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Chris Shuler Interview on Capital Club RadioOpening:00:07Live from the 2019 RMA international conference at the Aria Resort Hotel and casino in Las Vegas. It's time now for a special episode of the Capital Club Radio Show, broadcasting on the Pro Business Channel networks. This show made possible in part by Flock Specialty Finance. And now here's your host, Chairman and CEO of Flock Specialty Finance, Michael Flock.Michael Flock:00:27Thank you and good morning from Las Vegas at the RMA conference. Really fortunate to have a collections industry veteran, well known for his operations and business development experience with us this morning. Chris Shuler is mostly known for his founding and leadership of Vital Solutions. What a great name, Vital Solutions, a successful collection agency with specific expertise and success in auto deficiencies. Chris sold Vital Solutions in 2016 to Fusion BPO. He then joined American First Finance in Dallas as COO and after a short successful stint there in 2018 he joined a subsidiary of First Associates Loan Servicing. It's called Activate Financial, a new collection agency where Chris is the President. Welcome Chris and thank you for braving that windy weather yesterday on the golf course with us. You were quite accomplished there. I was amazed that you could survive that long in that wind and rain.Chris Shuler:01:29Well, I appreciate it, Michael. I appreciate the invitation. It was a challenge, but we weathered it.Michael Flock:01:35Your perseverance; that's what did it. Just like in business. All right Chris, you've had an incredibly rich set of positions and experiences across several pieces I would call out of the continuum of accounts receivables management. Let's discuss some of these highlights. First, of your career starting in 1992 today, which is nearly 30 years, 30 years. So you could read, you could write a great book, maybe even a novel, but I'm sure there'll be some great stories in it from the experiences you've had. Let's start at the beginning. Why did you start with a collection law firm, Wallace and de Mayo? That was one of the largest ones, I think at the time, wasn't it?Chris Shuler:02:19It was. Wallace and de Mayo ended up being the largest collection law firm at that time in the country. The background on that was Richard de Mayo and I were fraternity brothers. And I had done a couple of favors for some folks in Georgia and had gotten an introduction to Richard through some senior execs at Merrill Lynch and at the time they were looking for someone to come in and help them with business development. So we made the connection and that's how I started in the industry. Wallace and de Mayo did both litigation in Georgia. They ended up having the NAN, or the National Attorney Network, and they also were really big in bankruptcy recovery and they were very intense with GE Capital at the time as a very big client and they wanted to diversify. And so they brought me on to help them try to diversify their revenue streams. And we were very successful bringing on especially some bankruptcy recovery activities with some of the big credit card issuers back in the day. So my first experiences in sales in the industry.Michael Flock:03:45NAN, that that was quite a brand that was very successful and they sold it, didn't they?Chris Shuler:03:51They did. They actually sold it to Total Systems in the end. And both Doug Wallace and Richard have been out of the industry for a number of years now. They did very well with it.Michael Flock:04:03Did you have any equity at the time?Chris Shuler:04:05I didn't because it was a law firm; there were rules prohibiting that back in those times in Georgia specifically.Michael Flock:04:14And then a few years later you became CFO of Qualatech, right?Chris Shuler:04:17Yes. So, leaning on the kind of bankruptcy recovery experiences, Richard and Doug ended up meeting up with A. Wayne Johnson, who's now the department head running the next gen program. And we came up with this concept to have a national database of consumer bankruptcy filings, kind of the forerunner of Banco. So we ended up doing a marketing agreement, a cooperative marketing agreement with Mastercard and went out and met with all the issuers. So I got exposure there to all the credit card issuers at a young age in the industry, so to speak. And everybody loved the idea because Banco didn't exist, but they didn't love the idea of somebody other than Mastercard owning it. So, actually the concept became part of the issuer's clearinghouse and that led to the organizations that we're gathering the data for that like Banco, so very early involvement on that side of the industry.Michael Flock:05:25Excellent and then you moved onto JDR where I think you were also in business development.Chris Shuler:05:32So, I went over to work for A. Wayne Johnson at Qualatech as CFO. And we ended up selling Qualatech a couple of years later to First Data when First Data had done its IPO. And I was charged at First Data with running a new organization called Credit Performance Services, which was a first party BPO collections outsourcing company and kind of