Debt Resolve White Paper

DebtResol√e TM

Resolved. With Dignity WHITE PAPER

Improving the Collection of
Past-Due Accounts
The Many Advantages of Online

Collections Services

The wall between collections departments and debtors is becoming progressively more difficult
to penetrate. Consumers are less likely to answer the phone, in part due to caller ID and
answering machines and due to the increased educational campaigns to monitor the collection
industry from abusive practices. The Federal Trade Commission listed debt collection in second
place of all consumer complaints in 2010 (responsible for 11% of complaints).1a Collections
agents spend an enormous amount of time trying to reach debtors. When they do make contact,
increasingly stringent regulatory requirements limit what agents can say. Time does not stop,
yet the collections department must quickly break through to recover valuable past due
accounts.

Is there a way to rapidly settle debt, maximizing the collections portfolio?
How can businesses ensure regulatory requirements are never violated?

To address these challenges, banks and other creditors are turning to online collections
services. Designed as an alternative channel for debt resolution, online collections services
provide creditors a highly efficient and scalable way to settle accounts using the Internet. These
services also provide debtors a convenient and face-saving way to pay debt. This white paper
will examine some of the challenges collections departments face when collecting debt and
introduce the many advantages of online collections services.

Consumer Trends
Enormous consumer debt and the widespread adoption of the Internet are two key consumer
trends causing collections departments to reexamine existing collections processes. 2011: US
eCommerce and Online Retail sales projected to reach $197 billion, an increase of 12 percent
over 2010 Americans consumers are still struggling amid higher costs for gasoline and food
leading to greater delinquencies. As of April 2011, consumer debt was $2.4 trillion, according to
the Federal Reserve.1 Improving trends in consumer credit delinquencies hit a soft patch as the
economy slowed in the first quarter of 2011 with five of eleven loan categories showing slightly
higher delinquencies, according to the American Bankers Association's Consumer Credit
Delinquency Bulletin Bank card delinquencies rose 12 basis points to 3.40 percent of all
accounts compared to the previous quarter.2 "Delinquencies and charge-offs are the single
largest individual operating cost for most credit card issuers," stated a Mercator Advisory Group
analyst report.3 Not only are consumers amassing more debt, they are also going online to

1a Federal Trade Commission - http://ftc.gov/opa/2011/03/topcomplaints.shtm
th
1 (March 7, 2007). Federal Reserve Statistical Release June 7 2011
2 ABA http://www.aba.com/Pressrss/070711DeliquencyBulletin1Q2011.htm
3 Bayri, E. (May 2005). Mercator Advisory Group: Account lifecycle solutions: Scoring solutions in collections and recovery.

DebtResolve White Paper July 8, 2011 www.DebtResolve.com

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make purchases and handle financial transactions. A new “Pew Internet & American Life Project
report” says 73 percent of Americans say they use the Internet, up from 66 percent in January
2005. Nearly 75% of U.S. households have Internet access at home, according to a
Nielsen//Net Ratings survey.

By 2006, 77 percent of Americans had access to the Internet, according to Harris Interactive.4 A
Federal Reserve study indicated, "The majority of noncash payments made in the United States
are now initiated electronically."5 The study showed an increase of 13.8 billion electronic
payments between 2000 and 2003. "Consumers today require a level of convenience and
control inconceivable years ago. They want the freedom to select the channel and method of
their payments, as well as the frequency and timing. Conventional paper checks cannot provide
this level of flexibility, so consumers are turning to electronic payment options—credit card,
debit card and ACH transactions initiated over the Internet," explained a PayStream Advisors
report.6 Not only are consumers purchasing goods and services online, they are also receptive
to resolving debt via the Internet. A study by FiSite Research indicated that, "Consumers find
the concept of online collection services as highly attractive over a broad range of consumer
lending products. Consumers see an opportunity to avoid emotional distress and
embarrassment that come from traditional collection methods."7

Challenges Afflicting Collections Departments

Collections departments face two primary challenges when collecting funds: the high cost of
making contact with debtors and significant restrictions on what can be said when a debtor is
reached.

Difficulty Making Contact

With each passing day, the likelihood of recovering delinquent debt fades.
The highly manual process used by most collections departments is a slow and laborious
process. As the number of delinquencies grows, collections agents are challenged to operate
efficiently.

Collections agents are often plagued with wrong party connections and answering machines,
slowing the collections process. "Collecting on delinquent accounts generally requires tenacious
call center operations to reach consumers actively trying to avoid issuer phone calls," explained
a Mercator Advisory Group report.8

Many collections departments have reached a critical point where the cost of recovery is
prohibitive. Another Mercator Advisory Group report stated, "The collections and recovery stage
is still handled manually. The operations remain labor-intensive and are very much reliant on the
efforts of highly trained collectors.

