Harvest Strategy Group | Pete Klipa Dormant Judgments | Receivables Roundtable Ep. 133

Adam:
Hello everybody, Adam Parks here with another episode of Receivables Roundtable. Today I'm here with Pete Clippa who is the Chief Operating Officer with Harvest Strategy Group. How you doing today, Pete?

Pete Klipa:
Oh, I'm doing great. Look forward to chatting with you and being a part of this.

Adam:
Absolutely, well I appreciate you coming on today. For those of you that have not been lucky enough to get a chance to chat with you in the past, could you tell everybody a little bit about yourself and how you got to the seat that you're in today?

Pete Klipa:
Yes, absolutely. So I've been with Harvest Strategy Group for about 10 months. And Harvest is really a company that I had admired from afar for a long time. They've been an integral part of the industry for the last 15 years and have a great story of growth. And I think in my travels in the industry, I had contact with them. Before I came to Harvest, I was at the National Foundation for Credit Counseling, where I met with a lot of the largest banks and was in that role for about four years and had developed a lot of relationships with those largest credit card providers across the country and many of the debt buyers and even fintechs were active in credit counseling. Prior to the NFCC, I had spent time running loss mitigation at American Credit Acceptance.

Adam:
Mm-hmm.

Pete Klipa:
And it was there that I had really a great interaction with Harvest. We were looking to stand up a legal program at ACA and Harvest was very instrumental in providing some needed data, you know, for that discussion and consideration. So, you know, a gentleman by the name of Rob Yarmo, who was with Harvest at that time and is now retired, was really forthcoming with valuable detail. And that always struck me about Harvest. Before I was at Harvest, I had run legal collection at DiscoverCard, and

Adam:
Mm.

Pete Klipa:
it's been a good chunk of my career there, you know, managing law firms and agencies. So, you know, my history with collections, you know, really dates all the way back to a little bit before my time even at Discover. I was with Nice, where it's the public utility where I ran revenue recovery and kind of got my first exposure to collections operations. I know you sometimes ask, how did you get into collections? My story with that is kind of odd, just like a lot of people in the sense that I was running a field operation with NYSTORS Columbia Gas, and it just so happened that my field collectors were the best in the entire company. And I don't even know why, they were just passionate about collections. This was turnoff for collect and collect at the door type of operation. So really goes back a long ways, but. in the course of them excelling as a unit, you know, our Nice Hors headquarters group contacted me and said, hey, you know, your collectors are the best in the company. We don't even know how you're doing it. Would you like to run revenue recovery at Nice Hors? And I was like, yeah, that sounds interesting.

Adam:
Hahaha

Pete Klipa:
And I've been in collections ever since. So that goes back, you know, 20 plus years.

Adam:
That's a very interesting story. I appreciate you sharing that. Everybody's got a unique way in which they've entered this industry, and I don't think any two people have ever given me the same story. But now that you're spending your time with Harvest Strategy Group, and we know that they do litigation and litigation management, but could you go into a little bit more detail and tell us a little bit about Harvest and what it is that you guys do there?

Pete Klipa:
Yes, so Harvest is a manager of collection entities.

Adam:
Yeah.

Pete Klipa:
We manage law firms. We have a network of law firms. And we also are a manager of collection agencies. So these third parties work through our management system, which includes the details of the technical undertaking information that they report in order for us to effectively manage them on behalf of our clients. In a lot of ways, we are consultative to our client base with the expertise that we possess and the expertise that exists with our law firms and collection agencies. We're not a huge company. We have about 40 employees, but we are growing and that growth is an exciting part of being at harvest right now.

Adam:
Absolutely, well it sounds like you guys are doing some really interesting things. Which brings us to our topic of the day, which is talking a little bit about dormant judgments and how to get the maximum value out of them. And I know that that's been a challenge for this entire industry, right? It's a function of process, a function of data, a function of understanding. Like there's all these different criteria, pieces and parts that go into that puzzle. But can you share some insights as to how you view dormant judgments?

Pete Klipa:
You know, as part of the legal process, you know, judgments, the creation of judgments and the long-term investment in judgments is something that happens.

Adam:
Mm-hmm.

