InsideARM Debt Settlement Survey

Transcription

1 InsideARM Debt Settlement Survey How Creditors and Collectors Utilize the Debt Settlement Industry to Increase Collections January 2013 Brought to you by with reporting findings sponsored by

2 Findings and observations Adoption is growing among creditors, debt buyers and legal recovery firms In the results from the first debt settlement survey insidearminsidearm.com conducted in Q4 2011, collection agencies were clearly the early adopters when it came to working with debt settlement companies to collect consumer debts. At the time, about one half of the survey participants who identified themselves as collection agencies had already developed a strategy to work with the debt settlement industry. Conversely, less than 15 percent of debt buyers and legal recovery firms had begun working with debt settlement companies and a mere 5 percent of credit card issuers had engaged the industry at the time of the last survey. In the current survey, we observed a significant shift in adoption, most impressively among credit card issuers that went from 5 percent to 63 percent adoption with roughly 60 percent of debt buyers and legal recovery firms now report working with the debt settlement industry. Clearly, this shift in adoption demonstrates the value proposition that can be realized when creating a targeted strategy focusing on this asset class. Concerns about security, compliance and third party communications still chief objections to working with debt settlement companies The results from these survey topics were identical to the previous year. ARM companies who do not work with debt settlement companies choose not to do so based on a perceived lack of compliance and security in how the debt settlement industry operates. Given the severe level of scrutiny ARM companies find themselves subjected to today relating to matters of data security, regulatory compliance, third party communication concerns relating to the FDCPA, and the pending audit and supervision procedures outlined by the CFPB, it would appear that many ARM companies don t feel the debt settlement industry is capable of operating at a similar level of compliancy to the ARM industry. Therefore, they opt not to engage the industry. Third party debt settlement account aggregators perceived to address concerns regarding security and compliance when engaging debt settlement companies Relating to the above concerns about data security and compliance, it would appear our assumptions were confirmed by the next question in the survey. insidearm.com wanted to know if a fully PCIcompliant solution was available from a third party aggregator of debt settlement account information, would a significant portion of survey respondents change their opinion about working with the debt settlement industry. In the previous survey, 50 percent of the survey respondents who said they do not work with debt settlement companies indicated they would change their mind in favor of working with these companies if they could do so by utilizing the services of a third party debt settlement account aggregator that could provide a demonstrated level of compliance and security. In this year s survey, a nearly identical percentage, 47 percent, said they would reconsider their decision to work with the debt settlement industry given a secure, compliant system that aggregated debt settlement account information. insidearm.com Debt Settlement Survey Page insidearm.com &

3 These responses clearly validate the concerns many ARM companies have about the operational standards and practices of many debt settlement companies. Furthermore, it illustrates that third party debt settlement account aggregators can provide value and an additional layer of security and compliance that many ARM companies are seeking when sharing consumer data with a third party debt settlement company for the purpose of collecting a debt. ARM companies are developing strategies to work with settlement companies, but most have not created dedicated teams or departments and only reach a small segment of the debt settlement industry It appears from the survey results that a majority of ARM companies currently working with the debt settlement industry have at least begun to define a specific strategy to engage the industry. But upon further inspection, it appears few have actually developed internal teams or dedicated personnel and resources to figure out how best to utilize this channel. Moreover, when it comes to fully engaging the companies that make up the sum of the debt settlement industry today, most companies are working with fewer than 20 percent of the companies in the debt settlement industry, raising the obvious questions: 1) Could this channel be more effectively utilized by ARM companies if they had more effective ways to communicate and share information with debt settlement companies? 2) And, if ARM companies possessed more internal resources with the tools and knowledge to reach a larger audience of debt settlement companies, would these ARM companies be better able to maximize their strategy and thus optimize the liquidation performance of this asset class. Debt settlement account aggregators are growing in number, providing value, but mainly as part of a hybrid strategy It appears that due to a growing number of players in the third party debt settlement aggregator space, competition is beginning to mature this niche industry and many ARM companies are adopting the services of these service providers as part of a hybrid strategy of working directly with some debt settlement providers, while utilizing a third party debt settlement account aggregator to reach a larger segment of the debt settlement industry, most probably the secondary and tertiary companies in the industry who may not be as visible and accessible to many in the ARM industry. This hybrid approach has clearly emerged as the most common way the ARM industry is leveraging the debt settlement industry. ARM companies are doing very little in the way of due diligence and verification of compliance when working with debt settlement companies This section of the survey produced the most surprising set of data given the fact that the ARM industry has been so focused for the past year on preparing for the upcoming audit and supervision of the larger market participants as defined by the CFPB. Given the type of data shared between collectors and debt settlement providers, it was surprising how few companies had actually developed policies and procedures to audit the operators in the debt settlement space, and how few ARM companies even went to the trouble of executing an NDA or a service provider contract before sharing consumer data with a debt settlement company. insidearm.com Debt Settlement Survey Page insidearm.com &

