The ARM Industry Reaches an Inflection Point – Reg F Anticipated to Drive More M&A Activity

Discussing the ARM sector's preparation for Regulation F
By Michael Lamm December 14, 2021

In Q3 2021, CAS witnessed ARM players dedicate a significant amount of time and resources to prepare for the implementation of Regulation F on November 30, 2021. This is a massive regulatory overhaul that will have reverberations across the industry for quarters to come.

Implementation of Regulation F

To start, one of the largest announcements of Q3 is the CFPB announcing the implementation of Regulation F on November 30th. This regulation addresses communication in connection with debt collectors and lists prohibitions on abuse, false representation, or unfair practices in debt collections. With this action going into place, a number of changes are expected to occur, particularly in regard to how companies collect payments and contact consumers. Many companies can use their existing technology with outbound communication efforts (i.e., text and email communication tools) and translate it to an inbound communication stream. One of the initial ways companies may do this is by identifying the caller before and connecting them straight to an agent rather than an interactive voice response. As a result, customers can easily resolve their debt with the agents and spend less time on hold. Another modification that is likely to develop is the idea of valuing consumers’ preferences where outreach is concerned. In general, individuals who do not pick up their phones are usually not trying to avoid payments; rather, they do not wish to feel pressured by a phone call. A study performed by Intelligent Contacts shows a higher rate of preference for emails with a link that the recipient can click to pay. McKinsey also led a study with 1,000 delinquent customers and found that compared to digital channels (i.e., text and email), traditional outreach methods (i.e., voice and letter) elicited 18 percent fewer responses with accounts 30 days past due. With increased regulation under Regulation F, companies can focus on prioritizing the means of outreach that best suits their customers, which helps gives companies the highest probability of receiving their payment while reducing the outbound outreach.

In terms of M&A activity, Regulation F could lead to an increase in a company’s spending, specifically in the technology and compliance realms. Companies will likely look to invest more capital into their technology solutions in order to comply as well as optimize their outreach strategies. To ensure they are adhering to the new policies, companies might also be more inclined to invest in their compliance and legal teams. CAS expects to see a continuation of consolidation within the ARM industry as the costs become too burdensome for smaller agencies, debt buyers and law firms.

Impact of Inflation

Additionally, ARM companies were seeing inflation begin to impact prices of goods/services and liquidation rates. On an annual basis, according to the New York Times, the consumer price index (CPI) rose 5.4% in September from a year ago, mainly driven by supply chain issues. In terms of cash availability, consumers have been in a relatively stable position due to stimulus checks, saving during the pandemic as regular life was put on pause, and Federal Reserve Chair Jerome Powell announcing low-interest rates (below 2 percent for the immediate term). Looking to the future, the Fed indicated that they would raise rates if they saw evidence that the economy is experiencing higher inflation. If interest rates are to increase, consumers may not be willing to take on more debt.

Decline in Credit Card Debt

The CFPB issued their analysis, “The Consumer Credit Card Market” in September 2021, which showed that credit card debt declined by more than $100 billion between 2019 and 2020, as Regulation F is coming! 6 7 ARM (continued) customers paid down their debt. The same analysis from the CFPB illustrated the technology driven communication strategies taken by credit issuers surveyed for the study. In the 2019 version of the survey, less than 66 percent of the credit issuers were pushing text or email communication strategies to delinquent consumers. By comparison, in the 2020 issuance, that number grew closer to 100 percent.

Facebook Invoice Fast Track

Facebook announced that it will launch a new program, Facebook Invoice Fast Track, to help small businesses collect on unpaid invoices. Potentially, this program could be a future entry into the consumer and commercial debt collection industries. Facebook has stated that they will give immediate cash for services invoiced while charging a 1 percent fee from the funds they collect. With Regulation F stating that debt collectors can start communication with individuals via social media, Facebook or other larger technology companies with massive consumer footprints may begin to enter the ARM industry.

Student Loan Servicers Exiting the Federal System

Furthermore, another large federal development that has arisen is that student loan servicers are exiting the federal system. Navient (NASDAQ: NAVI) became the latest servicer to reveal its plans to exit the system, stating that it will transfer all of its loan accounts to Maximus. Some speculation exists around why Navient departed, but the most probable answers are current Federal Student Aid Chief Operating Officer for the Department of Education (and first appointed Director of the CFPB) Richard Cordray’s plan to strengthen oversight of the industry. Moreover, people such as Senator Warren are pressuring student-loan companies for bad practices. In terms of the future outlook in the industry, President Biden announced students will begin paying their student loans as of February 1, 2021. Many borrowers may not be eager to repay their loans, as they believe they can disappear under the mass student loan forgiveness program. This may lead to overhauls in collections in Q1 2022 and is an area of focus for all of the ARM vertical.

