Auditing Your Third-Party Collection Agency for Success

Key Areas of Focus 

Adherence to Company Criteria: Your audit should begin by evaluating whether the collection company complies with the criteria you’ve set forth. This may include communication with your customers, security protocols for data, and customer service standards.

State and Federal Guidelines: Compliance with state and federal laws governing debt collection is non-negotiable. Key areas to assess include:

• Validation Notice: Validation notices need to be mailed out by your third-party collection agency within five days of their first contact with a customer regarding debt collection. During audits, it’s important for auditors to verify, both through account notes and by requesting scanned copies of verification letters, that third-party collection companies adhere to this requirement and send out validation of debt notices within the stipulated five-day period.  Auditors may also want to verify that the Validation Notices include all state and federal laws.  Certain states may require specific disclosures to be included in debt collection communications. These disclosures could relate to state laws governing debt collection practices or consumer rights.  In some states, debt collectors may be required to provide their licensing information, such as license numbers or other identifiers issued by state regulatory agencies.  Debt collectors may need to include contact information for state regulatory agencies or consumer protection offices where debtors can seek assistance or file complaints.  In some states there may be requirements to provide translations of certain information in languages other than English.  Some states have additional notices or disclosures that debt collectors must include in their communications with debtors, such as information about the statute of limitations on debt collection or warnings about potential legal actions.  Verifying that the Validation Notices mailed out to your customers are upholding state and federal regulations potentially would be an important topic to audit.
• Convenient Calling Times: Auditing your collection agency to ensure they adhere to convenient calling times is essential for several reasons. It helps prevent potential harassment and inconvenience to customers. Imagine receiving collection calls during dinner time or late at night – it’s not only frustrating but can also feel invasive and disruptive to daily life. By enforcing legally permissible calling hours, you demonstrate respect for your customers’ privacy and well-being.  Additionally, maintaining convenient calling times aligns with ethical collection practices. It shows that your company values fair treatment and aims to engage with customers in a respectful manner, even in the context of debt collection. This can contribute to preserving customer relationships and minimizing negative perceptions of your brand.  Following legally permissible calling hours is crucial for compliance with regulations such as the Fair Debt Collection Practices Act (FDCPA).
• Credit Reporting Practices: Do you authorize your third-party collection companies to report accounts to the credit bureau? If yes, do you have specific thresholds in place regarding which balances can be reported? For instance, are balances as low as $10 eligible for reporting? If not, your auditor should confirm through account notes that no report has been made to the credit bureau. Auditors should verify that the collection agency accurately reports debt information to credit bureaus and follows Fair Credit Reporting Act (FCRA) guidelines.
• Validation of Debt (VOD): The Validation of Debt (VOD) process within your third-party collection agency could be something you want to consider incorporating when you audit.  Adherence to the FDCPA is essential for legal reasons. Violations of the FDCPA can result in legal consequences for debt collectors, including fines, penalties, and lawsuits.  The law mandates that debt collectors must provide verification of a debt upon a customer’s dispute. By auditing the VOD process, auditors can confirm whether the agency promptly and accurately responds to such disputes, providing the necessary documentation to verify the debt’s validity. Failure to comply with these legal requirements can expose the collection agency as well as your company to significant legal liabilities, including fines and lawsuits. 

Documentation and Recordkeeping: Thorough documentation is important for transparency and compliance. Review the collection agency’s recordkeeping practices to ensure they maintain accurate, complete, and up-to-date records of all communication and transactions. Reviewing account notes is essential to ensure thorough documentation and clarity. It’s important to cross-check these notes by comparing them with recorded calls, verifying correspondence sent to customers matches the documentation, and confirming recent work efforts are noted. Additionally, it’s important to ensure your vendor is storing account information for the agreed-upon duration outlined in your contract. This comprehensive approach helps maintain accuracy, consistency, and compliance within your vendor’s collection processes.

Training and Compliance Programs: Assess the effectiveness of the collection company’s training programs and compliance initiatives.  Auditors should verify that collectors are well-versed in relevant laws and regulations, with ongoing training to stay updated on any changes. Does your company list specific training criteria that must be completed periodically in your contract? If so, consider asking to see documentation that the collectors signed off on from previous training.  Auditors may also consider performing side by sides with collectors while on the collection floor to get insight on how your portfolio is worked; from confirming that the collector(s) follow state and federal regulations to how they interact with your customers.

Complaint Handling Procedures: You may want to request your vendor to share complaints filed against your portfolio, along with the agency’s responses to customers. Assess whether these responses align with your expectations and if the turnaround time for addressing complaints meets your standards.

Data Security Measures: Given the sensitive nature of financial information involved in debt collection, robust data security measures are imperative. Ensure that your vendor employs encryption, access controls, and other safeguards to protect your customer’s data.