Regarding debt buyers Dr. Wood stated “I don’t know if it’s going to be consolidation or just annihilation”

An interview with Dr. Gary Wood by Phillip W. Duff

As I began an Interview with Dr. Gary Wood in Jan. 2013, I asked,  “When did you first enter the collection business? What year?”  Gary replied, “97”. I continued, “What brought you into the business?”  To which Gary responded, “I lost the job I had. Walt Collins was a friend of mine and he had just started Collins Financial so I told him that I needed something to do, and he said “well you can come over and sit here but, I can’t pay you”‘  and  since I didn’t have anywhere else to sit , I went and sat there and I eventually wound up going to work for the company and I was there for about 12 years.”

My next question was, “How did you meet Walt, how did you become friends prior to working together?” “At the Barton Creek Country Club”, he replied.

“So playing golf?”  “Well, yeah playing golf, and we were both members out there, and we just met and liked each other and so that was how that happened”.

“You’re known as Dr. Gary Wood. Tell me about your education” I said. ” I have a PhD in money and banking and finance or economics. I’m not sure what it is.  It’s from the University of Texas in Austin, and before that I had a Masters degree from the University of Florida in economics, and I graduated undergraduate from Baylor with a Economics degree”.  “That means you spent a lot of time in higher education”, I noted”.  “Yes, I spent a lot of time in higher education. I worked in higher education. I taught at UT San Antonio for three years and then I got a job at Baylor and I was there for eight or nine years. The last three years I was the director of government affairs for the University and didn’t have any classroom responsibilities, but before that I was a professor”.  I followed with ” So, you’ve been in the industry quite a long time at this point, maybe not quite as long as some of the other people. To what do you attribute your longevity?, I asked?  ” Walt’s not firing me”, he laughed.  ” No, we sold the company and I’m trying to think what year my new contract ran out, I guess it might’ve been 2006, but I had gotten involved with DBA. Walt was the second president of DBA and I have been participating with him in it since the very first meetings.  Then I got elected to the board and served on the board for, I guess eight years, and two years as president.  This resulted in my getting a lot of good friends at the DBA, and so that’s how I managed to stay active in the industry.”

I then stated, “You’ve been fairly influential in the growth of the Debt Buyers Association because of exactly what you’re talking about. Talk a little bit about the Debt Buyers and when you first came in and what it looked like then and what it looks like now.  Also, what way do you think it’s going.”  Gary answered, “Well when I first came in there was no Debt Buyers Association and we finally got the thing cranked up. There were maybe eight or nine people. I was not involved at that level at that time, but it was Walt and Mitch BONILLA and probably Dennis Hammond who were involved. Dennis and Judy Hammond, I guess, were really the driving force behind the creation of the Debt Buyers Association. They identified the need, formed the Association, had the experience with the companies that they already had going for how to get things organized and so they worked with a few of the people that ran the business. And I guess Bud Reitzel was involved back then to a degree. This is the 17th public conference (2013), I’ve been to every one of them, and when we started there were about 20 or 30 companies that were involved in the business and debt buying, it was brand new and there were no standards, definition or how to operate or exactly what was going on. I was telling you that one of the big issues was “what do you mean when you say paper is fresh, or old primary or secondary?” There was no universal agreement on issues like that and so that’s one of the things that DBA did in the early years while trying to exist to bring some standardization with regard to contract terms, and just how things should work, and so that went on for five or six years.

And so that has now turned into an Association with over 600 member companies, and with an annual conference, that I think arguably is the one you have to go to if you only go to one in this whole industry. It’s worked out great and I have really enjoyed it and I like the people here.  I enjoy being involved with federal government relations because I spent a couple of years working in the Senate and I really enjoyed that so it’s been very good for me”.

