iA Strategy & Tech chair Erin Kerr talks to Keith Walch from Spring Oaks Capital on the foundations of a strong debt sales strategy.
- Why compliance is such a critical component to debt sales
- Why the cleanliness of your customer data may make or break your debt sale prospects
- What it means to be "fair and reasonable" and why it matters
- Which key qualities will help you identify a good debt sale partner
[Erin]: Today we have Keith Walch here with us to talk about the debt sale industry. Keith has recently joined a debt buyer in the space, Spring Oaks Capital, as their Chief Acquisitions Officer. Prior to joining Spring Oaks Keith spent the last 20 + years on the issuing side of the collections and recovery industry. He has worked for several issuers including credit card issuers MBNA America and Barclays and most recently a fintech issuer Prosper Marketplace, where he launched their current recovery program. Welcome Keith, and thank you for taking the time with us today.
[Keith]: Thank you, Erin, for having me. I am happy to be here.
[Erin]: For those listening that don’t know you Keith, why don’t tell us a little bit about your background.
[Keith]: Of course. As mentioned, I’ve been on the issuer side for about 20+ years. I started with MBNA as a collector. I worked in both collections and credit, earned my lending authority, prior to entering into management.
I moved into the vendor management and recovery space with Barclays. I came into the about three years prior to the introduction of the OCC Guidance from 2014 on Debt Sale and before the CFPB really stepped into the spotlight on compliance. I became very experienced at vetting and providing oversight for buyers. By the time I left Barclays, I was the lead on all tasks including sale – from vetting, to the contract negotiation, to closing and support. Additionally, I lead bankruptcy servicing and sale, and managed late stage agency and placement streams there.
I think that put me on Prosper’s radar. I started at Prosper in March of 2015 to launch debt sale and the recovery collections strategy. Before coming to Spring Oaks, Prosper had debt sale, bankruptcy servicing and sale, agency placement strategy, legal, and debt settlement strategies mapped out or in place.
I joined Spring Oaks as their Chief Acquisitions Officer in April of 2021.
[Erin]: Thanks so much for that background. Sounds like you were busy at Prosper. After all that time on the issuer side of the business, what compelled you to come to Spring Oaks?
[Keith]: I am glad you asked that question. Candidly, it was a combination of the compelling leadership, and the commitment to the brand protection and technology. Spring Oaks is really trying to do something different here. That starts from the way they hire, to the way they treat the Customers, and the way that they are modeling themselves more as a FinTech company.
The thinking is that my experiences at both a financial institution and launching sales at a FinTech will help position Spring Oaks to become a unique partner and a pioneering FinTech buyer.
[Erin]: Sure, that makes a lot of sense. Would you mind elaborating on that a little bit, though?
[Keith]: Sure. Spring Oaks has hired industry leaders from both the Issuer side of the industry and out of collections side of the industry. The Executive leadership team is truly unique. The commitment to technology is also intriguing. Spring Oaks is diverting a lot of resources to machine learning, and technology collections solutions. Our CTO, in fact, demonstrates that commitment. He created a machine learning, AI, customer interaction company that was purchased and then implemented at a top three credit card issuer. So, through technology we are looking to keep collection costs low, take the least intrusive paths of communication to reach our customers, while doing it compliantly. One of our mottos is that “collections does not need to be a bad experience.” We’re using the contact channels that the customer really wants us to use, when and where they want us to use them. And it will be a really big advantage to us.
[Erin]: Thanks so much for going into that, Keith. So, how does your background fit into the grand scheme of things at Spring Oaks?
[Keith]: I think my background blends well with it. It’s a technology focused debt buyer. I have both the understanding and experience from leading recovery sectors for issuers at financial institutions, but also the experience of launching it at a FinTech. I may have come across similar situations and challenges and obstacles that recovery leaders on the issuer side may need to overcome. And I might be able to find some solutions and work arounds to those obstacles. These are all coming from my own experiences. I come from that un-enviable prioritization schedule and you’re lobbying for tickets when you’re working for a lender in the recoveries department.
[Erin]: That’s really interesting, Keith. I’m sure you have lots of great stories from that side of the house.
[Keith]: I have good ones and not so good ones. But both of those experiences are really needed for success. Sometimes it’s just really understanding what you may not want to do.
[Erin]: Given all your background, do you feel you would be in a good position to advise an issuer on how to launch a recovery department? What would you say to an issuer that is on the fence about selling debt?
[Keith]: Advise no, because every company has a unique set of goals they want to accomplish and a unique set of challenges. I could act, very easily, as a sounding board.
