The process of collecting debts can be tricky to newcomers. It is generally unfavorable to startups as well. Traditional banks and many credit processing providers will stay away from you if you do not provide a thorough credit history. Inconsistent revenue streams are also an obstacle hindering the application process for merchant accounts.
CFPB Reveals an Outline
On July 28, 2016, the Consumer Financial Protection Bureau, which is also known as CFPB or Bureau, released an outline of possible regulatory proposals. The outline aims to address debt collection practices by third-party debt collectors under the Fair Debt Collection Practices Act or FDCPA. The FDCPA was enacted in 1977 to eliminate abusive debt collection practices by debt collectors.
The CFPB will address first-party debt collectors and creditors. Currently, these are not covered by the FDCPA. The CFPB’s initiative is raising some concerns regarding how potentially more stringent debt collection standards may impact several areas.
The latter areas include banks’ ability to sell non-performing loans to debt collectors, assumptions regarding banks’ loss given default (LGD) rates and related write-offs, provisioning and capital allocations. The mentioned standards may also impact the ability of several debt buyers, including hedge funds, to acquire defaulted debt.
Debt Collection Industry
Debt collection agents and agencies are classified as high risk because of the unstable nature of the debt collection industry. To open a reliable and secure debt collection merchant account, it is critical to turn to a reputable payment processor like emerchantbroker.com. EMB has the resources to get you the account you need.
EMB specializes in the high risk sector and is voted the #1 payment processor in the United States. EMB boasts an A+ rating with the BBB and can get your collection agency merchant account tailored to your business needs.
More than half a year will be required before the CFPB issues final rules concerning debt collection. So lenders and their third-party service have time to prepare for more stringent regulations. As for banks, they are provided with opportunities to update scenario analysis regarding LGD rates.