I continued my questions, ” What were the original reasons for creating the Association?  Was it made for a revenue stream or was it just made to create defined standards?”  “Well, Phillip”, he replied, “I guess it was when we looked around at what other professions were doing, (like accountants, lawyers etc.) They all have associations that provide a couple of things for them. One is the synergy of being around other people in the same business. You can go to any of these little tables sitting around here and find two people sitting down talking about “what’s going on in the business, can I buy paper from you, can I sell PAPER to you?   Eventually things work out, so there was a perceived need for the same sort of thing to happen with regards to the debt buying industry, and there was a need to distinguish the debt buying industry from the collection industry and I guess that was a temptation to say “why did we all just join the ACA?”.  Most people belong to both but these days; interest and motivations are different from debt buyers. It’s a different business with some overlap but you have different issues that you have to deal with.

And so it was that sort of thing and there was eventually a need for standardization.  If you didn’t have an organization in which to work on the standardization, it was very hard to get guys together who were just scattered around the country.  I think that is what led to the creation of DBA”.  I noted,” It’s always been a fractionalized business, so you’re right it’s difficult to get people together to agree on anything and plus the industry’s always been kind of, “I’ve got my own secret sauce and I don’t want to tell you what’s going on”, Even though there is no secret sauce, everybody always thinks they have one but there is not one!”  Gary added, “You’re right.  That was one of the things that has impeded, that used to impede, the growth of the Association and I think the industry itself HAD this secret sauce notion “I’m not gonna let you look at what I do with this paper”  “And that seems to have changed some especially as the availability or supply of debt to purchase seems to be dwindling currently.  It seems that it’s bringing a lot of people less fractionalized together and trying to become more consolidated. IT Is moving in one direction.  At least that seems that way to me. do you see that as well?”  “Yes”, Gary responded. ” I think that’s right.  The availability, the almost limitless amount of paper has been available; it’s not there anymore. I think the industry as it grew attracted a lot of people who had limited geographical interest in paper, they were interested in a couple of states or one state, Steve buys Tennessee, Glenn buys Indiana. And there was good business to be had in doing that, but you were limited in the places you could go to find paper like that. Companies like Collins, knew some of the states for which you could charge more than you paid for the whole portfolio and some of the states like Texas you couldn’t give away. Just because of the collection laws in the state, there was this market out there for that kind of paper, for state paper. It would seem like the regulatory environment is getting to be such that the pressure that’s been put on the banks and other issuers is causing them to have less interest in selling on a state basis. And certainly less interest in selling to a company like Collins used to be, and allowing us then to divide their portfolio up because of all the regulatory requirements with regards to documentation and safety of data.  So, as the players in the industry looked out and see that kind of situation with regard to what’s going on, and what’s likely to happen, they began to look for ways to consolidate their efforts and I don’t know if it’s going to be consolidation or just annihilation. But I think there will be fewer and fewer companies in the debt buying business over the next decade or so. I have no idea to what extent that will happen, but I think it will happen. And that will continue to reduce debt companies”.

I then asked, “When you are talking about the changes in the regional buyers, (there is much less paper for them), in fact there may be may be no paper for the Steve’s of the world.  How do you see that’s going to impact the DBA since that’s a large majority of the membership of the Association for those type of buyers?”. Gary answered, ” That’s one of the issues that the board has been talking about for a few years.  Of course nobody knows exactly how it is going to influence it but the best judgment is there will be fewer member companies. I don’t think it is possible to behave in such a way as a trade Association to mitigate that.  I think it’s in response to what’s happening in the market place and there’s nothing much we can do about it. Some of the big member companies of DBA have openly admitted they would like to see less of the smaller companies, and in large part they have a good argument. I suspect an inordinate percentage of the disputes and claims against collection operations are coming because of behaviors of some of the smaller companies. I think the larger companies have the capabilities to do better training and they have a much broader base from which to learn.  They will stay in business and be around but I think that they would just as soon see 10 companies in the industry”.