4 Given the fact that the CFPB now requires ALL companies who receive material benefit from a thirdparty service provider to ensure that the service provider understands their obligations as it relates to consumer financial services laws and are able to demonstrate their compliance with these laws, it is puzzling that more ARM companies are not viewing debt settlement providers with the same level of scrutiny that they themselves must undergo on a routine basis. (For more information regarding service provider requirements, refer to the bulletin from the CFPB relating to this subject by clicking here: providers.pdf) Many ARM companies rely on inefficient communication methods and insecure data transfer protocols when working with debt settlement providers Many companies working with debt settlement providers reported the main method of communication they relied on when communicating with a debt settlement company was an inbound telephone call from the debt settlement provider. Only 12 percent of the companies surveyed actually shared information with debt settlement companies utilizing account lists or spreadsheets and only 2 percent did so utilizing a secure FTP channel to share consumer account data. Aside from the obvious potential risk of an unauthorized disclosure of sensitive consumer data, given the fact that such a small percentage of debt settlement providers appear to be utilizing secure data transmission methods to send this data to ARM companies, the level of efficiency being realized by many ARM companies when working this channel can obviously be improved. It remains to be seen if the lack of sophistication and automation between debt settlement providers and ARM companies is due to a lack of technology sophistication on the part of the debt settlement industry, or rather, the lack of sophistication in the development of effective strategies and practices by ARM companies to more effectively engage this channel. Liquidation performance of debt settlement accounts is relatively good When we drill into the metrics around liquidation performance of this asset class, it appears that consumers who enroll in a debt settlement program are pretty good payers. Moreover, compared to similar accounts in the collection file, debt settlement accounts liquidate at least as good if not slightly better. Given these data points, it seems logical that the adoption rates across the ARM industry are beginning to rise as more firms begin to better understand the value debt settlement companies can offer, and how third party debt settlement account aggregators are making it easier to locate these accounts and the companies that are servicing the consumers enrolled in these programs. Companies plan to keep their debt settlement strategy in place or increase the use of the channel in the next 12 months Given the fact that roughly three quarters of the survey participants indicated that they planned to keep their debt settlement strategy the same in the next 12 months and almost 20 percent indicated that they planned to increase their utilization of the debt settlement industry in the next 12 months speaks to the fact that ARM companies clearly see the value of working with debt settlement companies and that they are receiving real value in terms of liquidations. The fact that less than 4 percent of ARM companies currently working with the industry reported that they planned to reduce their strategy around debt settlement is indicative of the fact that once an ARM firm adopts a strategy around debt settlement, they appear to be sticking with that strategy or dedicating more resources to the strategy over time. insidearm.com Debt Settlement Survey Page insidearm.com &

5 The survey and its results For a second year now, insidearm.com has conducted a survey of the ARM industry to gain insight as to how credit card issuers, debt buyers, collection agencies and legal recovery firms view the debt settlement industry and to what extent they are utilizing this channel to assist in the recovery of debt. In October of 2011, insidearm.com conducted the first survey of the ARM Industry and the results of that survey were published in the report titled, insidearm Debt Settlement Survey How Creditors and Collectors Utilize the Debt Settlement Industry to Increase Collections. In November of 2012, insidearm.com once again surveyed the ARM industry to gain further insight into how this channel was being utilized by collectors. Furthermore, we wanted to understand how regulation of the debt settlement industry and increased regulation in the ARM industry may have impacted the utilization of this channel for collections. Finally, we wanted to better understand how consumer accounts enrolled in a debt settlement program performed from a liquidation perspective compared to similar accounts not enrolled with a debt settlement provider. Engagement and Adoption of the Debt Settlement Industry How would you classify your primary business industry? insidearm.com Debt Settlement Survey Page insidearm.com &