one of the first ones out there. I mean there were a couple others, you know, like GC Services doing some work in that area. But our main marketing process was to go cross sell all of the First Data credit card issuers. And it was right in the middle of the nineties and there was huge growth in the credit card industry at that time. So, there was a need for bricks and mortar. It was before people were going off shore or near shore. So we ended up going from me in an office in Atlanta to about 1900 employees in just three years and just doing first party all day long, just cranking up dialers.Michael Flock:06:50So, it was the right time to be in business process outsourcing. So you were the right man at the right time.Chris Shuler:06:57Yes, I've been fortunate enough or lucky enough to be in that position several times in my career, but it was a lot of hard work, a lot of strategy, but it worked out. After I left First Data, I worked for JDR for almost a year, but I had interviewed with OSI and they were interested in me coming on board and helping them in operations. So I ended up, while I was at OSI, Brian came back to me and said, “will you come be my operations guy for the debt buying entity OSI Portfolio Services?” So, I went to work with Brian and OSI and ran operations there in the debt buying arm for four years.Michael Flock:07:55Were there any surprises along this long journey that you had up until before you founded Vital?Chris Shuler:08:04Yes, no surprises. It was just a lot of hard work and learning the industry and you know luck. But what's the old saying? You know, luck is where perseverance and hard work meet opportunity. So growing as an executive and a leader, you know, just putting the work in, kind of going back to a central theme I've had of dedication, desire, determination to succeed.Michael Flock:08:38The other thing that's a pattern, I think, in your career is that you've had a pretty big network of relationships with others in different parts, different pieces of the receivables management continuum, you know, in bankruptcy, first party, third party, and you have relationships with leaders in each one of those segments.Chris Shuler:08:56I have, I've prided myself and certainly building relationships and never burning a bridge and cultivating those relationships and friendship, which probably goes back to my fraternity days as Chapter President and as Rush Chairman and so forth. So sales skills, but also I've really prided myself in helping others develop in the industry. A lot of the guys that have worked with me or reported to me over the years, I really enjoy seeing them succeed also.Michael Flock:09:34So what's interesting, and this I love to talk about because this is what we believe at Flock is “it's more than a transaction”. And that's what you have been doing. You've been building these relationships which drive transactions, but you've been developing people along the way. Partners, just like at the fraternity, you know, you said you and Richard de Mayo were fraternity brothers. So, there's a bond there that you must've created along the way and all these other companies and after 30 years, it's a pretty rich network, isn't it?Chris Shuler:10:04It is. It's surprising. So, you know, I was in Atlanta last month and my whole schedule was about going around and talking with guys that I worked with that are now leading collection operations, you know, across Atlanta and I do that every day. So, they've been very successful and I take some pride in that.Michael Flock:10:27Well, right and so much I think in the collection industry depends on trust between people and without those relationships, it's hard to build up trust quickly. It takes time.Chris Shuler:10:39You're right. And as an entrepreneur having started firms and now starting another firm again, it is about that trust and going to those people and saying, you know me, you know what I can do, how I operate, how I treat people. And would you take a chance with me again? And bring me some placements.Michael Flock:11:00Particularly in BPO when you're at the early stages of it. And a lot of people were paranoid about giving up relationships with their customers to someone else. So, that's why that trust also was crucial because people didn't want to lose contact or somehow violate their own relationship with their consumers. So, they have to have confidence in you, your organization, its culture and its skills. Right?Chris Shuler:11:26Absolutely. Absolutely. And emulating a lot of those operations is part of it. But doing it the right way is always been a key. And making sure that you have the quality in the organization. I mean anybody can run the technology tools, but what do the people do? How are you managing them? How are you developing them and what quality you have in the organization and delivering a quality product and being upfront and honest and trustworthy is a key absolutely.Michael Flock:11:58So, let's move now to Vital Solutions. I mean, you were having fun at OSI so why would you leave? You were successful there. You started Vital in 2002. You were there until 2016. So, that's 14 years with one company. That's the longest you've