Changing the subject, I questioned, “How do you see differences between technology from when you began and now?  And how is that technology is not only different but how it’s being used differently?  To which Gary replied,” Of course the technology is different, it’s vastly improved with the ability to communicate with the debtors.  As someone mentioned at breakfast, it used to be you get your cards out and called the debtor and sometimes you would call them collect (charging the call to the consumer).  Then came the dialers and the capabilities that exist with regards to that followed by word processing. The whole range of ways to communicate with your clientele has been transformed by the new technology, and it is good. I think it’s just about all-good and I can’t think about anything too bad to say about that. As far as other uses of technology, Phillip, I never was much involved in that end of business so as I said the dialers sit back there and depending on the regulation that you’re subject they can make calls to the debtors but I’m not really too aware as to how the technology works”.

I noted, ” The business has completely changed from when you and I and a lot of other people got into it till now. What do you miss about the old days and maybe less technology and maybe less regulation and all these things but what is it that you miss most?”  Laughing, Gary responded, “I miss being 10 years younger”. It was more of an adventure I guess, then, because you knew you had this ability to make money if you did things right, but there were lots of things that we didn’t even know were issues that turned out to be issues.  I just think that I miss the operating in an uncertain environment. Of course there are uncertainties that are involved today with what the kids are having to deal with”.  “The uncertainties are a little bit clearer”, I added. Gary said ,”Yeah they are, they know that they are out there and they have so much. Well they have us: DBA. They have NARCA, they have ACA; all of us are working towards trying to improve the qualities of the service we deliver I miss a few of the people from back then”.  ” Relationships?”, I asked.  Gary replied,” Yeah, but I truly enjoy getting to come to this conference once a year and renew friendships from a long time ago”.

I added, “: There’s no doubt that the biggest thing about DBA has always been the networking, and that’s what everybody has always said. It’s not really as much about the sessions, even though in the last few years the sessions have gotten much better than they were in initial years, much better attended, much more even to pay attention to, because I think initially it was just networking. They didn’t really come for a whole lot.  What advice that you got many years ago that has stayed with you forever, would you like to pass on to someone else?”  Gary said “Operate with integrity. We always believed THAT at Collins, and I was always glad to agree with it, that it is possible to do this business and take advantage of people you are working with whether it be the debtor, someone you’re reselling to, or some you’re buying from. If you want to you can behave in a way that disadvantages people you’re working with but the philosophy that we always operated with was “if we treat you fairly then you’ll keep doing business with us”. If something happens to one of the trades that we make, it turns out that it wasn’t as we thought it was, it wasn’t as we depicted, the paper wasn’t the kind of paper that you thought you are buying, it’s almost impossible to unwrap the deal that caused this concern but we always use the analogy we’ll make the tire round on the next trade, and so the next time somebody comes to buy some paper from us we would give them a break on the price because of the disadvantage that they incurred from the earlier trade. I think it’s impossible to have a system in which the disadvantage never occurs, but you always gotta be willing to make it right. We were looking for long-term relationships NOT one-off sales, so I think that that is the core belief that I come away with”.  To this I added, “Well I know for a fact that that was Collins philosophy and I know many deals that that happened and I know from some of those deals, that a lot of times it wasn’t necessarily you giving them a bad deal, a lot of times it was them not being a knowledgeable enough buyer.  Yet I know, still, the next time they came around they were given some better type of deal or a better deal.  I have personally seen that more than once”.  To which Gary stated “ Well I’m glad, because that was the goal, well the goal was to make money and stay in business, the secondary goal I guess, or the one that you felt was helping you to get to where you wanted to get to, was having a good reputation”.  I responded,” And I think that’s what brought people back for the third, the fourth, the fifth, the six or the  20th buy, and everybody else if they didn’t see it directly, we all saw Collins Financial  in some chain of title whether they bought directly from Collins or somewhere else”. Gary added,” We bought a lot of paper over those few years”.

I broke in,” I think I know what you are going to answer to this and probably similar to the last question. What would you say you need to succeed in today’s marketplace?”  Gary said, “Patient capital. Certainly the right philosophy, the right business philosophy, if you’re going to succeed. But I think one of the things that you can see most readily is you watch people come and go in the business and that is, you can’t predict how long it’s going to take to recover on a portfolio. Well you can predict but you won’t be right. And so I think that the thing that from time to time caused us trouble and has caused other people trouble, is that they get financed by the bank X or big finance companies X.  They just want the cash to flow to start right away and be predictable and be the way that you agreed on, and it doesn’t always happen that way.  So, if people that are providing you with the capital, understand that there will be glitches, but over the long-haul it’s going to work   out, then that to me is critical to be successful in this business.”