6 What is your title in the organization? Does your company work with debt settlement companies to settle consumer debt? The largest group of respondents to the survey identified their primary business classification as collection agency (48 percent). This was followed by legal recovery firms (12 percent), debt buyers (8 percent) and credit card issuers (4 percent). The remaining 26 percent of the survey respondents identified themselves as vendors, consultants, service providers or companies otherwise not directly involved in the collection or recovery of consumer debt. For the purposes of this survey, only answers from respondents who identified themselves as a collection agency, debt buyer, legal recovery firm or credit card issuer were tabulated for the purposes of this whitepaper. Of all respondents who are actively involved in the collection of consumer debt, 45 percent stated they worked with debt settlement companies, 50 percent indicated they did not work with debt settlement companies and another 5 percent said they were not sure if they worked with companies. When insidearm.com Debt Settlement Survey Page insidearm.com &

7 breaking down the respondents by industry classification, 49 percent of collection agencies indicated they worked with debt settlement providers while 59 percent of debt buyers, 66 percent of legal recovery firms and 63 percent of credit card issuers indicated they currently work with debt settlement companies. These data demonstrate a significant shift in adoption of the use of debt settlement providers from the previous year s survey where 53 percent of collection agencies indicated they worked with debt settlement companies, while only 14 percent of debt buyers, 12 percent of legal recovery firms and 5 percent of credit card issuers indicated they worked with the debt settlement industry to help recover debt. The latter three groups seem to have made a significant shift in their view of the debt settlement industry and a majority of each group is now actively utilizing this channel to collect receivables. The most notable group here are credit card issuers that seem to have made the biggest jump in adopting the debt settlement channel moving up to 63 percent from just 5 percent in One final observation is that while collection agencies were clearly the early adopters in utilizing debt settlement companies in 2011, the balance of the industry has not only caught up but surpassed the level of adoption indicated by agencies in the current survey. Reasons Companies Don t Work with Debt Settlement Providers Companies that do not work with debt settlement providers While the noted adoption rates appear to be significant, still 50 percent of respondents indicated they DO NOT work with debt settlement companies and another 5 percent indicated they were not sure. When breaking down this answer by industry, 55 percent of collection agencies indicated they still do not work with debt settlement providers while 33 percent of debt buyer, 31 percent of legal recovery firms and 29 percent or credit card issuers indicated they still did not work with this channel. With such a clear shift in adoption toward working with the debt settlement industry in such a short period of time, one can only conclude that the use of this channel is delivering value for those insidearm.com Debt Settlement Survey Page insidearm.com &

8 collecting consumer debts. Clearly, there appears to be a significant portion of each segment that could still realize benefits by choosing to work more closely with this industry. Reasons provided for NOT working with debt settlement companies The next question in the survey focused on those companies that were currently not working with debt settlement providers. insidearm.com wanted to know what reasons companies might have for not choosing to utilize an obviously effective channel for recovering consumer debt. Respondents were asked to indicate the reasons why they chose not to work with debt settlement companies and to indicate as many reasons that applied. If not, why? The most interesting observation of this data was the first six most commonly reported reasons for NOT working with a debt settlement company were exactly the same in order of importance from the previous year s survey. The second most interesting data point to emerge was only one of the top six reasons for not working with debt settlement providers related to the economics of the settlement or net recovery, while the other five reasons were solely related to perceptions of security and compliance practices of debt settlement providers. Even the perceived reputational credibility of debt settlement providers ranked only fourth in concern as a reason for not working with the industry. This clearly illustrates that debt settlement companies need to do a better job of either coming into compliance in the same manner that creditors, debt buyers, legal recovery firms and collection agencies are required to do OR, the industry as a whole needs to do a better job of demonstrating and communicating HOW they meet specific compliancy requirements pertaining to data security, the FDCPA, third party communications concerns, and recent regulations released by the CFPB that require service providers to insidearm.com Debt Settlement Survey Page insidearm.com &