4 Gonsalves, A. (May 25, 2006). TechWeb Technology News. Number of online Americans continues to grow.
5 The Federal Reserve System. (December 15, 2004). The 2004 Federal Reserve Payments Study.
6 PayStream Advisors. (August 13, 2006). Consumer collections automation.
7 FiSite Research. (October 2004). Online collection services. The mostly manual processes used to make contact with debtors is
slow and costly
8 Friedman, M. (2005). Mercator Advisory Group: Capturing the online customer: Current and future investments in online self-
service


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This means that the collections function is not at all scalable."9 With the cost per agent call
reaching $15, collections departments must seek lower cost debt resolution methods.10
Regulatory Constraints State and federal regulations place major limitations on what a
collections agent can say. Issues such as when a call can be placed, where contact can be
made, who can be spoken to and what can be said are all regulated in many states.
For example, in many states there are limits on calls that can be placed to a debtor's place of
employment. Still other states prevent mentioning what the call is about to a spouse or which
company an agent is calling from. These regulations also place significant restraints on what
can be said to a debtor. It is not unusual that a collections agent might unknowingly violate one
of these regulatory requirements, placing the company at risk of significant fines or lawsuits.
Additionally, communication must be carefully documented to remain compliant with the Fair
Debt Collection Practices Act. Fortunately, even small improvements in collections can have a
major impact on the profitability of a portfolio. Key technology advancements have come about
to improve collections efficiency and profitability.

Brief History of Collections Innovations

A number of innovations have improved the collections process over the last 15 years. In the
early 1990s, dialer technology helped agents improve efficiency by placing phone calls to
debtors and connecting agents only when a person answered the phone. By the mid 1990s,
interactive voice response systems engaged debtors using voice recordings. The idea was to
offload work from collections agents, only connecting them with debtors during the negotiation
stage. However, these systems were only effective for the most basic collects efforts.

Around 2000, collections analytics systems were widely
used. They helped agents work more intelligently by
examining historical consumer data and identifying debtors
most likely to pay. These systems also tailored settlement
offers based on consumer behavior and other strategies.
Around the same time, online bill payment grew in
popularity. Financial transactions, such as credit card,
mortgage and auto loan applications were being processed
online. The success of online payment services such as

PayPal attest to the consumer embracement of Internet payments. For example, during 2006,
nearly $38 billion in online transactions occurred using PayPal alone.11 By 2004, online
collections services began to emerge that could initiate consumer contact, interact with debtors,
negotiate settlements and collect payments.

9 Bayri, E. (May 2005). Mercator Advisory Group: Account lifecycle solutions: Scoring solutions in collections and recovery.
service. Collections agents' communication with debtors is highly regulated and varies by state A steady advancement of technology
innovations is changing the way collections departments operate
11 (February 28, 2007). Form 10-K for eBay Inc. Online collections services automate the entire collections process, speeding the
recovery of funds Online collections services allow debtors to negotiate settlements online


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The Solution: Online Collections Services

Online collections service allows creditors to
automate the entire collections process using
the Internet. Designed to efficiently
communicate with debtors and ensure
consistent regulatory compliance, online
collections services can interact with
thousands of debtors and quickly resolve
past-due accounts.
Allowing debtors to review and pay their debt
in private, online collections services
overcome the embarrassment often felt by
debtors while providing 24 hour access to the
service.
Consumers can negotiate debt and securely
process online payments in private. Creditors
can quickly set payment options and collect
funds, without ever picking up the phone.

Some of the capabilities of online collections services include:

• Negotiation of debt online
• Secure payment processing over the Internet
• Customized debt resolution options, including varied payment plans
• Contact preference updates
• Cross-selling of alternative financial services

How It Works
A letter is typically sent to a debtor with an invitation to go online to settle his or her debt.

For early-stage delinquencies, the online service offers a quick and convenient way for
customers to bring their accounts current.

For late-stage and charged-off accounts, a blind bidding process can be presented. The
consumer is provided multiple chances to submit an offer and settle the account. The creditor
establishes a minimum accepted offer that is unknown to the debtor. The offer is based on
custom business rules that reflect the creditor's internal collections strategies.

Multiple payments can be set up for paying down debt. Payments are collected online using a
variety of payment methods, including ACH, credit card, PayPal, MoneyGram and Western
Union. When the debtor makes a successful payment, funds are transferred via electronic
payment gateways directly into creditor accounts.


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Benefits of Online Collections Services

Research suggests that resolving delinquent accounts online can reduce transaction costs by
almost 5 times when compared to phone or traditional mail-based solutions.12 Beyond major
cost savings, online collections services provide a significant number of benefits for both
creditors and debtors.