Pete Klipa:
You know, from all my travels in collections, you know, you interact a lot with consumers who end up, you know, getting judgments against them. And I saw this in the NFCC where... somebody that gets a judgment gets them, they probably never thought or intended to be in that place. And as they get to that place, we're really there to try to help them get to a better position in life as they go through their credit journey. So when it comes to those judgments, it is sometimes a long-term investment and you have to be there for when that consumer is looking for. their credit situation has changed. They may actually be in need of you being in contact with them so that they can clear that and get to a better place of credit that they may be seeking. So given that, there's going to be some dormant judgments. And what we challenge our law firms to do when it comes to judgment collection is to max out on all levels of the legal lifecycle. So that's

Adam:
Mm.

Pete Klipa:
not exclusive to dormant judgments, but it certainly includes dormant judgments. And given that, Harvest manages by exception. So we have exceptions reporting that are part of our technology setup. All of our vendors are part of this setup that gives us feedback through reporting around their activity. And this impacts our read on their work effort and follow-up related to dormant judgments. But it also applies to other areas of the legal life cycle, which includes... suit and service and demand letter and even acknowledgement of the account when they first receive it. So, you know, we challenge all of our law firm partners to, you know, really stay on the accounts throughout the legal life cycle consistent with our exceptions management requirements and to the degree that they do that. And it's very correlative with outcomes and performance related to liquidation and goals. And if they do it right, they're in the best position to grow with us and expand and take market share through their contributions.

Adam:
So when you're looking at a pool of judgments that have, let's say, aged, right? I don't want to call them dormant. We'll say like you're looking at a pool of age judgments. Are you looking at it and are you guys culling the data on the harvest side or is that more a law firm responsibility to identify the opportunities to, let's use the inappropriate term to reactivate a dormant judgment?

Pete Klipa:
Right, it's really a partnership between us and our law firms. We don't want to put a lid on the creativity of the law firm work in this area. They're the experts. They are always looking at new tools, new options around information, new access to details. Some of it even. state-based when it comes to employment information or data that they may have access to that might not even be available in other states. So to

Adam:
Mm.

Pete Klipa:
that degree, that continuous improvement mindset is something that we try to challenge all of our law firms to do. We give them the information to be considering of how they're doing in their contribution to us. We try to line that up maybe how they would compare to some of the folks that may be going against them in the same state or states in their region. But given all that, we also do some things that we would consider to be economies of scale as it relates to maybe the deeper coverage of this that harvest might have. So

Adam:
Mm-hmm.

Pete Klipa:
we're going to be bigger than an individual law firm in the state of Arkansas, let's say,

Adam:
Sure.

Pete Klipa:
when it comes to pricing, you know, with certain tools and technology that's out there. So to the degree that we can, you know, use some of that scale that we have and pass that on to the law firm in a smaller state, you know, we'll still charge them for that, but we might be able to get, you know, a better price for them as it relates to, you know, a particular tool that's out there. And it also gives us the opportunity to experiment with certain things that might be new or cutting edge that the law firm may not have heard about. So. That's

Adam:
Mm.

Pete Klipa:
where it really becomes a partnership. You know, we work with them, you know, we meet frequently with them about not only results, but trying to improve those results from where they are.

Adam:
Yeah, I would think that Harvest would have both that economies of scale and an economies of scope, meaning that because of the size and volume of accounts on a national basis, that it gives you the opportunity to try new data sets, to try new technology tools and to try new things. I always look at it like the same reason that McDonald's sells breakfast. They didn't in the 80s, right? They started that in the 90s because they already had people, they already had restaurants, they already had real estate, right? They had all the things that they needed to be successful and then they just kind of took that and expanded upon and it sounds like you guys are doing a little bit of that as well beyond just kind of that economy as a scale piece. For organizations, for creditors that are either sitting on these large volumes of judgments that have kind of, they're just going through that renewal process and waiting for. some sort of life-changing event. What kind of advice do you have for creditors that are sitting on these mountains of judgments?