9 be able to demonstrate to their clients the efficacy and oversight of their policies and procedures in the area of consumer financial laws and data security. If you don't currently work with debt settlement companies, what strategy do you use MOST when you identify a consumer in a debt settlement program? The next question insidearm.com asked related to what strategy was most commonly deployed among those companies NOT working with debt settlement companies when they encountered a consumer who was enrolled in a debt settlement program. If you don't currently work with debt settlement companies, what strategy do you use MOST when you identify a consumer in a debt settlement program? The results from the survey almost mirrored the results from the previous year s survey with the only exception being that legal recovery and contingency placement switched positions as reported strategies. Each strategy mentioned in this year s survey was within 5 percentage points of last year s results. While almost half of the respondents not working with a debt settlement company did have an internal team or specialized in house strategy to deal with a consumer who identified their enrollment in a debt settlement program, 20 percent pursued a strategy to move the account into legal collections and roughly 8 percent did nothing more than continue to send dunning notices to the consumer. The practice of continually dunning a consumer who is no longer actively engaged in the process of trying to resolve their accounts, since they are now relying on their debt settlement provider to represent them in these matters, likely generates the lowest level of success and is likely the reason it is used the least. insidearm.com Debt Settlement Survey Page insidearm.com &

10 Validating the reasons for not working with debt settlement companies The next question in the survey was designed to confirm the reasons provided by respondents for not working with debt settlement providers. Since the major reasons for not working with these companies related primarily to concerns regarding the FDCPA, communicating with third parties in the collection process and other security and compliance matters, insidearm.com wanted to know, if ARM companies were provided an alternative solution, that was PCI certified, and provided a central repository of debt settlement accounts where collectors could find matching accounts and submit offers to the debt settlement companies through this repository, would those companies reconsider their decision to work with the debt settlement industry in an indirect way through a PCI compliant repository of debt settlement accounts? If provided a PCI certified, centralized data repository to locate collections accounts enrolled with debt settlement companies, would you reconsider your decision to settle debts through this channel? When provided a secure, compliant alternative through a third party service provider that offered a data repository of debt settlement accounts, 47 percent of those who said they currently do not work with debt settlement companies indicated they would change their decision and work with these companies through a secure data repository. This confirms the chief barrier to ARM companies working with debt settlement companies is security and compliance, and if that objection is addressed, the remaining issues such as low settlement rates, lack of knowledge about the debt settlement industry, limited resources and contractual restrictions from clients are the only remaining issues and comprise less than 25 percent of the companies not working with the industry today. insidearm.com Debt Settlement Survey Page insidearm.com &

11 Over the past four years, several companies have entered the market and now provide secure, aggregated data repositories of debt settlement account data. Some of these companies offer matching or scrub services only, while others offer a full service, turn key collection/offer management system designed to submit offers on matched accounts directly to debt settlement providers. The growth of the debt settlement industry over the past decade, the adoption by the ARM industry to more openly work with this channel, and the constant drive to improve collection operations and productivity is fueling the growth of these companies and the value they deliver to their ARM clients. How ARM Companies are Working with the Debt Settlement Industry and What Results are These Companies Recognizing At this point, the focus of the survey will now shift back to the companies that responded YES to working with debt settlement companies. insidearm.com asked a number of questions of the survey participants to better understand how different firms were working with the debt settlement industry, and also, how accounts enrolled in a debt settlement program performed compared to similar accounts in collection portfolios. In this next section, we wanted to find out the following: Did ARM companies have a dedicated strategy and what were some of the most common strategies deployed? What level of diligence, auditing and compliance verification were ARM companies requiring of their debt settlement service providers? How many companies was a typical ARM firm engaging as part of their strategy, or more importantly, how much of the debt settlement industry was a given company actually utilizing in their strategy? Specifically, what methods were most commonly being used to leverage the debt settlement channel? How did the performance and economics of debt settlement accounts compare to the other parts of their portfolios? And finally, did the ARM companies that were already working with the debt settlement industry plan to increase their use of this channel, decrease the use of this channel, or, keep their strategy about the same in the next 12 months. insidearm.com Debt Settlement Survey Page insidearm.com &

