CAS has created specialized industry insights for each of our main outsourced business services sectors (Accounts Recievable Management, Revenue Cycle Management, Customer Relationship Management, and FinTech/Debt Settlement) to provide easier access to relevant information for our publics.
Read the full ARM insights here.
CAS sees a shift towards digital as the ARM market further embraces technology as we move out of the COVID-19 pandemic.
While the ongoing vaccine rollout preludes to prompt economic recovery, changes in the macroeconomic environment could create material shifts in the ARM industry, both for better and for worse. Technology-enabled debt collection companies also attracted robust investment and interest from buyers, promising to disrupt the industry and boost profitability growth.
President Biden’s administration will begin pushing for a tax policy overhaul that would raise the tax rate on capital gains to 40 percent for all proceeds of business sales over $1 million. If passed, this would urge more sellers to enter the market before the new tax rates come into effect. As such, the M&A markets are prepared for an uptick in activity in 2021.
In March, House Democrats and Senate passed a $1.9 trillion Coronavirus rescue package. Eligible Americans have begun receiving their long-awaited $1,400 stimulus checks. The plan added $25 billion in rental and utility assistance, $10 billion in mortgage aid, expansion of subsidies for health insurance, and $30 billion in aid to restaurants. Democratic Senators also introduced an anti-garnishment bill to categorize stimulus payments in a way so that debt collectors would not be able to seize the checks. However, the bill had since been blocked by Republican Senator Pat Toomey. Massachusetts is an exception; MA Attorney General Maura Healy determined that the emergency cash payments qualify as public assistance, which under state law is exempt from seizure or garnishment.
With the addition of the fiscal stimulus, there would be fewer new delinquencies, continued strong issuance volume of loans, and increased loan resolutions. According to FitchRatings, loan losses would likely materialize in the second half of 2021. The delinquency rate of U.S. commercial mortgage-backed securities (CMBS) fell to 4.55% in January 2021 and is predicted to improve to below 4% by the end of the year. However, rates are expected to be volatile, especially during the first half of the year due to the continuance and extent of government support measures, servicers’ appetite for forbearance or modifications, efficacy of the vaccine rollout, and issuance volume of new CMBS. There would likely be no significant reduction in the overall delinquency rate until 2022.
On March 11, 2021, the U.S. House Committee on Consumer Protection and Financial Institutions held a hearing titled “Slipping Through the Cracks: Policy Options to Help America’s Consumer during the Pandemic,” which reviewed 18 bills targeted at financially assisted consumers with outstanding debts. The proposals include restricting actions that debt collectors could take and offering forbearance options for consumers and small businesses to procure necessary help for those most impacted by the pandemic. The amendments could force lenders to limit the amount of debt in circulation or raise interest rates to stay in business. On the other hand, the ARM industry could also view these proposals as a potential tailwind; small businesses that lack the resources to independently collect on their debts could turn to use ARM service providers. With the hearing record being left open, CAS will continue monitoring the process as it unfolds.
In addition, the SCAM Debt Act had been introduced in the House of Representative (HOR) that proposed amendments to the Fair Debt Collection Practices Act (FDCPA). If passed, the bill would require debt collectors to change the information included in the written notice that follows an initial communication and provide a written notice at least 30 days before commencing legal action against a consumer. Instead of only informing the amount of debt owed, collectors would have to provide an itemization of the debt, the most recent date of default, the amount of made payments since such date, and the amount of any interest or fees accrued on the debt. Collectors would be required to provide a written notice that would include all the methods that a consumer can use to contact the collector, and must be sent between 30 and 60 days before filing a lawsuit. At the same time, legislators in both the HOR and the Senate have introduced a bill called the Medical Debt Relief Act, which seeks to amend the Fair Credit Reporting Act (FCRA) and FDCPA regarding how medical debts are collected. The legislation would amend the FCRA to implement a one year waiting period before medical debt could be reported on a consumer’s credit report and would amend the FDCPA to provide a timetable for verification of the medical debt.
Republican Senator Mike Crapo and Democratic Senator Amy Klobuchar are re-introducing their anti-robocall bill, which seeks to give voice service providers the power to create their own whitelists of phone numbers that are not eligible to be blocked and to empower the Federal Communications Commission to create a report analyzing the effectiveness of call blocking tools. If passed, the bill would prevent unwanted and illegal robocalls while ensuring that consumers continue to receive public safety calls. For ARM companies, this amendment may help ease their process of getting in touch with consumers.
Biden’s Education Secretary Miguel Cardona canceled $1 billion of student-loan debt for about 72,000 defrauded borrowers. Although cancellation for all student loan debt has not been implemented, debt accrued by students that had been defrauded by for-profit schools was forgiven. This reversed a policy implemented during the Trump Administration that provided only partial debt relief to these students.
President Biden announced his nomination of Rohit Chopra as the Director of the Consumer Financial Protection Bureau (CFPB). Previously, Chopra was one of the two Democratic commissioners at the Federal Trade Commission (FTC). During the Senate hearing, Chopra outlined some key focus areas on abusive debt collection practices, student loan borrowers, foreclosures, fair lending, Fintech, credit reporting, and the housing market. His appointment is anticipated to radically reshape CFPB’s regulations and enforcement with an emphasis on increased surveillance, stricter standards, and “aggressive action” under the new administration. As one of Chopra’s first orders of business, the CFPB issued a 60-day delay for the effective dates (now January 29, 2022) of the proposed rules. The pandemic was cited as the reason for delay, but skeptics believe it could give the CFPB additional time to take a tougher stance.
On the state level, Oklahoma, Nevada, Maryland, Ohio, Colorado, and New Mexico had passed bills that prohibited healthcare providers from placing unpaid debts with a collection agency, unless the patient received a “good faith estimate” of costs before the service. In the event a patient is not able to receive a good faith estimate prior to being treated — such as in the case of an emergency — the healthcare provider would not be allowed to charge more than 165% of the Medicare rates for the services that are provided. If passed by the House and signed into law, it would go into effect on November 1, 2021.
Q1 2021 began with robust M&A activity within the ARM and payment solutions industries. A number of accounts-receivables collection tech companies announced their respective funding rounds, including HighRadius and PromisePay. One of the companies highlighted in CAS Q3 2020 newsletter, Symend, also reported $43 million in raised capital as an extension to its Series B closed in May 2020. On Feb 9, 2021, Katabat, the leading provider of debt management solutions, and Bridgeforce, an international financial services consultancy, announced a formal partnership to bolster Katabat’s managed service debt collection software products.
Looking forward, the ARM industry anticipates rapid technological transformation as companies leverage behavioral analytics, machine learning, and artificial intelligence to automate invoicing solutions and improve the debt collection experience for consumers. Companies must adapt to the regulatory escalations with the new presidential administration.
Continue to the full ARM insights here.