Pete Klipa:
Well, you know, I certainly dealt with this when I was at Discover. And, you know, those that know the history with Discover, you know, it kind of goes all the way back to the Sears credit days. And

Adam:
and

Pete Klipa:
Discover was always known in the industry as really being stalwarts with, you know, how they approach all things related to collections and recovery. You know, I am a product of that Discover environment. proudly look back on those days and say, gosh, I learned a lot. And I've been able to maybe pass some of that information on to other places that I've been. But given Discover's commitment that they had to legal, it created a stockpile with a large creditor like that of dormant judgments that get out there. So I think it's incumbent upon the creditor to be creative with making sure that those things don't get stale. And You know, I think when I apply the same kind of thinking to a place like Harvest, you know, Harvest is large enough that it's going to create some, some Dortmund judgments out there, but you have to apply, you know, creativity to trying to work those in such a way that you're ultimately reducing them. So that's tools, that's technology, that's reporting around the recency with those accounts and maybe even trying to do some things that, um, have not been done before.

Adam:
Thank you.

Pete Klipa:
And that could be a combination of your experience and your background. One of the things that we've talked about a little bit at Harvest and we're thinking about standing up is even a consideration with dormant judgments looking at credit counseling.

Adam:
Hmm.

Pete Klipa:
Some of these accounts have been sitting there forever and what's it gonna take to get that person to move? What do they need to maybe have? out there that they haven't thought about, you know, because these things sometimes can sit for a long time and credit counseling can sometimes be an option that can help people to break loose and You know, it just helps them get relief and know that there's a light at the end of the tunnel that may be inclusive of settlement You know and ultimately getting that dormant judgment, you know retired so challenging the conventional thinking of it. You have to consider all your options in your tool belt and hopefully you're able to enact some beneficial things that ultimately reduce the number of dormants you have.

Adam:
So the number one takeaway I got from that was keep putting things back through your filtration system and keep changing your filter. So if you've got this pool of judgment sitting at the bottom of your funnel, right, of your legal model funnel, you have to find ways to put that back to the top, run it back through the data and see what comes up. Because just sitting on it and waiting and hoping that something great happens someday is probably not your most efficient or effective strategy. And

Pete Klipa:
Now,

Adam:
we've seen that before.

Pete Klipa:
there's another piece of it, there's another piece of it too that, yeah, I think sometimes the management of law firms and law firms themselves, could have some blinders on a little bit as it relates to their approach with these things, because

Adam:
Mm.

Pete Klipa:
we've always done it that way and we were successful and the real estate market moves and then some of the judgments move and they end up paying off and sometimes you have to wait that out. Well, right now, we're in an environment where Real estate maybe isn't as moving at the pace that it was, 24 months ago or even 36 months ago. So those cycles will eventually right themselves. But one of the things that I think has been very beneficial at Harvest is the consideration of what collection agencies can do in the dormant judgment space. Because Harvest is not just a manager of law firms. We have collection agencies and Collection agencies are very creative, you know, in how they go about things. And, you know, what we've seen from our collection agencies are that they're a little bit further out in front on things like digital collections when it comes to how consumers are being approached. We think that this is an area that needs to be cultivated, you know, and grown and expanded. And we're challenging our law firms to maybe think a little bit more like the collection agencies when it comes to. digital interaction because this can help you in the reduction of dormant judgments as well.

Adam:
That's very interesting. And I think this is a problem that organizations are going to face more and more, especially as we're looking at this massive rise in delinquencies right now. Normally, you see this, you know, this cycle on an annual basis to where delinquencies start to drop. As you go into that April and May timeframe based on tax season, but we're just not seeing that same cycle happening at the same rate this year. And I think part of that, if you go back and even look at RMAI this year, there was a speaker from TransUnion who was talking about some of the vintage curves and just trying to better understand this mountain of delinquency that's starting to create. And then what's that going to turn into? Now going back and remembering that 2008, 2009, 2010 timeframe where you had this economic downturn and then you had this long cycle of not being necessarily paid off. collections, right? These collection things went on for a period of time. Are you finding yourself preparing in a similar way to what happened in 2008 and nine as to like what the expectations are for 24, 25?

Pete Klipa:
Yes, we're starting to see some similarities.

Adam:
Yeah.

Pete Klipa:
Harvest client makeup is slightly dominated by auto manufacturers. So

Adam:
Mm.

Pete Klipa:
to the degree that we have auto and some of those associated servicing entities, we're starting to see some breakage in the subprime space that is giving way to a little bit less of a healthy feedback on where we are in the economy right now. And you're seeing it in credit card too. You know, we work some debt buyer paper that is more on the subprime side with some of the credit issuers through these debt buyers. And, you know, there's a little bit more volume that's starting to show up there. So that's oftentimes, I think, from an economic standpoint where you'll see a little bit of breakage there. I'm also still very much in communication with the credit counseling world and

Adam:
Yeah.