12 Does your company have a dedicated strategy to deal with debt settlement accounts, does that strategy involve a dedicated team to work with this channel, and how many companies do you work with regularly? Does your company have a dedicated strategy focused around debt settlement companies? If your strategy involves working with debt settlement companies directly in some capacity, how many companies does your firm regularly work with to settle debts? With respect to strategies and teams focused on that segment of the portfolio which is made up of accounts enrolled in a debt settlement program, 56 percent of respondents indicated that they had developed a specific strategy to deal with these accounts, while 43 percent had not defined a specific strategy. When asked if the strategy involved a specific team or dedicated department that dealt exclusively with working debt settlement accounts, the numbers, coincidentally, were exactly reversed insidearm.com Debt Settlement Survey Page insidearm.com &

13 with 43 percent indicating they used a dedicated department or team to work these accounts while 56 percent had a strategy that did not involve a dedicated team. When asked how many debt settlement companies an ARM firm regularly worked with to settle consumer debts, 50 percent of the ARM companies indicated they worked with ten or fewer companies on a regular basis. An additional 23 percent indicated they worked with debt settlement companies. Combined, this means that almost three fourths of the ARM companies working with debt settlement companies today work with less than 20 companies in a regular basis, a fraction of the total number of companies in the debt settlement industry today. The insight provided here is that while a majority of ARM firms have embraced the concept of partnering with debt settlement companies to settle consumer accounts enrolled in these programs, a majority of these firms leave the actual implementation of this strategy to the individual collector on the floor, as opposed to a dedicated team or department whose sole purpose is to work directly with debt settlement providers or to work indirectly with the debt settlement industry through a third party debt settlement account aggregator. Furthermore, it is apparent from the survey that of those ARM companies working with the debt settlement industry today, fully 75 percent of those firms work with 20 or fewer debt settlement companies as part of their strategy, bringing into question the overall effectiveness of the strategy where a company is ONLY working directly with debt settlement companies and NOT employing the services of an aggregator. Given the fact that by some estimates as many as 100 or more backend processors, compliant front end companies and attorney model debt settlement companies currently operate today, most ARM companies working with 20 or less debt settlement providers are not fully extracting the potential value this channel may offer. How does your company work with the debt settlement industry? In this next question, insidearm.com wanted to find out to what extent ARM companies were utilizing the services of third party debt settlement account aggregators vs. developing a strategy to manage dozens of debt settlement providers individually, much like a credit card issuer would develop an agency management program, overseeing dozens of collections agencies. insidearm.com Debt Settlement Survey Page insidearm.com &

14 How does your company work with the debt settlement industry? The results indicated that 58 percent of the respondents reported their strategy was to work exclusively with debt settlement providers directly, while one third of the respondents indicated they deployed a hybrid approach whereby they worked directly with some debt settlement companies and also utilized the services of a third party debt settlement account aggregator. Roughly 8 percent of the ARM companies responding indicated they utilize the services of more than one debt settlement account aggregator and just over 1 percent of the survey respondents relied solely on the services of a thirdparty aggregator. With roughly one third of respondents reporting the use of a Hybrid approach to working directly with settlement companies AND debt settlement account aggregators, another 8 percent reporting that they use MORE THAN ONE debt settlement account aggregator and another 1 percent that exclusively relied upon the services of a debt settlement account aggregator for their strategy, it would appear that the ARM industry is becoming more strategic in their use of these debt settlement account aggregators to reach a larger segment of the debt settlement industry. Furthermore, the fact that competition has begun to emerge in the marketplace among debt settlement account aggregators, with multiple firms providing a commercial service today, affirms the need for this service and the value these companies deliver to ARM companies seeking to leverage this channel to increase liquidations. insidearm.com Debt Settlement Survey Page insidearm.com &