ever been with one company, of course it was your own. But why leave?Chris Shuler:12:18Well, actually Chris and I kind of saw the writing on the wall at OSI as to what was going on toward the end of the OSI days before it was taken over by NCO. And we had worked together on several deals, but we had done a very large deal with Ford Motor Credit on a subprime portfolio that they had to take over the servicing. It was a liquidating portfolio and we were going to take over a hundred percent of the servicing and it was a major event for OSI and a major event for both of us to be able to bring that home. And we kind of looked at each other and said, “hey, why can't we do this for ourselves?” It was kind of the classic entrepreneurial light bulb going off at dinner one night. And so, we spent some serious amount of time putting together a nice business plan, meeting with some angel investors and we ended up going with a group in Atlanta and brought in a couple million dollars, along with a lot of our own money, and launched Vital. And you know Chris had the background in the auto finance industry and I had the background in the debt buying industry. So, because at the time OSI portfolio services was the largest debt buyer, I was managing and leading an operation that was liquidating 19 million accounts; at the time, that was the largest. So, we focused on those two verticals and back to the trust thing, back to business development thing, back to relationships. People trusted both Chris and I and we were able to put it together. We went operational in December of 2002 and continued to grow the business all the way through 2014, 2015.Michael Flock:14:21Were there any surprises along this journey? Any sleepless nights?Chris Shuler:14:25Oh, absolutely. I think as an entrepreneur, you always have some sleepless nights, but when you have a lot of your own investment and money in the operation and you're trying to make a half a million-dollar payroll every year and you hit things like the financial crisis 10 years ago.Michael Flock:14:47Yes, how was that, '08?Chris Shuler:14:48You know it. What happened was the auto business actually continued to do well because we were doing end of term lease work and those accounts kind of come out after 36 months after origination. So, we didn't see a downturn from the 2008-2009 cycle until three years later. But it really hit the debt buying industry hard and we saw liquidations drop 40%. So, then we weren't making money and in any longer. So, we very professionally and very politely exited some of those relationships and started building more of the auto business and we became known as one of the agencies that had the largest auto client list and portfolios. And I think that was a tough time, but we got through it and then we continued to grow through it and then the whole resulting compliance CFPB environment that is created by the Obama Administration as a result of the downturn. And our largest client was Wells Fargo Dealer Services which represented 25% of our revenue stream. And through the actions of the CFPB, the OCC, whatever other organization the federal government had with all the audits and examinations they were doing with Wells Fargo. Wells Fargo went from 40 plus collection agencies to one. And we lost that business. Not through any fault of our own. It was, you know, it was a compliance decision. It was devastating to lose 25% of your revenue stream and have to make the adjustments and some of them are very, very hard decisions. But as an entrepreneur, you know, you have to, you have to review what you're doing, you have to review what you're spending and you have to make some serious cuts. And the cuts that affected me were, you know, having to let some people go because I loved the people. I still get phone calls, texts, emails from the folks there at Vital even though I've been gone for two years. And hated having to do that but you have to make adjustments.Michael Flock:17:22Well, it must have been particularly challenging to cut at a time when you are also increasing expenses for compliance.Chris Shuler:17:31It was. We had invested well over $2 million in compliance and part of it was to meet Wells Fargo's goals from a compliance standpoint, which we were doing, but in the end, it made the organization stronger. So I've believed in conflict theory for a long time. But what doesn't kill you makes you stronger. So, yes, we came out the backside and the board decided that they wanted to sell the company. The angel investors were still in with me, but they were getting to retirement age and they had controlling interest and they weren't industry guys; so they wanted to sell. So, we put the company up for sale and sold it to Fusion BPM.Michael Flock:18:28How did the process go?Chris Shuler:18:30It went really well because Vital was, and I'll take partial credit for this, Vital was a very well run and organized company. I mean, we had A through Z, all the parts and pieces of compliance and business organization down pat. So going through due diligence process was easy for us where it can be harder for other organizations. It was really easy for us. So we had good clean data, you