Benefits to creditors:
• Allows collections departments to efficiently interact with an unlimited number of debtors
• Eliminates the need for added personnel to meet growing collections requirements
• Reduces liability resulting from noncompliance with federal and state regulations by
controlling and documenting debtor interactions
• Improves the image of creditors with a consumer-friendly service
• Increases profits for late-stage debtors with blind bidding
• Reduces the overhead of collections processes
• Bypasses answering machines, caller ID and cell phones
• Easily captures debtor contact preferences

Benefits to consumers:
• Avoids the embarrassment that often occurs when dealing with collectors
• Empowers customers to settle accounts at their convenience
• Allows consumers to quickly resolve debt
• Provides access 24 hours a day, every day

Case Example

An auto finance arm of a major bank used an online collections service to improve its debt
recovery. This bank's goal was to collect as much as possible prior to the end of every month.
The bank used an online collections service to establish flexible business rules to help it meet
its objectives. For example, if a consumer first logged into the system in the middle of the
month, he or she was given a wider range of days to make a payment than if there were only a
few days left in the month. In addition, the bank wanted the ability to spread payments over a
year only if the debtor agreed to a large up-front payment of 10 percent. Easy to customize
business rules enabled the bank to achieve its objectives.

service. Online collections services can reduce the cost of recovering consumer debt


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What to Look For in an Online Collections Service
When seeking an online collections service, consider the following important criteria.

Automated debt negotiation: Seek a solution that automates later-stage debt negotiation by
allowing consumers to bid against a blind settlement floor.

Intelligent resolution offers: The ideal solution should intelligently present options to
consumers based on debt or debtor characteristics. For example, early-stage debt should not
be provided negotiation options.

Compliance flexibility: Look for a solution that is flexible enough to meet external legal
requirements and is in compliance with state and federal regulations.

Business rules: Seek a service that offers a wide range of real-time business rule
customization, such as settlement floors, payment intervals, payment methods and
considerations such as how much must be paid up front and how quickly the debt must be paid
down.

Easy to implement: Seek a solution that seamlessly integrates with existing collections
systems investments without a major IT investment.

Hosted model: Look for a solution that is securely hosted, eliminating the need to invest in
hardware and software as well as freeing IT personnel.

Look for an online collections service that provides flexible business rules to ensure
changing needs can be accommodated

Easy to use: Look for a solution that is easy for consumers to use and collections managers to
maintain. No technical knowledge should be needed.

Customizable branding: The ideal solution should enable customized branding to help
maintain a consistent look and feel for consumers.

Multi-language support: Common languages, such as English, Spanish and Korean should be
supported to reach the broadest range of consumers.

Solely focused on collections: Look for a company that exclusively specializes in collections
and intimately understands all stages of the collections process.

Offers live support: Seek a company that includes business analysts at no additional cost to
examine your ongoing use of the solution for streamlined success.

Automates email communication: Seek a solution that handles email communication
broadcasts to increase the use of the application.


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The DebtResolve™ Advantage
As the name suggests, DebtResolve helps consumers resolve their debt online with dignity. As
the premier online collections service, DebtResolve enables debtors to self-cure, negotiate
settlements and finalize payment arrangements online, at any time and in any language.
Creditors realize significant cost savings, collect more debt and make contact with consumers
who were previously unreachable.

Designed by Debt Resolve, Inc. (OTCBB DRSV), a pioneer in online collections software, the
DebtResolve solution provides creditors an innovative way to streamline the collections process.
Used by top American banks and collections agencies, DebtResolve was designed to handle
very early delinquencies to post charge-off debt. Penetrate the barriers between collections
agencies and debtors by contacting DebtResolve today.

• Over 10.5 Million accounts has been placed on the Debt Resolve System
• Over $10.8 Billion Face Value Debt has been placed on the Debt Resolve System
• 53% of registered users Settle
• 73% of registered users settle when followed up with traditional methods
• Settle over 14% above bump (floor) rate
• 20% of settlements are transacted after regulated collection hours.
• Assure legal compliance with FDCPA (US) & DPA (UK) through a controlled
website presentation


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THE DEBT RESOLVE SYSTEM MODULES

DRCollect™
DR Collect is a fully automated on-line module offering a unique, quick to implement universal
upload tool. DR Collect offers an innovative pricing structure established especially for collection
agencies, collection law firms, and other markets working with the tight margins of contingency
fee structures. Additionally, the DR Collect module eliminates most of the manual integration
process associated with implementation of the program, and allows private label customization
for the agency or law firm.
DRPrevent™
For early-stage collections, Debt Resolve can help you collect overdue payments, make
payment arrangements, and manage account self-cures all online.
DRSettle™
On late-stage collections and charged-off accounts, DR Settle incorporates several treatments
including a dispute resolution engine that allows your customers to make offers. These offers
are evaluated using your business rules and scoring models, leading to immediate settlements.
DRPay™
DR Pay captures customer payments online using your electronic payment gateways. We can
integrate with any payment processor and settle in any currency. Debt Resolve never touches
the client’s funds. All funds are directly deposited with the client.

DRControl.™
DRControl is the administrative interface where templates and rules are established. Once the
templates are established and parameter identified, you can simply assign the treatments with
the click of the mouse and apply change real-time throughout the system.

DRMail. ™
Following registration, all communication is handled through DRMail The system will notify the
consumer 2 days prior to any scheduled payment arrangement to remind them of the upcoming
payment and give them time to allocate funds to cover any payment arrangement. If a payment
is unsuccessful DRMail will automatically send notification to log back in and make different
payment arrangements.

For a free demonstration, call 914-949-5500 or email info@debtresolve.com
OR visit www.debtresolve.com for product information.


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