The year was 2007. I Am Legend was #1 at the box office, Taylor Swift’s first album was #8 on the Billboard Top 200, and America was heading into a financial crisis. Irresponsible and predatory lending practices, coupled with skyrocketing interest rates, wiped out retirement accounts and caused housing values to plummet. The financial crisis impacted all Americans — not just those who had taken out complicated and risky loans. By the time the dust settled in 2009, the US had lost nearly 9M jobs, there were 8M home foreclosures, and American households lost roughly $19T in net worth, according to Investopedia.
One of the many factors that led to this Great Recession was a lack of government oversight. This prompted President Obama to sign the Dodd-Frank Wall Street Reform and Consumer Protection Act — which created the Consumer Financial Protection Bureau (CFPB).
Almost two decades later, you’d be forgiven for feeling a little déjà vu. The trailer for I Am Legend 2 still starring Will Smith is racking up views on YouTube, and Taylor Swift is wrapping up the most successful world tour in music history. In the intervening years, the CFPB has worked hard to protect consumers from deceptive lending practices and financial hardship. In fact, since its creation, the CFPB has provided the American people over $21B in financial relief.
As part of those efforts, the CFPB also passed legislation that directly impacts the third-party collections industry. In 2021, the bureau passed the Debt Collection rule which clarified how debt collectors can communicate with consumers when attempting to collect payments. The so-called "7-in-7" rule states a creditor must not contact the person who owes them money more than seven times within a 7-day period. In addition, creditors are not allowed to contact the individual within seven days after engaging in a phone conversation about a particular debt. And finally, the rule makes it illegal for debt collectors to harass or threaten when trying to collect on a debt.
This rule has had a significant impact on the operations of third-party collections companies. Debt collectors previously tended to a “quantity over quality” approach: Their call centers were set up to continuously reach out to debtors with little regard for the frequency or timing of their outreach. This new legislation forced them pivot their call center strategies to focus on quality over quantity. Knowing which phone number to call and what time to call, and getting the debtor to pick up the phone more often all became much more important once the outreach frequency of collections companies was limited. With fewer available attempts to collect each week, every call needed to accomplish more to maintain the same return on investment — in a vertical with already very thin margins.
Since its creation, the CFPB has been a hot topic of debate in Washington, D.C. How active should the CFPB be in regulating financial institutions? Is there too much red tape or not enough? With the newly installed Trump administration, the bureau is once again in the spotlight. Some have speculated as part of its plans to reduce government regulations, the Trump administration might take steps to reduce the role of the bureau or possibly eliminate it altogether. But even if the bureau remains in place as the Trump administration takes power, it will likely look a lot different in the coming months and years.
Some third-party collections companies are no doubt hoping the 7x7 rule is also adjusted, or even eliminated, so they can go back to the old days of robodialing. However, the reality is the robo-dialing tactics used before will not be as effective as they were years ago. Even if the 7x7 rule is rolled back, collections organizations should not return to their previous “quantity over quality” strategies if they want to grow their ROI. Here’s why:
Robodialing only works on landlines — and (almost) nobody uses landlines anymore
Younger generations are beginning to make up a larger percentage of the nation’s debt. Outdated communications tactics, like phone calls, won’t move the needle with this cohort because they’re hesitant to answer phone calls. Unlike older generations, they’re far more likely to prefer communicating via email and text. Even if the 7x7 rule was reversed, third-party collections companies would only be able to turn robodialing back on for landlines; the policy does not extend to mobile phones. And the percentage of households in the US with landlines is decreasing by roughly 10% per year, according to the Chamber of Commerce. In other words, the number of consumers collections companies would be able to reach by robodial is quickly vanishing.
People will pay even if they don't answer — but only if you give them appropriate context
It may seem counterintuitive to an industry that thrives on phone communication, but getting a pickup may not matter as much anymore. A collections agency that displays their location, logo and reason for the call within the phone’s display helps customers understand who they are and why they’re calling. Studies have shown even if the debtor doesn't pick up — which they increasingly won’t — that extra bit of calling context will make them more likely to head over to the portal to make a payment, which, in the case of one collections firm, increased promises to pay (PTP) by 123% with 180 fewer dials per PTP.
Customer experience does matter in likelihood to pay
A customer bombarded with constant calls is more likely to be frustrated. A customer who feels they’re being treated respectfully, and is being contacted via their preferred channels, is more likely to make payments, leading to better collections rates and fewer complaints. Recent research from Indebted.co reinforces this idea: “The need for empathetic and customer-focused messaging extends beyond regulatory requirements; it’s also been proven to drive 40% higher engagement and conversion rates.”
Even if 7x7 goes away, there are other regulations to consider
By no means is the CFPB 7x7 rule the only regulation that addresses the permissible quantity of collections outreach. The FTC’s Fair Debt Collections Practices Act (FDCPA) prohibits harassment or abuse, which includes repeated phone calls. State laws may also limit the number of calls per week. And the Telephone Consumer Protection Act (TCPA) opens up significant liability for a collections organization if it dials a number that doesn’t belong to, or is no longer in use by, that particular consumer.
Administrations come and go — and policies will change. Only time will tell what the future holds for the CFPB and the 7x7 rule. But for third-party collections companies, one thing is certain: Continuing to focus on a quality over quantity approach will help them achieve their growth and profitability targets. By providing consumers with context about who’s calling, including their location, company logo and reason for the call, they’ll get more value out of each outgoing call, driving higher right-party contact rates and more promises to pay. The industry might very well be having the same conversation about 7x7 in another couple of decades. And perhaps that timing could align nicely with the release of I Am Legend 3 and Taylor Swift’s 25th album.
