Encore Capital Group Profile
Encore Capital Group, Inc. operates as an international specialty finance company.
The company is providing debt recovery solutions and other related services for consumers across a broad range of financial assets. The company primarily purchases portfolios of defaulted consumer receivables at deep discounts to face value and manages them by working with individuals as they repay their obligations and work toward financial recovery. Defaulted receivables are consumers’ unpaid financial obligations to credit originators, including banks, credit unions, consumer finance companies and commercial retailers. Defaulted receivables may also include receivables subject to bankruptcy proceedings. The company also provides debt servicing and other portfolio management services to credit originators for non-performing loans in Europe.
Through Midland Credit Management, Inc. and its domestic affiliates (collectively, ‘MCM’), the company is a market leader in portfolio purchasing and recovery in the United States. Through Cabot Credit Management Limited (‘CCM’) and its subsidiaries and European affiliates (collectively, ‘Cabot’), the company is one of the largest credit management services providers in Europe and the United Kingdom. These are the company’s primary operations.
The company also has additional international investments and operations as the company has explored new asset classes and geographies, including an investment in Encore Asset Reconstruction Company (‘EARC’) in India and an investment in portfolio in Mexico. The company refers to these additional international operations as the company’s Latin America and Asia-Pacific (‘LAAP’) operations.
The company’s long-term growth strategy is focused on continuing to invest in its core portfolio purchasing and recovery business in the United States and the United Kingdom; and strengthening and developing the company’s business in the rest of Europe.
Strategy
The company’s strategies are to continue to concentrate on its core portfolio purchasing and recovery business in the U.S. and the U.K. markets in an effort to generate the company’s highest risk-adjusted returns; and strive to enhance the company’s competitive advantages through innovation, which the company expects will result in collections growth and improved productivity.
Debt Purchasing Approach
The company provides sellers of delinquent receivables liquidity and immediate value through the purchase of charged-off consumer receivables.
Identify Purchase Opportunities. The company maintains relationships with various financial service providers such as banks, credit unions, consumer finance companies, retailers, utilities companies and government agencies. These relationships frequently generate recurring purchase opportunities. The company identifies purchase opportunities and secure, where possible, exclusive negotiation rights. The company is a valued partner for credit originators from whom the company purchases portfolios, and the company’s ability to secure exclusive negotiation rights is typically a result of the company’s strong relationships and its purchasing scale. Receivable portfolios are typically sold either through a general auction, in which the seller requests bids from market participants, or in a private sale where the buyer negotiates directly with a seller. The sale transaction can be either for a one-time spot purchase or for a ‘forward flow’ contract. A ‘forward flow’ contract is a commitment to purchase receivables over a duration that is typically three to twelve months, but can be longer, with specifically defined volume, frequency, and pricing. Typically, these forward flow contracts have provisions that allow for early termination or price renegotiation should the underlying quality of the portfolio deteriorate over time or if any particular month’s delivery is materially different than the original portfolio used to price the forward flow contract. The company also has the ability in many of the company’s forward flow contracts to terminate after a certain notice period. The company generally attempts to secure forward flow contracts for receivables because a consistent volume of receivables over a set duration can enable the company to more accurately forecast and plan the company’s operational needs.
Evaluate Purchase Opportunities Using Analytical Models. Once a portfolio of interest is identified, the company obtains detailed information regarding the portfolio’s accounts, including certain information regarding the consumers themselves. The company uses this account-level information to perform due diligence and evaluate the portfolio. The company uses statistical analysis and forecasting to analyze this information to create expected future cash forecasts for the portfolio. The company’s collection expectations are based on, among other things, account characteristics and credit file variables, which the company uses to predict a consumer’s willingness and ability to repay their debt. The company’s servicing strategy and collections channel capacity are also a major determinant of collections expectations and portfolio expected value. Additional adjustments to cash expectations are made to account for qualitative factors that may affect the payment behavior of the company’s consumers (such as prior collection activities or the underwriting approach of the seller), and to ensure the company’s valuations are aligned with the company’s operations.
Formal Approval Process. Once the company has determined the estimated value of the portfolio and have completed the company’s qualitative due diligence, the company presents the purchase opportunity to its investment committee, which either sets the maximum purchase price for the portfolio based on an Internal Rate of Return (‘IRR’), or declines to bid. Members of the investment committee vary based on the type, amount, IRR and jurisdiction of the purchase opportunity, but include the company’s Chief Executive Officer and Chief Financial Officer for material purchases.
Collections Approach related to Debt Purchasing
MCM (the United States)
The company continues to expand and build upon the insight gained from previous collection activities and consumer interactions when developing the company’s account-level collection strategies for portfolios the company acquire. The company continuously refine the company’s collection strategy to determine the most effective approach for each account. The company’s collection approaches consist of:
Direct Mail and Email. The company develops mail and email campaigns offering consumers payment programs, and occasionally appropriate discounts, to encourage settlement of their accounts.
