Who is Driving Change in the ARM Industry: Regulators or Creditor Clients?

The debt collection and broader accounts receivable management industry is a state of rapid and fundamental change. A new and far more aggressive regulatory structure is driving much of this change, along with economic pressures felt by all businesses. But recent news stories have pointed to large creditor clients leading the change revolution in ARM.

Yesterday, we wrote about Minnesota Attorney General Lori Swanson filing a lawsuit against a debt buyer over affidavits the company was using in collection actions. That may seem like a regulatory matter, but in the release announcing the suit, Swanson’s office noted that one bank had already sued the debt buyer over the affidavits. And as one insideARM.com reader pointed out, the matter had been discussed extensively on our message boards nearly a year ago.

That example is perhaps unfair because it seems like a case of fraud. Meaning, there aren’t going to be any changes for the broader industry stemming from this action, other than – you know – not committing fraud.

But there was another story yesterday that really piqued my interest. Portfolio Recovery Associates reported their third quarter 2013 earnings and, in a separate press release, also announced the opening of a new call center in Dallas, Texas (we combined them into one story). The “headline” of the new office announcement was that PRA now has all of its U.S. account collection jobs in the U.S.

It turns out that this was not an internally-prompted move. According to Neal Stern, PRA’s EVP of Operations, major banks are moving toward prohibiting “offshore collections” as a condition of selling their accounts. “Major banks are seeing growing value in companies that will manage these accounts with U.S.-based talent,” Stern said. This is a concrete example of a creditor client influencing a very important decision (where to build out collection capacity).

The OCC’s investigation and settlement with JPMorgan Chase will also have a profound impact on the ARM industry. The company had already stopped placing accounts with collection law firms. Now, there will be strict new internal policies on debt sales that other major creditors are sure to adopt.

It can be argued that many of the new requirements seen from clients are being driven by the regulation and supervision of the banks themselves. And that’s a fair assessment. But creditors are also proactively shifting their practices in dealing with external ARM partners.

What do you think will drive the most change over the next five years: creditors or regulators?