For fintech lenders, debt sale is the obvious way to handle collections & recovery. It’s quicker than the other options and, if you partner with a good debt buyer, it’s the most hands-off approach.
But, because there is concern from regulators that fintech loans can get consumers into a “never ending cycle of indebtedness,” argues Bekah Luebcke, VP of Operations at Crown Asset Management, there is more scrutiny on the sale market for fintech loans. This means, when it’s time to sell your debt, your documentation and data must be unimpeachable, especially if your debt sale partner has a litigation strategy.
“The data and documentation [for fintech loans] has come a long way in the last ten years,” says Luebcke, “but it’s still very different [from traditional unsecured debt].” The industry has worked up a clear standard when it comes to pursuing a litigation strategy on purchased credit card debt, but for fintech loans, the terms can be very different, even within the same vertical.
So, what challenges do debt buyers face when they pursue a legal strategy? And how can fintech lenders help navigate these challenges?
Even in our extremely digital culture, “there are still a lot of questions around the legitimacy of e-signatures, even though there have been laws in place validating them and supporting them for a very long time,” says Luebcke.
It’s common for people to apply for even traditional credit cards online, but consumers still receive hard copies of the terms & conditions for those cards. In the fintech loan world, explains Luebcke, “the borrower accepts those [terms & conditions] online, and they have to prove to the lender that they can consent to, and are capable of doing business electronically.”
State Regulations Vary
The OCC and FDIC tried to put True Lender regulations in place to help determine who the actual lender is on [these fintech loans], and to them, it’s the originating bank,” says Luebcke. But, after a lawsuit by several states who felt that this was not in the best interest of consumers, there are different rules on a state-by-state basis.
But, “it’s all global now,” says Joann Needleman, Practice Leader and Member at Clark Hill PLC, and there could be competing requirements between the state where the lender is located and the consumer’s state.
The True Lender rule isn’t the only area of confusion, though. There are proposed regulations in New York City and Washington, DC which will seriously limit the ability to communicate with consumers electronically about their debt, even when it's clear that consumers prefer those channels.
“It’s almost impossible to navigate the rules the way they are written,” and still compliantly communicate with the consumers of fintech loans, says Luebcke.
The Model Validation Notice
The Model Validation Notice, which is a requirement of Regulation F, is confusing for consumers of fintech loans, too, says Luebcke. For most consumers, it will be the first time they are seeing the investors name, and they may not recognize it. The servicer’s name is not the one required by Regulation F on the Model Validation Notice, even though that is the entity the consumer communicates with over the life of the account.
It’s critical for fintech lenders to partner with debt buyers who understand the nuances of collecting this type of debt, but also to stay in tune with new regulations that are proposed that might affect their consumers.
To hear all of the conversation between Bekah and Joann, listen to this episode of Credit Eco To Go, a podcast brought to you by Clark Hill PLC and hosted by Joann Needleman, a leading financial services attorney and member of The iA Institute’s Legal Advisory Board.
The ecosystem is a circular environment. There is no beginning or end. In #financialservices, the loan origination may begin the process but the decisions made from that starting point will be impactful through the life of the transaction, especially if the loans are sold to the secondary market. This lack of consistency has been a challenge not only for the debt sale market but also for those who want to regulate it. To bring some clarity to the matter, Rebekah (Bekah) Luebcke, Vice President of Operations of Crown Asset Management, stops by #creditecotogo to discuss what entities need to know (as well as what they need to do) if they intend to sell unsecured debt into the secondary market. The secondary market is nothing new, just look at the mortgage industry, yet there is significant scrutiny upon the unsecured debt market when debt is sold. The response to that scrutiny has been a patchwork of laws and regulations that are inconsistent from state to state. Bekah discusses her experience working on behalf of the industry to educate and inform stakeholders in order to bring much needed consistency within the space.
DISCLAIMER – No information contained in this Podcast or on this Website shall constitute financial, investment, legal and/or other professional advice and that no professional relationship of any kind is created between you and podcast host, the guests or Clark Hill PLC. You are urged to speak with your financial, investment, or legal advisors before making any investment or legal decisions.
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