California  Launched the DCLA

On the state level, California will now begin to accept applications to confirm that ARM service providers are in compliance with the newly enacted Debt Collection Licensing Act (DCLA). DCLA requires anyone engaging in debt collection within California to be licensed. Prior to this law, California was one of 16 states that did not require licensed debt collectors. By adding this law, borrowers can file complaints and enforce violations the Department of Financial Protection and Innovation (DFPI) finds necessary. In addition, the DFPI provides a single location to check whether companies are licensed or not while also listing license suspensions or revocations. All of these updates benefit the consumers and allow them to safely ensure they are making payments to a trusted individual or company. Likewise, debt collection companies are now going to be forced to accurately track their collections to ensure they are not breaking any laws. As with the trend at the federal level, this increase in cost could lead to consolidation in the ARM vertical if this practice is adopted by additional states.

Holmes vs Crown Asset Management

Along with the DCLA going into place, one of the key court cases of Q3 was Holmes vs Crown Asset Management. In the last few years, various consumer attorneys have taken advantage of Utah’s vague licensing statute by stating that debt buyers cannot file against consumers without holding a debt collection license, as they violated the FDCPA. However, the new federal interpretation of the Petitions Clause in the US Constitution gives debt buyers a means of disposing of similar lawsuits. Nonetheless, there is still an abundance of filings being made by consumer attorneys which are very similar to this case. This court decision should lead to less liability on behalf of companies and less money spent on legal defense – a rare win for the ARM industry.

Reverberations of Hunstein

Parlaying off a major topic in CAS’ Q2 21 Market Report, the ARM industry is still feeling the reverberations of the Hunstein vs. Preferred Collection and Management Services, Inc. Originally the case had the potential to be a “sky is falling” moment for the ARM industry, but the tenor has since changed. Because the ruling only impacted the States in the Eleventh Circuit jurisdiction (Alabama, Florida, 7 8 ARM (continued) and Georgia), the actions taken by most agencies have been concentrated to that footprint. We have witnessed some agencies insourcing all of their lettering in those states. We have also observed a unique strategy whereupon some agencies are sending letters to counsel who are then, in turn, passing along to the letter vendor. In continuing to monitor the nuance to this ruling, we expect that agencies will discuss with the appropriate resources to minimize risk as we troll through this period of legislative uncertainty.


The ARM industry has been everchanging with the enactment of Regulation F as well as new technological trends. With these changes, now seems to be a better time than ever to pursue M&A activity. Consolidation will keep occurring both due to new legislation and a need to keep spending on technology and compliance to keep up with competitors. In addition to the aforementioned, there have been labor/employee shortages throughout the country. Salesforce estimates that missing about 350,000 workers will cost their company $223 million by the holiday season. This is a high-paying technology company experiencing that shortage. In this time, it is more difficult than ever to find new employees, and due to inflation, burnout, and labor strikes, it becomes an even larger investment to obtain top talent. As the labor and cost issues remain prevalent, companies could look to M&A to find quality candidates, which may be less complicated than hiring in the current market.

For additional insights on Q3 M&A activity in tech-enabled outsourced business services, click here.

About Michael
Michael Lamm is a Co-Founder and Managing Partner at Corporate Advisory Solutions, (CAS), an independent investment and merchant banking firm that supports a select group of clients with offices in Philadelphia, PA and Washington D.C. Michael has completed more than 130 M&A engagements generating over $2B+ in deal value within tech-enabled outsourced business services. Michael leads his deal team on M&A engagements, valuations, and expert witness litigation matters while also charting the firm’s corporate direction and strategic growth plan. Prior to co-founding CAS, Michael served as a Director at Kaulkin Ginsberg, an M&A and strategic advisory firm, for over 10 years. He executed on over 70 M&A transactions in tech-enabled outsourced business services.

Michael is actively involved in leading industry associations, such as the Association for Corporate Growth, ACA International and RMAI, and he is a frequent guest speaker, writer, and presenter at industry conferences and events.

Michael holds the Series 79, 63 and SIE registrations as a Registered Representative of StillPoint Capital, LLC, Member FINRA and SIPC, Tampa, FL, through whom he conducts securities transactions including capital raises and M&A engagements.

Michael has a BA in international studies from the School of International Service at American University. He lives in Gladwyne, PA with his wife and three children.

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