Call Centers. The company maintains domestic collection call centers in Phoenix, Arizona, St. Cloud, Minnesota, Troy, Michigan, and Roanoke, Virginia and international call centers in Gurgaon, India and San Jose, Costa Rica. Each call center generally consists of multiple collection departments. Account managers receive extensive training and are divided into specialty teams, each of which is supervised by a group manager. Account managers are trained to assess the company’s consumers’ willingness and ability to pay. They attempt to work with consumers to evaluate sources and means of repayment to achieve a lump sum settlement or develop payment programs customized to the individual’s ability to pay. In cases where a payment plan is developed, account managers encourage consumers to pay through automatic payment arrangements. The company continuously educates account managers to understand and apply relevant laws and policies relating to the account manager’s daily collection activities. The company has robust training and monitoring programs to help ensure compliance with applicable laws and policies by the company’s account managers.
Digital Collections. The company has made significant progress in expanding its digital strategies to match consumer preferences and continue to analyze and optimize the company’s digital strategies. Consumers can access their account information, view supporting documents and make payments through the company’s website. The company leverages email, text messaging and web chat to interact with its consumers. Account managers in the company’s call centers are also encouraged to make consumers aware of its digital channels including the company’s website. The company expects digital collections to increase as the company continues to develop its digital strategies and more consumers become aware of the digital channel.
Legal Action. The company generally refers accounts for legal action when the consumer has not responded to the company’s direct mail efforts or the company’s calls and it appears the consumer is able, but unwilling, to pay their obligations. When the company decides to pursue legal action, the company places the account into its internal legal channel or refer them to the company’s network of retained law firms. If placed to its internal legal channel, attorneys in that channel will evaluate each account and make the final determination whether to pursue legal action. If referred to the company’s network of retained law firms, the company relies on its law firms’ expertise with respect to applicable debt collection laws to evaluate each account placed in that channel in order to make the decision whether or not to pursue collection litigation. Prior to engaging an external law firm (and throughout the company’s engagement of any external law firm), the company monitors and evaluates the firm’s compliance with consumer credit laws and regulations, operations, financial condition, and experience, among other key criteria. The law firms the company hires are encouraged to communicate with consumers in an attempt to collect their debts prior to initiating litigation. The company pays these law firms a contingent fee based on amounts they collect on the company’s behalf.
Third-Party Collection Agencies. The company selectively employs a strategy that uses collection agencies. Collection agencies receive a contingent fee based on amounts they collect on the company’s behalf. Generally, the company uses these agencies to service specialized account segments.
Inactive. The company strives to use its financial resources judiciously and efficiently by not deploying resources on accounts where the prospects of collection are remote based on a consumer’s situation.
No Resale. The company’s policy is to not resell accounts to third parties in the ordinary course of business.
The company expands and builds upon the insight developed during its purchase process when developing the company’s account collection strategies for portfolios the company acquires. The company’s proprietary consumer-level collectability analysis is the primary determinant of whether an account is actively serviced post-purchase. The channel identification process is analogous to a decision tree where the company first differentiates those consumers who are unable to pay from those who are able to pay. Consumers who are financially incapable of making any payments, or are facing extenuating circumstances or hardships that would prevent them from making payments, are excluded from the company’s collection process. It is the company’s practice to attempt to contact consumers and assess each consumer’s willingness to pay through analytics, phone calls, email and/or letters. If the consumer’s contact information is unavailable or out of date, the account is routed to the company’s skip tracing process, which includes the use of different skip tracing companies to provide accurate phone numbers and addresses. The consumers that engage with the company is presented with payment plans that are intended to suit their needs or are sometimes offered discounts on their obligations. For the consumers that do not respond to the company’s calls, emails or its letters the company must then decide whether to pursue collections through legal action. The company periodically refines its collection approach to determine the most effective collection strategy to pursue for each account.
Cabot (Europe)
In Europe, the company also uses direct mail and email, call centers, legal action, third-party collection agencies and digital methods to pursue collections.
The company uses insights developed during the company’s purchasing process to build account collection strategies. The company’s proprietary consumer-level collectability analysis is the primary determinant of how an account will be serviced post-purchase. The company continuously refines this analysis to determine the most effective collection strategy to pursue for each account the company owns. The company purchases both paying portfolios, which consist of accounts where over 50% of the investment value is associated with consumers who are already repaying some of their debt, albeit at levels that still require the debt to be written off under the originators’ internal accounting policies, and non-paying portfolios, where 50% or more of the investment value is associated with consumers who are not repaying some of their debt, which are higher risk and have less predictable cash flows than paying portfolios. Paying portfolios tend to have a higher purchase price relative to face value than non-paying accounts due to the higher expectations for collections, as well as lower anticipated collection costs. Non-paying portfolios often consist of a substantial number of accounts without contact details and for which the vendor has made numerous unsuccessful attempts to collect.