know. Everything was on the up and up, audited financials, insurance, you know, all the things you needed to be a top rank organization in the industry. So, we closed very easily compared to some others I've seen.Michael Flock:19:20So, was it personally or emotionally painful for you to exit the company you founded?Chris Shuler:19:26It was. It was stressful, but you know what, in the end I think it was the right thing to do and I've moved on and I'm in a good spot. So, I'm happy about it. Chris is still there and my CFO who worked with me the whole 14 years, Eric Pittman, is still there as CEO and President. So, I'm happy to see that they're continuing on the organization. The organization is still doing well. In the end, like I said, it's either going to kill you or you're going to become stronger.Michael Flock:20:11The lessons learned from Vital were, invest in infrastructure, managed concentration of customers, treat your people well. What else?Chris Shuler:20:20Yes, I think the key there is diversification, right? Organization diversification. Don't be 25% concentrated with one single client, try to diversify. When you start out, it's okay, but 12-14 years in, you should be more diversified. So, that's certainly a lesson that I've learned.Michael Flock:20:48So today, First Associates, what attracted you to First Associate? Was it your BPO experience from the past? Because they do a lot of first party work primarily, right?Chris Shuler:20:59Right, First Associates is a great a company in San Diego and David Johnson, the CEO, and I had a dinner in Dallas as I was leaving American First Finance and we just hit it off and we talked about a lot about the market and the needs and what their clients were asking for and we both identified it as an opportunity to launch an agency as a natural extension of their loan servicing platform. So traditionally, First Associates has done two things and are well known in the financial services industry. One as a primary loan servicer. So they have a large number of clients where they do end to end servicing daily and also, they're known as a premiere backup servicer in the industry. There are some competitors, but with all these financial market deals that go on, where private equity is putting money or loaning money into loan companies, fin tech, auto, whatever it may be, there's always a backup servicer required. And First Associates is the premiere one of those. So, there's a ton of relationships out there that they have one. And many of those clients have asked, over the years, of David, if we did recovery or charge off and the answer was always no. And so now it's, yes. So, it's a very client centric type of decision and we took some time to strategize on it and where we want to go with it. So, there's a lot of strategy in it and a lot of decision making, but we feel really good about being able to utilize the infrastructure that First Associates has and create the new company.Michael Flock:23:00But loan servicing, that market is so huge. There are so many companies doing that and more and more. I mean, they're all going offshore just like you guys are at Baja. So, what is your edge? Is it Baja? Is it the culture, is it technology, is it cost?Chris Shuler:23:22I think the simple answer, Michael, is all of the above. So, the company is heavily focused in technology and artificial intelligence and becoming more efficient and effective every day. I think it's the culture and the quality really embedded in within the organization. And the call centers, speech analytics and using that information to become better. The Baja facility certainly is seeing a large amount of growth and we have 600 seats there and were going to a thousand, and that's where we're going to be doing our collection activity for Activate also. And in this domestically, we see very low unemployment and some cities negative unemployment, right? And wage inflation is a big concern and in domestic cities also. So, there's a trend for near shore outsourcing and there's also more people coming around to that will allow you to do a third-party agency work nearshore or offshore. And Baja is perfect for us because we're headquartered in San Diego and literally, we have management in the facility every single day of the week going back and forth. So, if we expand, it will probably also be in Mexico whether it's Activate or First Associates itself. Once we fill up that call center we will probably look at other opportunities in Mexico.Michael Flock:25:51Okay and how are your customers reacting to that site?Chris Shuler:25:54They love it. So, we can literally pick them up at the San Diego airport and have them across the border and at the site within 20-30 minutes and the site is Class A. It's a beautiful call center. We literally did a long-term lease on an old grocery store in Tijuana and we gutted it. And it's being built back as a Class A call center with all the right equipment, security, technology, everything you need to run a top of the line call center.Michael Flock:26:34Excellent. So far, no surprises, no obstacles. It's easy?Chris Shuler:26:39Oh well, you know, compliance and licensing is always an obstacle. So, it's