Creditors, servicers and collectors need to quickly re-evaluate their approach to how they interact with consumers in the wake of the Westlake Financial Services/Wilshire Consumer Credit consent decree with the Consumer Financial Protection Bureau.  Much like DriveTime and other scary cases these past few years, this matter serves as another illustration of the acts and practices that will raise the ire of this regulatory juggernaut. 

The amounts are staggering — $44.1 million in cash relief and balance reductions to the victims plus a $4.25 million civil penalty. 

The numerous illegal and deceptive practices that resulted in these penalties are disturbing: using phony called ID, threatening investigation and criminal prosecution, misrepresenting of payment amounts necessary to release repossessed vehicles, and disclosing of borrowers loan information to employers, family and friends, just to name some. 

It’s time for a paradigm shift. If the goal is to avoid overly aggressive collection tactics that will create legal headaches, then look for alternatives that will create better paying customers.  This doesn’t just mean better underwriting.  It means changing the relationship between company and customer.

Status quo

Too many companies are comfortable doing business the way it’s “always” been done and resist change. They see nothing wrong with payment books and a long line of customers looking to make payments every weekend. They cling to the notion that they “want to see the collateral,” even though they can’t name the last time they did anything more than take the payment at the window. They operate with a false sense of security and a strategy of “hope” rather than embrace the ample technology tools that can help drive the bottom line, provide a better customer experience, and keep the regulators at bay.   It’s time to be aggressive and look for ways to create a compliant customer experience that provides more payment options and transparency and, as a result, less of an opportunity for conflict and escalation. 

For example, there are still companies that don’t provide customers with the ability to pay online from a website.  These folks are missing two important points:  first, establishing an online payment portal adds to efficiency, reduces collector “talk time” which is expensive, and reduces the opportunity for customer conflict.  Secondly, customers’ like having payment alternatives and, judging from the rapid growth in consumer acceptance of this method, seemingly prefer doing business at a distance instead of face to face.

The rise in IVR (interactive voice response) and payments by text are two additional technologies that customers like to use.  Businesses should like them too because they free up valuable personnel time and assure consistent communications with customers.  Using an IVR system not only frees up valuable personnel time, it allows consistent and transparent messaging while allowing your customers to pay or make payment arrangements.  Texting is especially exciting because not only can businesses send payment reminders, they can actually offer “pay by text” products that allow customers the freedom to do business on their schedule, not just when the car lot or call center are open.  As more people manage their lives on their cell phones, it will be important for the industry to keep up with this promising tool.

A different way

Setting up customers on automatic electronic payments is perhaps the most underutilized tool in the industry’s arsenal.  In this method, customers provide their payment information ahead of time and agree that a set amount will be paid at regular intervals.  While the extension of credit can’t be conditioned on signing up for electronic payments, customers can be incented with things like free oil changes and gift cards. The benefits are far reaching: collecting becomes more efficient because the payments are made automatically and the potential for conflict is reduced because human intervention is not involved.

Too many companies neglect to drive adoption of this tool because they are fearful of those customers that may cancel the automatic payments or some payments not being made because of insufficient funds.  That is analogous to letting the bottom 10 percent of your customers ruin it for the other 90 percent and is being reactionary instead of pro-active.  Find an effective way to drive your customers to electronic payments and you will reap the benefits.

What do all of these methods have in common?  They increase efficiency while at the same time removing the possibility of human conflict, which is the fastest way to ruin a positive customer relationship.  If the ugly disputes and customer confrontation are replaced with efficient technology, then the overall customer experience will be more positive, less resources will be spent on those customers, and more resources can be pointed in the direction of those most difficult customers that need the attention.  Just be sure to point those resources in such a way as to avoid those activities the CFPB likes to attack. 

Susan Perlmutter is chief revenue officer and Steve Levine is chief legal and compliance officer of Sigma Payment Solutions, a provider of payment technology products for creditors and other businesses. For more information, visit SigmaPayments.com.