Debt collection has never been easy. But now? The economy’s a sprawling, flaming wreck!
Fact: nobody alive today has lived through something like this. Businesses, even whole industries, have been forced to self-destruct.
In all probability, it’ll take years before we get back to the “old days.” Covid-19 and the government reaction to it has made permanent changes to what (and how) we’ll buy and sell.
But, even before the virus, things weren’t great.
That’s not just my perception. Or yours. Let’s look at the context leading up to where we are today. Because, unlike Covid, these factors are not going away.
Revenue for the debt collection industry has been shrinking by 3.3% since 2013. That’s according to the Consumer Financial Protection Bureau (CFPB).
More about them in a minute.
Why? Well, seven years ago, following the housing bubble pop in 2007/08, people borrowed less (“deleveraging,” as they say on CNBC).
They were trying to be responsible.
Of course, less overall debt meant less (potential) income for you.
Still, you tried to weather the economic cycle like a pro. Adjust expectations and refocus your energy on profitable niches.
But sometime around 2015, there was a turnaround. People began borrowing again, encouraged by historic-low interest rates. Given this change in behavior, the debt collection industry should have grown (potentially boosting your earnings).
But that didn’t happen.
There are three reasons for the discrepancy.
Once you understand them, you’ll be in a better position to counter them:
Debtors, at a gut level, know they should pay you. And they’d be more inclined to if not for the “public interest” allies who work against your interests.
The two biggest offenders are federal agencies. The previously mentioned CFPB and the Federal Communications Commission (FCC).
They determine what you can and can’t say to the people who owe you money. They warn the public against abuse and harassment by creditors (e.g., the Fair Debt Collection Practices Act). Sadly, according to their dictionary, these words have very broad definitions. Anything, no matter how plain, can be deemed “abuse” or “harassment.”
Needless to say, they’ve been tremendously influential. Debtors are emboldened. The feds speak of you in contemptuous terms—while assuming the purest motivations of the person you’re trying to collect from.
The agencies constantly harp on debtor’s “rights.” As you’d expect, debtors have embraced the self-serving message. They are quick to use any and all defenses, including….
- “Prove it’s mine!”
- “You’re not allowed to call me!”
- “Stop THREATENING me!”
Even popular finance gurus like Dave Ramsey slander you. Here are a few quotes from his budgeting blog:
“Let’s be honest about debt collectors. You know they are lying if their mouths are moving.”
“Most of them will do anything—seriously, anything!—to make you pay your bills.”
“Their job is to make you angry or scared—and they do it well.”
Is it wrong to ask someone who voluntarily borrowed money to repay you?
Of course not. He or she has a moral obligation to settle the account.
Still, it would be foolish to ignore today’s widespread cultural bias against lenders. You’re viewed as a predator, vulture, and worse!
That’s why you need a strategy for getting around the barriers to repayment.
Which brings me to the second reason:
Even with powerful enablers on their side, many debtors still try to avoid interacting with you.
The reason? They’re ashamed by their behavior (whether they admit it or not). You’re a reminder about what they’ve done—and they don’t want to be reminded!
So, rather than examine themselves and do some soul searching, they take the easy way out: pin the blame on you.
What’s strange is that many collection agencies actually play into their debtor’s desire for distance.
They do this by sending bureaucratic form letters like this one from a law firm…
How do you feel when a form letter like the one above shows up in your mailbox?
Annoyed? Cold? Indifferent?
Yes—to all three. It’s a normal human reaction.
Which is… kind of silly.
Think about it. We wince and get defensive because, for example, the library sends a letter asking us to return the book we borrowed.
It makes no sense, objectively, but there it is.
We respond that way because we’re a complex bag of neurons, emotions, and personal baggage.
If anything, debtors are much more sensitive to this.
One reason the standard form letter is so jarring is because it’s rude.
It barges in on the reader with a demand, without way of niceties.
In person, probably even on the phone, you’d never dream of asking for money without (at minimum) introducing yourself.
(Outside of the United States, other cultures have very elaborate and indirect methods for trying to collect on a loan.)
It just sets the wrong tone. And when someone already wants to avoid you, because of internal guilt, communication like this helps them justify their irresponsibility.
What happens is that they either a) toss the letter, or b) hold onto it with a “screw them!” attitude.
And the third contributor to declining repayment rates is simply…
The FCC have, frankly, scared the daylights out of many collection agencies. They’ve passed laws on robocalling, the CAN-SPAM Act, and tons more.
The result is that agencies are making far fewer attempts to contact debtors because they fear getting in trouble for a minor violation.
Naturally, then, debtors forget. Out of sight, out of mind.
So, while they don’t want incessant reminders, which they regard as nagging or stalking, the ideal behavior to a bad situation (default) is more complicated.
You see debtors, like all Americans today, lead busy lives.
A week… a month… two months feels, to them, like 24 hours. That’s why they complain that you harass them (when you’ve done nothing of the sort) with a weekly call.
In truth, though, many know that they need your reminders. They forget otherwise. Furthermore, many understand the consequences of putting you off indefinitely.
(An unpaid debt can detonate—like a bomb—at the most unexpected time, often years after it was created).
Of course, paying off a debt is more than simply remembering. But your regular inquires could be the first baby step—or gigantic leap–in getting them to negotiate in good faith and deal with the debt problem.
Forget Going “Nuclear”
And that’s what I’d like to offer you now – a method for reaching your largest, most stubborn accounts.
This method builds rapport with the debtor so that he or she settles with you sooner rather than later (if at all).
Think about what that would do for you!
The beauty of this method is that it flips the stereotype of hardnosed collector on its head. The letters are a carrot, not a stick.
Imagine collecting on one large account that you’d previously given up on. How would that feel?
It’s possible to get your money—the full amount–without going thermonuclear.
You don’t have to yell, curse, or have any of your people use strongarm tactics. Those tactics, by the way, aren’t very effective. The average collection agency recovers less than 18% of all late payments. They also put your agency at risk for government fines.
It’s appropriate for debts greater than $10K (whether you own it or not). The contact information you have (postal address, email) must be accurate.
I’ll discuss my method for helping you collect debt briefly on the next page. It’s not cheap but it’s not outrageous either. Rather, my fee is appropriate.
The best part? It comes with a performance guarantee.