I next asked Gary, “what advice would you give to someone entering the industry today?”  He lost no time in replying, “Don’t!”

I replied “That’s exactly what almost everyone said”.  Gary continued, “it’s a tough time in this industry, and it would be, I think, especially tough to enter it because it is operating on reputation and relationships and of course you see somebody like Walt who’s entering it right now,  but he knows what he’s doing”.  “He has the reputation”, I told him.  Gary said, “he knows what he’s doing.  If you are going to enter this business as a rookie, I would advise against it.  I think certainly until we get the regulatory uncertainties straightened out and you find out if it’s going to be something you want to do.  A lot of people just don’t want to fool with it.  I’d tell those to find something else to do.”  ” I would tend to agree with you”, I responded.

My next question was “What advice would you give to the industry as a whole?”  He answered,”wow, I don’t know!  Support the DBA.  Well, I guess one bit of advice would be do the best you can to participate in and understand the governmental affairs side of the business, whether it is the FEDERAL, State or local level.  As an example, in Austin, Texas they have a regulation on how much payday loan companies can charge .  It doesn’t apply to the rest of the State.  There’s a large degree of uncertainty about whether they can even do that, that it should be a State regulation that handles that or if Federal preempts the State.  So I would say that because so much of the ability to succeed is going to be a function of what happens to you from the regulatory end of the business, if you are going to be in this industry, if you are going to be a debt buyer, if you are going to be in the DBA, you’ve got to pay close attention to that.  The DBA membership has been very good at supporting the efforts that we make lobbying.  It’s expensive, costs a lot of money because you have to hire a lot of people that have day-to-day connections, like Bob Belair  and John Blount.  They’re on the hill every day, they talk to people every day and are helping to develop an image of this industry, this trade association.  That’s where you need to have patient capital because you still get a lot of complaints coming to the Federal Trade Commission, (now the Consumer Financial Protection Bureau), to see about people misbehaving in the collection business and it still goes on.

I guess the other advice I would give is to have patient capital, be ready to support the lobbying efforts of the Trade Association and get to know your State and local representatives and your congresspersons plus have an understanding of the fact that this business can be done with ethics and integrity, however if you don’t do it that way, you’re going to be in a world of hurt”.

At that point I stated, “I definitely agree with you, particularly about getting more involved in the Industry.  A lot of people are doing their job but they are not as involved in the industry as they should be.  I understand that to some extent because a lot of the agencies are small or medium and there is only so much bandwidth and so much money to spend.  I think that, again, that is because we’re such a fractionalized business.  I think that’s part of what has pushed that back, but I firmly agree with you that it is expensive and is a problem for a lot of the guys.”  “It’s damned expensive”, Gary added

I continued, ” I have been on the DBA legislative fundraising committee and in talking to some of the guys, they say they have been asked for three or for grand and that’s a lot of money to them.  They don’t see the value going down to their own backyard.  They don’t realize their backyard is also the Federal’s backyard.  What legislation have you succeeded in getting passed”.  ” None”. Gary replied. “What have we prevented?” I asked.  “Some”, he replied.

“What are we doing to set the stage for the future?” was my final question.  To which Gary responded, ” a lot, because the more often we have our fly-ins to Washington where DBA members come in and we take them around to different government agencies or congressional offices, somebody at the congressional level now knows that we exist, that there’s a good side to the collection end of the business, and so it’s a lifetime’s work.”

I remarked, ” I think the fly-ins are a great idea because it humanizes the industry instead of it just being a perception of bricks and mortar, or an idea when there’s people involved.  Then it looks much different and I think it does help the regulations some, to what extent, who knows?   But it has been a good program”.

” I think so, too.” Gary agreed