15 Compliance and Due Diligence To what extent are arm companies going to formalize a relationship with debt settlement providers and what level of due diligence is undertaken by ARM firms before establishing a relationship with a debt settlement provider? In the following two questions, we wanted to learn about the policies and levels of diligence that ARM companies require a debt settlement company to undergo before entering into a relationship with them to share sensitive consumer information for the purposes of collecting a debt through a third party. With so much attention given to new audit and supervision requirements under the CFPB s authority, insidearm.com wanted to know if ARM companies were developing effective policies and practices to ensure their debt settlement service providers were operating at the same level of compliance before sharing sensitive consumer data with them. When working directly with debt settlement companies, does your company require the debt settlement provider to execute an NDA and/or some type of service provider agreement? insidearm.com Debt Settlement Survey Page insidearm.com &

16 When working with debt settlement companies directly, what due diligence does your firm perform to ensure the debt settlement company can demonstrate compliance in the areas of security and consumer privacy? Roughly half, or 49 percent of the survey respondents require no type of contract or NDA before sharing consumer data with a debt settlement company and two thirds of ARM companies, or 67 percent of respondents, indicated they don t require debt settlement companies to demonstrate their compliance with consumer security and privacy laws and regulations when handling consumer s personal information. Notably, only 21 percent require an NDA AND a Service Provider Agreement before working with a debt settlement company and even fewer, 17 percent, require a debt settlement company to demonstrate their compliance to security standards in the form of either a SAS70/SSAE16/PCI/ISO or other independent third party security audit. Fewer yet, a mere 8 percent, actually perform an annual onsite audit of a debt settlement provider to ensure their compliance and validate that their policies and procedures are being fully implemented. Surprisingly, given all of the attention of late surrounding compliance, data security and the pending audit and supervision process outlined by the CFPB, a majority of ARM companies working with debt settlement providers do little or nothing in the way of requiring a debt settlement firm to demonstrate their understanding of and compliance with consumer financial services laws. Most significant of all was the fact that fully half of all companies responding don t require any type of written agreement between the ARM company and the debt settlement company. insidearm.com Debt Settlement Survey Page insidearm.com &

17 Methods and Practices When Working with Debt Settlement Companies When working directly with debt settlement companies, how many companies does your firm work with regularly, and what is the primary method used to share data with debt settlement companies? In the next two questions, insidearm.com wanted to learn how ARM companies were working with debt settlement companies when their strategy involved working directly with a debt settlement provider as opposed to working indirectly through a third party data aggregator. In the first question, we wanted to know to what degree ARM companies were actually reaching a significant portion of the debt settlement marketplace, vs. working with a few select, possibly larger and more visible companies. In the second question, we wanted to understand better what methods were being employed to share data between the ARM company and the debt settlement company. When working directly with debt settlement companies, what is the primary method used to communicate and exchange data with debt settlement companies? When asked how ARM firms communicate and share data with a debt settlement company, over 50 percent relied solely on telephone communications, and slightly less than 25 percent of the respondents said they relied on inbound communications from a debt settlement company as the primary method of communication. Only 2 percent of ARM companies indicated they were sharing data with debt settlement companies though an FTP site, which is a significantly more efficient and secure means to move sensitive consumer information between companies. insidearm.com Debt Settlement Survey Page insidearm.com &

18 Economics and Liquidation Performance When Working with Debt Settlement Companies What are your typical settlement percentages, break rates and overall liquidation performance compared to other accounts? In the next three questions of the survey, we wanted to better understand the performance metrics of debt settlement accounts and get a general idea of how these accounts performed overall as compared to accounts that were not enrolled in a debt settlement program. In the first question we asked about the percentages that ARM companies typically settled an account for in a debt settlement program. When it comes to settling at less than full balance, 44 percent of ARM companies working with debt settlement companies settled accounts at 46 percent of the balance owed or higher, with roughly 30 percent of the 46 percent settling accounts above 50 percent of the amount owed. 46 percent of those collecting on accounts enrolled in a debt settlement company reported settling at 40 percent or below the full balance owed. In the next question we wanted to better understand what types of payer the debt settlement consumer was when entering into a term settlement agreement with a collector. Roughly 40 percent of the respondents reported that the consumer completed a payment arrangement to term over 80 percent of the time, while approximately 37 percent reported a completion rate of between 60 percent and 80 percent. Only 29 percent of the companies surveyed reported a completion rate on term settlements below 60 percent. In general, when asked about the overall liquidation performance of debt settlement accounts, 45 percent of those surveyed reported these accounts performed about the same as other accounts in their portfolio, while 30 percent indicated debt settlement accounts actually liquidated better than other accounts they collected, and roughly one quarter of respondents reported debt settlement accounts liquidated worse than the other accounts in their portfolios. insidearm.com Debt Settlement Survey Page insidearm.com &

