When auditing collection agencies or repossession forwarders, one common question arises: “Do I need a statistically valid sample?”
The short answer: No. While a statistically valid sample can be useful in some contexts, it’s not always practical or necessary in this heavily regulated industry. Instead, a categorical sampling approach often proves more effective. Here’s why.
The Case for Statistical Sampling
A statistically valid sample is typically calculated using tools like a sample size calculator, which considers factors such as the confidence level (e.g., 95%) and the margin of error (e.g., ±5%).
For instance, if you’re placing 200 accounts with a collection agency or repossessing 200 vehicles monthly, a 95% confidence level with a 5% margin of error would require a sample size of 132 accounts or repossessions per month.
However, here’s the catch: statistical sampling works best when you’re auditing a single, narrowly defined process.
The Complexity of the Collection and Repossession Industry
The collections and repossession industries are not only highly regulated but also involve a wide array of compliance requirements. Federal, state, and sometimes even local regulations govern the practices of these vendors.
For example:
Collection Agencies:
- Adherence to limits on contact attempts (e.g., within a 7-day period).
- Proper delivery of debt validation notices.
- Licenses
Repossession Forwarders and Agents:
- Notification requirements to law enforcement before and after repossession.
- Proper handling of personal property left in repossessed vehicles.
- Compliance with city-specific ordinances.
Auditing all of these requirements using a statistically valid sample for each category would result in an overwhelming amount of work—and potentially missed compliance risks.
Why Categorical Sampling Is More Effective
A categorical sample focuses on specific processes or categories rather than a random statistical subset. For instance, instead of pulling a statistically valid sample of all accounts, you might break it down into these categories:
- Accounts with multiple contact attempts.
- Accounts flagged for disputes.
- Police notification before/after collateral was repossessed.
- Accounts where personal property was handled.
This approach allows you to focus on high-risk or high-priority categories, ensuring that critical compliance areas receive the necessary oversight.
Practical Benefits of Categorical Sampling
- Targeted Oversight: Auditing multiple categories helps identify potential gaps across various regulatory requirements.
- Sample Size: The creditor determines the sample size, which can depend on factors such as available resources and the number of categories to monitor. Even a small sample size can quickly reveal potential compliance issues. Addressing concerns jointly with the collection agency and national forwarder is ultimately more important than the size of the sample.
- Scalability: Categorical sampling can easily adapt to changing regulations or new compliance concerns.
When to Use Statistical Sampling
Statistical sampling still has its place—especially when auditing a narrowly defined process. For example, verifying a single compliance metric, such as the accuracy of notices sent (validation notices/personal property letters).
However, for broad audits involving multiple regulations and categories, categorical sampling is a more practical and effective approach.
Takeaways
In the collection and repossession industries, statistically valid samples are not always necessary. Given the complexity of regulations and the diversity of compliance requirements, a categorical sampling approach often makes more sense. By focusing on high-risk or high-priority categories, creditors can ensure robust oversight of their vendors.
When it comes to compliance, accuracy is essential—but so is practicality. And sometimes, practicality is best achieved by looking beyond the number in the sample.
Author: Bev Evancic
Bev.Evancic@ResourceManagement.com
Bev Evancic is a Senior Vice President at Resource Management Services, Inc. Prior to employment at RMS, Bev worked as the Collection and Recovery Manager at AT&T Universal Card, Citi, and Federated Department Stores. Bev started in the collection industry as a collector at an upscale clothing store in Cincinnati, Ohio. As a returned check and private label credit card collector, Bev gained a basic understanding of the collection industry that has not changed with the introduction of regulations. Her collection philosophy begins with the idea that businesses and customers benefit from preserving the customer relationship. First, collectors need to attempt to contact customers when it is convenient for the customer to discuss his/her financial condition and willingness/ability to pay. Second, you never collect money by intimidating or threatening customers. Third, businesses must make sure the debt is valid.
She has managed all phases of collection and recovery operations, including automated dialer units, bankruptcy, and legal units, skip tracing units, internal collections, outside collection agency networks, and Consumer Credit Counseling. As a Consultant for Resource Management Services, Inc., Bev has spearheaded collection and recovery best practices reviews for many top credit grantors. Her articles on dialer operations, agency management and bankruptcy best practices have been widely publicized.
She is well known and regarded as a specialty expert in the areas of: Repossession, Bankruptcy, Estate, Litigation, as well as Pre- and Post- Charge-off. Prior to joining Resource Management Services, Inc. in 1995, Bev managed the Recovery Department for AT&T Universal Card Services where she developed the bankruptcy, probate, internal and litigation processes.
She is the author of “Recovery Management: Collecting the Uncollectible Account.”
Like to share ideas and talk with your peers? Consider joining a creditor’s only network…
Recovery Management Network
The Recovery Management Network(SM) (RMN) is a unique networking organization, strictly for creditors, providing collection and recovery professionals with the peer contact, resources and information they need to succeed in their jobs.
There is no fee to join this peer group, but creditors must be involved in the collection, recovery
or auditing departments at their organizations, and be interested in sharing experiences and ideas with other RMN members. For more information, see: https://collectioncomplianceexperts.com/rmn/
Or, contact Bev Evancic at bev.evancic@resourcemanagement.com for more information.
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