcomes the utility can provide the agency with guidelines for improvement At the same time particularly if the agency proves less efficient or overly aggressive at collecting these accounts vs others the utility could simultaneously ldquotestrdquo another agency and use analytic techniques to compare performance


Agency monitoring should be built into the system and dashboards updated daily Itrsquos vital to track issues quickly and waiting until the end of the month to see the results is not good enough The first partyrsquos placement software should not only be able to report on portfolio performance but also detect specific trends with individual agencies that could indicate ongoing or future issues such as abnormally low liquidation rates for typically high performing sectors lack of calls made etc Attention should be given to incorporating external data sources such as complaint databases and new consumer data so this information can be considered and communicated with the third party

Another way to monitor how agencies are treating customers is through physical facility visits to review collector-customer conversations However such compliance monitoring is cost-prohibitive and these visits frequently miss underlying issues

Analyzing call recordings can provide more insights in terms of whatrsquos really going on behind the scenes if the agency is willing to share these Itrsquos simply too time consuming to manually listen to every call or even a significant percentage Also the listener may develop insufficient sample biases Technology can also help heremdashsome first parties and agencies are now deploying advanced speech analytics to monitor 100 of all agentconsumer interactions



For more information North America Latin America amp Caribbean Europe Middle East amp Africa Asia Pacificwwwficocom +1 888 342 6336 +55 11 5189 8222 +44 (0) 207 940 8718 +65 6422 7700 infoficocom LAC_infoficocom emeainfoficocom infoasiaficocom

FICO Placement Optimizer PlacementsPlus Debt Manager and ldquoMake every decision countrdquo are trademarks or registered trademarks of Fair Isaac Corporation in the United States and in other countries Other product and company names herein may be trademarks of their respective owners copy 2014 Fair Isaac Corporation All rights reserved

4052EX 0914 PDF

and determine where performance policy adherence and compliance can converge to help continually improve outcomes Dashboards track metrics in real time down to each individual agentdebtor call to determine (for example) if mini-Miranda declarations are being made and which agents are performing better vs others The collector-consumer collection call is the operational touchpoint where the vast majority of regulatory risk resides Failing to track and analyze 100 of these calls is an unacceptable risk in todayrsquos heightened compliance environmentmdashespecially when affordable and proven technology is available

As long as therersquos debt to be collected credit grantors can drive better outcomes by bringing in agencies that can act as a ldquovirtual teamrdquo for working delinquent accounts

The key is to manage these relationships in terms of both financial and regulatory performance To do this organizations need to evolve past traditional ldquowhat happenedrdquo reporting and manual assignments to bring in rules scoring optimization speech analytics and other capabilities that help determine what accounts to place who to place them with and then how to monitor performance by segment portfolio and agency

With the recent evolution of advanced debt management technologies in the cloud lenders and others can rapidly deploy solutions that can take the guesswork out of placements FICO a leader in debt management solutions for lenders and other industries for more than 50 years has developed cloud and on-premises solutions that help organizations enhance placements

The FICOreg PlacementsPlusreg service streamlines placement and management of contingency accounts within a single user interface It helps organizations maintain control over the distribution and management of accounts to agencies attorneys debt buyers and internal recovery departments

Complementing PlacementsPlus is the Placement OptimizerSM solution which leverages custom analytics to identify the collection agency attorney or placement channel most likely to optimize cash collected based on account type Organizations that have used the PlacementsPlus service and Placement Optimizer solutions have achieved

bull 30 increase in recovery dollars and 40 decrease in costs 25 recovery uplift in first month alone

bull 99 reconciliation with vendors on account placement balance

bull 12 liquidation rate increase

bull 5ndash20 lift in recoveries through optimized account placement

bull 10ndash20 performance improvement with models that are frequently retrained

FICO offers a comprehensive suite of debt management solutions that work closely with our placements products including FICOreg Debt Managertrade solution our flagship collection and recovery solution as well as FICOreg Engagement Analyzer an award-winning speech analytics solution that helps organizations propel agency performance and compliance

To learn more please contact us at insideficocom

Turning the Corner with Agency Placements


For organizations that seek to improve third-party placements FICO recommends that four principles are included in their agency management program These principles are based on knowledge gained working with businesses across the debt management spectrum and encompass strategies and technologies (including new analytic innovations) that can help organizations drive stronger placement outcomes At the same time this foundation will provide the flexibility to rapidly adjust to the evolving business economic and regulatory landscape These include






To manage risk make the best use of resources and drive collection performance businesses need to establish clear strategies for when to place accounts with a third party and the set-up rules that govern the relationship between agency and credit grantor

Placement success starts with a clear policy that balances results versus risk while managing constraints Historically the decision to work an account inside place the account with an agency or sell the account was based on intuitive rules This approach is no longer sufficient The decision should be solved analytically to maximize the revenue and ensure the highest retention Once this decision is made the next step is to make sure the right account gets delivered to the right agency for those accounts that are not worked in-house or sold


After segmenting the portfolio to identify the best accounts to place with an agency the placement system should use optimization to pair each account with the agency that will deliver the greatest return while managing business constraints Some lenders use agency performance reports to make these decisions however this method will not yield the best result across the entire portfolio Reports alone are not adequate to predict future agency performance or understand how agencies perform with different types of debt quality

Some agencies are more proficient working low quality (hard to collect) debt or other segmentations like product type (eg auto loans vs credit card debt) Placement optimization can spot these trends and apply the best allocation far better than rules By using advanced analytic techniques a credit grantor or other entity can determine which accounts should go to which agencies depending on portfolio debt stage or other criteria and constraints the lender wishes to apply The optimization technology can also solve other business problems like how much commission should be paid to an agency based on the debt quality they are working or the optimal settlement offer that maximizes revenue and uptake of the offer

After accounts are placed with the agencies best positioned to collect on them itrsquos vital to track the information and decisions related to the relationships and contacts between credit grantor agencies and debtormdashto audit both financial and compliance performance


Agency Placement Best Practices
















4052EX 0914 PDF






























4052EX 0914 PDF


















4052EX 0914 PDF















Economy & Finance

Rethinking Debt Placement - Four principles to drive compliance and performance