19 What is the typical settlement rate (percent) you settle accounts with debt settlement companies? What percentage of term settlement agreements negotiated through debt settlement companies complete to term without breaking? insidearm.com Debt Settlement Survey Page insidearm.com &

20 The fact 75 percent of respondents reported debt settlement account liquidated at least as good if not better than other accounts in their portfolios indicates that this channel is delivering value to a majority of ARM companies who have chosen to leverage the debt settlement industry. Moreover, for those not restricted by predetermined settlement floors in contingency agreements, (most likely debt buyers and first party creditors), debt settlement accounts seem to liquidate fairly well, with almost a third of respondents reporting a settlement rate above 50 percent. Finally, it appears that a significant percentage of these consumers are diligent about keeping their payment arrangements when entering into a term settlement agreement with a collector. Given these factors, it would appear that the added value this segment of accounts could provide is accretive to the overall liquidation performance of the portfolio and may be worth the development of a strategy around debt settlement accounts for those ARM companies who have not previously considered more closely working with this industry. In terms of overall liquidation performance, do debt settlement accounts perform better, worse or about the same as other credit card accounts? How do you see your debt settlement strategy evolving over the next 12 months? In the final question of the survey, we wanted to understand how ARM companies saw their debt settlement strategy evolving over the next 12 months. We asked the survey participants to tell us if they expected to increase their strategy, decrease their strategy or keep things about the same relating to working with debt settlement companies. Approximately 78 percent of the survey respondents indicated they planned to keep their strategy about the same, while 19 percent indicated they actually planned to increase their strategy around debt settlement accounts. Only about 4 percent of the survey insidearm.com Debt Settlement Survey Page insidearm.com &

21 respondents actually planned to reduce their strategy around debt settlement accounts in the next 12 months. In the next 12 months, do you plan to increase your strategy around debt settlement, reduce your strategy around debt settlement or keep your strategy about the same as the previous year? Given the fact such a large percentage of those already working with debt settlement companies plan to continue doing so, and that almost 20 percent of the survey participants working with settlement companies today plan to increase their use of such companies clearly indicates that ARM operators utilizing this channel today are seeing the value in doing so. insidearm.com Debt Settlement Survey Page insidearm.com &

22 About insidearm.com insidearm.com provides the most credible platform for service providers to reach potential clients, and is also uniquely qualified to help ARM businesses with their own websites, social media programs, and overall marketing strategies. insidearm.com 6010 Executive Blvd., Suite 802 Rockville, MD The mission of insidearm.com is to shift the public conversation about the ARM industry in order to help creditors and collection professionals reduce risk, lawsuits, and bad press; we d like to change consumer perception that speaking with collectors should be avoided. With more than 70,000 subscribers, our website and newsletters reach collection agencies and law firms, debt buyers, credit grantors, suppliers of technology and services to these groups, regulators, industry investors, and many other interested parties. Visit About is the first patent-pending system to aggregate account information on debtors enrolled in debt settlement programs. Persolvo s web-based settlement application, Concerto 3.0, allows creditors and collectors to locate debtors enrolled in debt settlement programs, analyze their account information to uncover highly-liquid settlement opportunities, and settle large numbers of accounts online with over a hundred debt settlement companies. The Persolvo system is the largest database of aggregated debt settlement accounts available today and provides the most accurate and up-to-date information on debt settlement accounts, including the consumer s pre-approved trust account savings balance. For more information, visit our website at Terese Dodson Chief Operating Officer info@persolvo.com Persolvo: Latin Verb - to unloose, explain, expound/pay off a debt, pay.