recovering more debt

Did you know that 70% of Citibank’s bad debts are delinquent accounts? And that 10% are bankruptcies and deceased accounts? That leaves only 20% of their bad debt that they are “actively” trying to collect or typically just write off or sell. What happens to the other 80%?

Of the $60 billion of debt that general-purpose credit card issuers in the United States will pay off this year, only 90% is potentially collectible because 10% is tied to deceased, fraudulent, and bankrupt accounts. When this 90% of the debt is placed with collection agencies, it is found that half of the cardholders cannot be located even after the use of databases and online tracking tools.

Government regulations prohibit collection agencies from using any means other than databases to find debtors because they do not own the debt. Therefore, if these accounts are placed with the agency on a contingency or other basis, they would have to ask the client who placed those accounts with them to hire a “jump tracker”, “private investigator” or “jump tracing company” to locate those debtors so they can then continue to try to collect. If you buy credit card debt and own the debt, you can use the tools that a professional default tracing company uses to locate those debtors and continue to try to collect. I have been told by professional jump trackers that you should check with the state in which you reside. There are a number of states that do not require licenses or have no state regulations. It is everywhere and varies from state to state.

45% of all canceled accounts are returned to issuers after primary, secondary and tertiary collection efforts by collection agencies without any collection activity because the debtors could not be found by traditional database or collection skip tracing methods. Issuers then have two options, sell the debt or hire a professional investigator to track down the debtors. The overwhelming practice has been to sell debt. Card issuers rarely hire professional trackers because they consider them too expensive and feel they are throwing away good money after bad money. This could be because they don’t bother to keep spending time on the accounts or they don’t realize that most placement companies offer a quote on all portfolios prior to processing and in some cases the cost can be added to the debt.

Fees range from $100-$150 for small balance accounts with average fees of $350-$450 for most portfolios. These trackers typically discover home and office addresses and phone numbers which then allow collectors to contact and attempt to collect your money. Most importantly, because so much time has passed since the original payoff date, collectors can pursue not only the original debt, but accrued interest, fees, and, in some states, the cost of tracking down or locating the debtor. The original amount of the canceled debt doubles every 30 months with additional interest and fees.

Some professional investigators or jump tracking companies can locate up to 70-80% of missing persons. I know a localization company that guarantees they will locate 80%, so how can you miss? Other companies that specialize in location work claim that the information discovered can be virtually limitless depending on the amount of money the client wants to spend and the permitted purposes for which it operates. Some examples they gave are assets, physical and postal address, vehicles, telephone and cell phone numbers. Locating companies are not subject to government regulations that prevent the use of aggressive tracking techniques by any entity other than the debt owner. All private investigators are regulated by their state in which they operate. His rule of thumb is, don’t do anything to track down a person that you wouldn’t do to track down your mother or your best friend. Private investigators have a fair amount of freedom as long as they don’t do anything illegal, immoral, or unethical. As a private investigator, it is illegal to impersonate a police officer, court official, or any other government official. If the company you hire to do your locating work is not involved in the debt collection aspect after the individual is located and is unaware of the details of the debt, it is not a “debt collector” as defined by the FDCPA. This is an important distinction. The jump tracking company must not be owned or affiliated with a collection agency. Chris Soteros, manager of skip tracing at Merlin Information Services, says they must comply with the FCRA and Gramm’s Act, Leach Bliley, which restrict the use of credit bureau information to activities that support the collection of a debt. He also stated that his company is not a third-party debt collector and therefore not regulated by the FDCPA.

Third-party debt collectors must follow the FDCPA when obtaining location information, this includes internal “bypass locators or trackers,” even if they are not performing any collection work. This means that they can use databases and phone calls as long as they follow the FDCPA.

Most collection agencies and business owners don’t know that they can partner with a dedicated skip trace company to increase their bad debt recovery. Many collection agencies offer “skip tracking” as an additional service to their clients. In most cases, based on the limited tools at their disposal, they fail to locate 80% of the accounts they are looking for and therefore return them to the creditor as “bad debt.” Business owners need to be aware that when that happens, all hope is not lost. They should place 80% of bad debt accounts with a professional default tracking company and send them back to the agency for collection once they have good contact information for the debtors. Depending on the balance owed, this can add up to quite a bit of money at the end of the year. It has been my experience that collection agencies that also offer “bypass tracking services” locate about 15% of the accounts they work if they are doing collection work and limited location work. This is because most agencies train collectors to collect without missing the trace, and since they work for the agency, they are subject to the same laws as the collector, and are therefore limited in their use of certain location tools. Many people I interviewed for this article share the opinion that when you work in a collection agency, there is little time for skip tracing at most agencies, the main reason being that most agencies work on commission, where they get paid for the money they collect. If they are successful in locating a debtor, they still have to try to collect and that is not a guarantee. The general consensus is that it is not profitable for collectors or collection agencies to spend time and money skipping tracking when they could spend their time collecting, which is what they do best.

I interviewed many collection agencies that advertise “skip tracing” as one of the services they offer and many of them stated that the way they “locate” debtors is through credit reports, asking other business owners in their network about the debtor and search engines. Some of them told me they offer address location, phone number investment and recovery, employment location, bank locations, vehicle locations, and much more, but they couldn’t explain how they get this information. I’ve even had a company that offers jump tracking tell me they couldn’t comment on answering questions about their jump tracking techniques based on “their address and target audience.” When you’re researching a location or skip-tracking company, be sure to check references, verify their credentials, and talk to their customers. Some have websites with testimonials listed. Email those people, ask them how the service worked for them; be smart with your money.

Business owners who use the services of collection agencies recognize that they need help with those collections, so they place or subcontract their bad debts to their collection agency. Once their agency returns accounts that they can’t collect because they can’t locate a debtor, a savvy business owner should recognize that they can place those accounts with a professional skip tracking company to be located and then return them to their collection agency for collection. In this way, they are helping themselves and their collection agency and recover more than the money to which they are entitled. Creditors who use a location or skip tracking service are smart and will see it reflected in their bottom line.

Collection agencies sometimes outsource different aspects of their collection work, such as the generation and mailing of letters. Collection agencies do this because they recognize that they can raise more money by outsourcing something they don’t specialize in, such as printing letters, stuffing envelopes, and mailing, and instead focus on what they do best, making collection calls and collecting money for their clients. When they return accounts to their customers and ask them to provide current contact information so they can continue to try to collect, they’re making a smart business decision. They will make more money because once the client receives the accounts from their jump tracking company, the agency can work on the account, collect the money and make a commission, as well as send their client a check. Everybody is happy.

Location companies, corporations, and collection agencies complement each other by working together to ensure that as much debt as possible is collected, resulting in success for all parties. After analyzing this data, take a hard look at your business and your bad debts and ask yourself, “Can I afford not to use all the resources at my disposal to recover the money owed to me?” If you are in business to make money, using a location company, just like using a collection agency, is a must.

The market for debt buyers and collection agencies has become increasingly competitive with higher prices, greater risks and higher performance demands, according to the November issue of Cards & Payments. In light of this, you want to work together with your collectors and jump trackers. When you can help make a collector’s job easier by using a jump tracking company, everyone benefits.