I would offer a few things though. Debt sales is not as daunting as it looks or sounds.
Getting the “buy-in” internally is important. Debt sales as part of your recovery strategy in my opinion is probably one of the easier strategies, and it is by far the quickest return on investment. It can be done with a minimal amount of support to get started and minimal amount of support to maintain for a little while. I am not saying it is easy and hard work is needed; both of them are needed. What I am saying is that it can be done with reasonable resources especially if and when you know what to do and ask for.
[Erin]: Great, I think that’s really good advice. So, what would you say is the most important aspect for issuers to consider when they are looking for a debt sale partner?
[Keith] There are several. The first one everyone thinks of is price, and that is very important, don’t get me wrong. But there are a few more that I would put in there as just as important. No matter how you look at it, debt sales is the longest relationship of all the recovery streams, so you want one that can go the distance with you. Having a good reputation in compliance, and one that’s genuinely trying to do the right thing. Obviously, stable funding is a great and needed aspect of the purchasing program. Having strong professionalism and strong business acumen are also some musts.
[Erin] So, after some of that vetting is done, how can issuers ensure that their portfolios are ready for a successful sale?
[Keith]: There are a few “check the boxes” that could help some issuers come to market. Clean data, and what I mean by that is accurate customer data on their contact information. Account information. Their media. The documents that support the substantiation of their debt. Also, on that side, for the issuer to have already have in place good customer communications. All of their customer contact data, all of the personal data, have that accessible and transferable. The breakdown of balances. Principle, interest, and fees. The working media: is it workable? Is it transferable? The origination data; the terms and conditions, the statements. If you’re sending goodbye letters (and you should be sending goodbye letters!). Are those being sent to the buyer as well? In the auto world in particular, all of those notices of intent, of deficiency, of repo, and of sale of the vehicle. Also, have awareness that some post-sale support is needed. The relationship doesn’t stop at the sale. There are disputes, affidavits, and media requests that may come down the line. Lastly, just being fair in the contract terms. We’re both companies trying to work together, so, just being fair and reasonable is a great way for an issuer to have a successful sale.
[Erin]: Great, thanks so much for kind of enlightening us on that. On the other side of it, though, what about the companies that ‘don’t need it right now’ due to the current events influencing historical collection highs and historical charge off lows?
[Keith]: That is a great question. Just coming out of the issuer side I am fully aware that collections entry rates and roll rates are at historic lows, stimulus and relief packages have made their impacts, and therefore charge offs are low. Because of that, charge off inventory available for sale is low, and therefore pricing is high. This is your classic supply vs. demand. There will be an eventual economic change as relief programs are expiring, the world opens back up, and people can begin spending and traveling again. Originations have increased.
As spending increases and the economy and life normalizes, money that was previously used to pay down debt will be spent on everyday life. Delinquency and charge offs will come back. Remember, having sales is just part of the strategy. It gives the issuer another recovery option. There is no ramp up needed as you would at an agency or a legal strategy for a bubble of accounts. A buyer can take all of the inventory all at one time. If you aren’t selling today, it is a good idea to enter or re-enter since pricing is high. As mentioned, a little bit of know-how, and some leg work in the short term could show large returns, and quickly, at that.
[Erin]: That’s great information, Keith, and I really appreciate it. So, any parting words or thoughts on this subject?
[Keith]: Yes. I think there is a Part 2 to "Why Debt Sales" and "Why Spring Oaks."
In both my experiences selling distressed assets to buyers there were a few common themes among buyers that I gravitated towards. The obvious ones and table stakes if you will: compliance, treating the Customer and your brand as you would expect to be treated, and stable and competitive funding. But there are others out there:
Patience and good Partnerships – "Stuff happens." When you’re working together for a long time, especially in this industry. You want someone who is going to provide solutions and work with you on solutions to help with that “stuff.”
Ease of doing business - You want to do business with someone who is professional and has integrity. You’re going to be working with these people, not everyday, but when you do, you want them to be able to show that appropriate urgency.
Experience – Another big one. Having someone that can be a sounding board, or at least offer unique solutions. A lot of us have been in their shoes. We have a lot of collective experience, it’s only a phone call away
The value of a good partnership especially in debt sales will allow you to focus your attention on the other areas of your business, and we are there when you need us.
Keith Walch is the Chief Acquisitions Officer at Spring Oaks Capital. Erin Kerr is the chair of iA Strategy & Tech and head of strategy content for the iA institute.