Pete Klipa:
credit counseling trades in a lot of the same space as debt settlement. And they're seeing you know, increases in volume that are really driven by pre-charge off scenarios. So that invariably is going to be coming more our way on the charge off side, so we're starting to plan for it. And, um, you know, we should be ready. You know, it's the type of thing where. If you go all the way back to the last recession, we all remember that all these accounts were flying by at the same time, and it just all broke loose at once. And it was difficult, you know, for. companies to reach out and grab all those accounts because they were all moving so fast. I think that the law firms need to have a pre-suit strategy that needs to be a commitment to that because otherwise we're going to be flooding the court system and flooding the market with all these suits. That's difficult from a court cost management standpoint. But it's also difficult for the courts to keep pace. And we dealt with a lot of backlogs in that last recession. We're starting to head towards some of those highs even now. So we just have to get ready. I think digital collections has a place there. And we need to help customers solve early in the process because it'll save a lot more cost and you get. more toward the front of the line when you can do that and establish those things in advance of suit and post-judgment.

Adam:
Well, knowing that you're spending more time on that auto space, it's very interesting. You know, as we've looked at kind of the marketplaces that have been affected, you know, I think auto is going to have a deeper effect from a credit cycle standpoint than others in this particular marketplace, mostly because of the inflated prices of these used vehicles. And when that balances out, you've got Credit Karma and Carvana that are... 450,000 vehicles deep between the two and both on the fringe of bankruptcy. Should either one of those collapse and half a million vehicles hit the marketplace in a fire sale, what's that due to prices and how does that affect the creditors that still have metal on the street and the ability to collect on those things because many people are needing a vehicle to get to work although post-COVID, we don't know if we'll have that same challenge.

Pete Klipa:
Right, it's significant and there's such a bubble that was built in the last 12 to 24 months in the auto space that you just can't get around those balances that were a little bit artificially pushed up. So we're seeing renewed interest in not only existing clients, but also new clients as it relates to. trying to take better strategies in this space. Harvest has a lot of expertise in that space. So we're assisting some of these clients who are coming into it for the first time. And it's the type of thing where if you've been through some of these cycles before, you're a little bit better prepared to maybe pass on that expertise to folks that are looking to build that. But my advice to the creditors would be to... have a menu of strategies. You don't want to be dependent on any one strategy. There are some creditors out there who are heavily dependent on debt sales. And that may provide a short-term fix, but it might not offer the flexibility that you need in certain cycles. So you need to have a strategy for legal. You need to have a strategy for pre-legal, which could involve really the management of... court costs effectively so that in that high volume environment, depending on your issuing premise, you've got a better ability to lower those court costs through a pre-legal program. And then there are some accounts that just lend themselves better to collection agency penetration and Harvest has that as well. And the way we marry all those strategies up is with our ProScore model. ProScore is something that helps us. you know, provide better feedback to our clients around strategies that they should be employing. Some of our clients have their own scoring systems and they align them up side by side with what we do pro score. And that's a really interesting analysis because, you know, it speaks to what they're doing from an underwriting standpoint, how effective that is, how that translates and plays out in a pro score comparison, which really is a return on cost model that we've built, you know, based on our history. and time in the industry. So it's a combination of these things. We want to be able to try to work smarter and be prepared for these different cycles that we know are going to come and then eventually end. And you've got to put yourself in the best position given the strategies and those decisions.

Adam:
Pete, I think that's a lot of insight. I greatly appreciate you coming on and having a chat with me today. For those of you that are watching, if you have additional questions that you'd like to ask, you can leave those in the comments on LinkedIn and YouTube. I'm sure Pete and I would be happy to continue to respond to those. If you have additional topics that you'd like to see us cover, you can leave those in the comments below as well. And hopefully I can get Pete to come back on here and help me continue to create great content for a great industry. But Pete, I really wanna thank you for coming on today. I really appreciate you. This was great.

Pete Klipa:
My pleasure. It's an honor and you know looking forward to speaking with you again soon.

Adam:
Awesome. For those of you that are watching, we'll see you again soon. Thank you so much, everybody.