taking a little bit longer than we expected, but hey, that's the environment and you know, we have to wait for the states to issue the licenses. But the great thing is, that we have a couple of clients already on-board or coming on-board where we can work accounts in the states that we are qualified to work in. And as we get our licenses in, we will then take on accounts for states, but the company is extremely compliant, has large compliance department and like Vital, we're going to do things at Activate the right way, the compliant way. And that's what First Associates is all about.Michael Flock:27:30Well, as we wrap this up this morning, Chris, what's your outlook for the industry in 2019 and beyond? What do you see there in the future? Because you've been blessed. I think that you seem to be at the right place at the right time, you know, Wallace and de Mayo, Qualatech, OSI. So, you look where there are opportunities. So, you're now with a big loan servicing, BPO company. What's next on the horizon for the market? What do you see happening?Chris Shuler:28:05Well, I think there's going to be continued outsourcing both on the first party and third party side. And I think there's a potential for another recession out there. I don't want to see it, but I think there's certainly some writing on the wall that's going to come eventually. And I think there'll be a lot of bad debt out there that will need servicers and that's what we're in the market for. And we want to service bad debt and so we're going to be looking for opportunities to do that in all segments. I think the outlook is strong barring any decisions by the CFPB or anything else that would kind of mar the opportunity so to speak.Michael Flock:28:58But what about the market for debt buyers? We're here today with RMA. What do you see for debt buyers?Chris Shuler:29:03I think it's strong, the issuers I'm talking to. I don't see any of them backing off selling. You know once you begin selling, it's hard to stop. I talked with Wells yesterday and they're going to stay on the path they're on. But with the growth in Fintech and other verticals, an interesting vertical that's out there today, I think will be a high growth vertical, is out of pocket patient financing. There's a lot of companies that are looking to get into that business and already in the business, but that's not bad debt. That is, there will be bad debt as a result of it. So, and we actually at First Associates are going to be providing loan servicing and bad debt collections for some of those. So we're also becoming HIPPA compliant.Michael Flock:30:06So do you see companies doing both then, providing the performing or the originations of those loans plus the write off opportunities?Chris Shuler:30:17Absolutely. We are writing into a lot of our loan servicing contracts at First Associates a lot of the new ones, the opportunity to use Activate as a natural extension of the loan servicing operation. Yes, once it charges off, then it moves over to Activate and we try to recover the charge offs.Michael Flock:30:41Excellent. Well, Chris, one last question. What final wisdom do you have for young people that are starting out in their careers like you did 30 years ago? What wisdom do you have about this industry? If they're considering getting into either collections, BPO, debt buying legal collections... What lessons learned and advice would you give young people today?Chris Shuler:31:06Dedication, desire, determination, hard work put in the sweat equity. I certainly did and there are still opportunities out there to grow within this industry to go from being a $15 an hour collector to a supervisor, to a manager, to a director, to a VP. I can list names of people that worked with me or for me that have done that, that are very successful today in the industry. So just work hard, learn the business and opportunity abounds.Chris Shuler:31:51Excellent. Well, Chris, thank you very much for your time this morning and taking us on the journey tracing back to your beginnings over 30 years ago from Wallace and de Mayo to Activate Financial. That's quite a spectrum of receivables management, spectrum of experiences, a lot of fun, maybe a few tough moments. You can clearly claim now that you have worked almost all aspects of the receivables management continuum of services from first party through legal collections with debt buying thrown in there in the middle as well. So it's a great history and I think you still have a great future ahead of you with First Associates and Activate Financial and we look forward to learning more about your success in the years ahead.Chris Shuler:32:35Thank you Michael. I appreciate it.Michael Flock:32:37Thanks Chris.Closing:32:41We want to thank you for listening to this special episode of the Capital Club Radio show with your host Michael Flock and his guest live from the 2019 RMA International Conference at the Aria Resort Hotel and Casino in Las Vegas. This made possible again, in part by Flock Specialty Finance, more than a transaction. For more info, visit to listen to this rebroadcast and other episodes, or visit ................
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