By: Kari Michel The topic of strategic default has been a hot topic for the media as far back as 2009 and continues as this problem won’t really go away until home prices climb and stay there. Terry Stockman (not his real name) earns a handsome income, maintains a high credit score and owns several residential properties. They include the Southern California home where he has lived since 2007. Terry is now angling to buy the foreclosed home across the street. What’s so unusual about this? Terry hasn’t made a mortgage payment on his own home for more than six months. With prices now at 2003 levels, his house is worth only about one-half of what he paid for it. Although he isn’t paying his mortgage loan, Terry is current with his other debt payments.   Terry is a strategic defaulter — and he isn’t alone. By the end of 2008, a record  1 in 5 mortgages at least 60 days past due was a strategic default. Since 2008, strategic defaults have fallen below that percentage in every quarter through the second quarter of 2010, the most recent quarter for which figures are available. However, the percentages are still high: 16% in the last quarter of 2009 and 17% in the second quarter of last year. Get more details off of our 2011 Strategic Default Report What does this mean for lenders? Mortgage lenders need to be able to identify strategic defaulters in order to best employ their resources and set different strategies for consumers who have defaulted on their loans. Specifically designed indicators help lenders identify suspected strategic default behavior as early as possible and can be used to prioritize account management or collections workflow queues for better treatment strategies. They also can be used in prospecting and account acquisition strategies to better understand payment behavior prior to extending an offer. Here is a white paper I thought you might find helpful.

When the Consumer Financial Protection Bureau (CFPB) takes authority on July 21, debt collectors and communications companies should pay close attention. If the CFPB has its way, the rules may be changing. Old laws, new technologies The rules governing consumer communications for debt collection haven’t seen a major update since they were written in 1977. While the FTC has enforcement power in this area, it can’t write rules—Congress must provide direction. Consequently, the rules guiding the debt collection industry have evolved based on decisions by the courts. In the meantime, technology has outpaced the law. Debt collectors have taken advantage of the latest available methods of communication, such as cell phones, autodialers and email, while the compliance requirements have largely remained murky. At the same time, complaints about debt collection practices to the FTC continue to rise. While the number is relatively low compared to the amount of overall activity, the FTC receives more complaints about debt collectors than any other industry. The agency has also raised concerns about how new communication tools, such as Facebook and Twitter, will impact the future of debt collection. Priorities for the CFPB While mortgages, credit cards and payday loans will be the early priorities for the CFPB, high on the list of to-do items will be to update the laws governing consumer communications for debt collection. Under the Dodd-Frank Act, the CFPB will be responsible not only for enforcing the Fair Debt Collection Practices Act (FDCPA), but it will also have a new ability to write the rules. This raises new issues, such as how new regulations will affect how debt collection companies can contact consumers. Even as lenders and communications companies have expressed concern about the CFPB writing the rules, the hope is that the agency will create a more predictable legal structure that covers new technologies and reduces the uncertainty around compliance. Faced with the prospect of clarifying the compliance requirements around debt collection, the ACA (Association of Collection and Credit Professionals) has started to get in front of the CFPB by putting together its own blueprint. Will the CFPB be ready by July 21? Over the last year, the CFPB has been busy building an organizational structure but still lacks a leader appointed by the President and confirmed by the Senate. (Elizabeth Warren is currently the unofficial director.) Without a permanent director in place, the agency will be unable to gain full regulatory authority on July 21 – the date set by the Treasury Department. Until then, the CFPB will be able to enforce existing laws but will be unable to write new regulations. Despite the political uncertainty, debt collectors and communications firms still need to be prepared. One way is to ensure you’re following industry best practices established by ACA. To help you be ready for any outcome, we’ll continue to follow this issue and keep you apprised of the CFPB’s direction. Let us know your thoughts and concerns in the comment section. Or feel free to contact your Experian rep directly with any questions you may have. Helpful links: Association of Credit and Collection Professionals Fair Debt Collection Practices Act (PDF) Consumer Financial Protection Bureau (CFPB)

This is the third and final post in an interview between Experian’s Tom Whitfield and Dr. Michael Turner, founder, president and CEO of the Policy and Economic Research Council (PERC)—a non-partisan, non-profit policy institute devoted to research, public education, and outreach on public and economic policy matters. In this post Dr. Turner discusses mandatory credit-information sharing for communications companies, and the value of engaging and educating state regulators. _____________________________ Does it make sense for the FTC to mandate carriers to report? Credit information sharing in the United States is a voluntary system under the Fair Credit Reporting Act (FCRA). Mandating information sharing would break precedent with this successful, decades-old regime, and could result in less rather than more information being shared, as it shifts from being a business matter to a compliance issue. Additionally, the voluntary nature of credit reporting allows data furnishers and credit bureaus to modify reporting in response to concerns. For example, in reaction to high utility bills as a result of severe weather, a utility provider may wish to report delinquencies only 60 days or more past due. Similarly, a credit bureau may not wish to load data it feels is of questionable quality. A voluntary system allows for these flexible modifications in reporting. Further, under existing federal law, those media and communications firms that decide they want to fully report payment data to one or more national credit bureaus are free to do so. In short, there is simply no need for the FTC to mandate that communications and media companies report payment data to credit bureaus, nor would there be any immediate benefit in so doing. How much of the decision is based on the influence of the State PUC or other legislative groups? Credit information sharing is federally regulated by the Fair Credit Reporting Act (FCRA). The FCRA preempts state regulators, and as such, a media or communications firm that wants to fully report may do so regardless of the preferences of the state PUC or PSC. PERC realizes the importance of maintaining good relations with oversight agencies. We recommend that companies communicate the fact of fully reporting payment data to a PUC or PSC and engage in proactive outreach to educate state regulators on the value of credit reporting customer payment data. There have been notable cases of success in this regard. Currently, just four states (CA, OH, NJ and TX) have partial prohibitions regarding the onward transfer of utility customer payment data to third parties, and none of these provisions envisioned credit reporting when drafted. Instead, most are add-ons to federal privacy legislation. Only one state (CA) has restrictions on the onward transfer of media and communications customer payment data, and again this has nothing to do with credit reporting. Agree, disagree or comment Whether you agree with Dr. Turner’s assertions or not, we’d love to hear from you. So please, take a moment to share your thoughts about full-file credit reporting in the communications industry. Click here to learn more about current and pending legislation that impacts communications providers.