The company employs a variety of collections strategies from the point of purchase, tailored to both the type of account and the consumer’s financial strength. For paying accounts, the company seeks to engage with the consumers to transfer their payment stream to the company and understand their detailed financial situation. For non-paying accounts, the company applies a segmentation framework tailoring the company’s communication and contact intensity in line with the company’s assessment of their credit bureau data, the size of their debt, the company’s belief as to the consumer’s ability to pay their debt, and whether the company has an existing relationship with them from other accounts. Where contact is made and consumers indicate both a willingness and ability to pay, the company creates tailor-made payment plans to suit the consumer’s situation. In doing so, the company utilizes the U.K. regulatory protocols to assess affordability and ensure their plan is fair, balanced and sustainable. Where the company identifies consumers with an ability to pay but who appear to be unwilling to pay their debt due, the company pursues a range of collections strategies, which may include litigation processes in order to stimulate engagement and enable the company to agree to a suitable plan. Scoring is applied in conjunction with manual selection criteria to determine whether litigation might be an option, also informing any enforcement action that may be deemed most appropriate to the consumer’s situation. Relationships with consumers are maintained through the duration of the payment plan, seeking to review plans at least annually in order to take into account fluctuations in consumers’ financial situations. Again, scoring is used to vary the intensity of contact effort, mirroring the likelihood of a consumer’s financial situation having changed. In the event that a consumer breaks their plan, segmentation is used to tailor the communication and contact intensity as the company seeks to re-engage with the consumer and understand the reason for the break. By understanding the reason for the break the company can tailor the solutions the company recommends to rehabilitate the plan and put the consumer back on the path to financial recovery. In this way, the company has built strong relationships with its consumer base, reflected in exceptional customer service scores.
Debt Servicing
The company’s debt servicing operations, which are performed by subsidiaries of Cabot, include early stage collections, business process outsourcing and contingent collections for credit originators. The company mainly provides debt servicing for consumer accounts, but also provide services for business-to-business accounts. The company’s debt servicing operations provide it exposure to the oversight requirements of financial services clients that drive a continually evolving compliance agenda; access to proprietary debt purchase opportunities; and an opportunity to support clients across the collections and recoveries lifecycle, thereby allowing the company to remain close to evolving trends.
Government Regulation
MCM (the United States)
In addition to the federal Fair Debt Collection Practices Act (FDCPA), the federal laws that directly or indirectly apply to the company’s business (including the regulations that implement these laws) include, but are not limited to, the following: Dodd-Frank Act, including the Consumer Financial Protection Act (Title X of the Dodd-Frank Act, ‘CFPA’); Servicemembers’ Civil Relief Act; Electronic Fund Transfer Act and the CFPB’s Regulation E; Telephone Consumer Protection Act (‘TCPA’); Equal Credit Opportunity Act and the CFPB’s Regulation B; Truth In Lending Act and the CFPB’s Regulation Z; Fair Credit Billing Act; the U.S. Bankruptcy Code; Fair Credit Reporting Act (‘FCRA’) and the CFPB’s Regulation V; Health Insurance Portability and Accountability Act; Federal Trade Commission Act (‘FTCA’); Credit CARD Act; Gramm-Leach-Bliley Act and the CFPB’s Regulation P; and Foreign Corrupt Practices Act.
The Gramm-Leach-Bliley Act and its implementing regulations, including the FTC ‘Safeguards Rule,’ require the company generally to protect the confidentiality of its consumers’ nonpublic personal information, to disclose to the company’s consumers its privacy policy and practices, including those regarding sharing consumers’ nonpublic personal information with third parties and to report certain data breaches and other security events to the FTC. In addition, the FCRA requires the company to prevent identity theft and to securely dispose of consumer credit reports.
Cabot (Europe)
Cabot has three regulated entities in the UK: the debt purchase brand Cabot Credit Management Group Limited (‘CCMG’), the servicing brand Wescot Credit Services Limited (‘Wescot’) and Cabot’s law firm, Mortimer Clarke Solicitors Limited (‘Mortimer Clarke’).
In addition to these regulations on debt collection and debt purchase activities, Cabot must comply with the General Data Protection Regulation 2016/679 (‘GDPR’) and where applicable the U.K. Data Protection Act 2018. This substantially replaced the previous legislation (Data Protection Act of 1998) and introduced significant changes to the data protection regime, including but not limited to: the conditions for obtaining consent to process personal data; transparency and providing information to individuals regarding the processing of their personal data; enhanced rights for individuals; notification obligations for personal data breach; and new supervisory authorities, including a European Data Protection Board (‘EDPB’).
The company’s operations outside the United States are subject to the U.S. Foreign Corrupt Practices Act, which prohibits the U.S. companies and their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in order to obtain an unfair advantage, to help, obtain, or retain business.
History
Encore Capital Group, Inc. was incorporated in Delaware in 1999.
