Archives for November 2016

This article originally appeared on the Consumer Financial Services Legal Update.  It is republished with permission from the author (Eric Troutman).

So the person that won the second-most votes in last-week’s presidential election will soon be our new commander-in-chief (isn’t the electoral college neat?)

Now I like watching interest rates spike as much as the next guy, but in this line of business it pays to be politically agnostic, so don’t expect any political commentary here.  America has made its choice (sort of) and it is time for us to figure out what that may mean for the TCPA.

First, here’s a quick primer on how our government works:

1. Under the separation of powers doctrine, Congress makes laws in this country, not the President—that would be “the very definition of tyranny.” –James Madison Federalist Papers, No. 47.

2. Just kidding. In reality, the president tells Congress what laws to make and Congress either obeys him or disobeys him depending on party loyalty and the perceived whims of the people.

a. Note: perceived whims of the people are determined by flash CNN or Fox News online polls and occasionally from less reliable sources

i. It’s a good system, just give it a chance.

3. Trump moves into the White House with GOP majorities in both houses of Congress. That should mean that he can get laws passed that he proposes. But Trump doesn’t always get along with “real” Conservatives who don’t like his whole New Yorky lifestyle thing.

a. But Trump now also has the power to unilaterally decide who directs the CFPB thanks to a recent D.C. Circuit Court of Appeal decision, which is just amazing.

i. That doesn’t effect the TCPA but how can this not have been mentioned on this blog yet?

It remains to be seen, therefore, whether Congress will work with President Trump to effect legislative change on key issues like TCPA reform. But, no matter what, I like our chances of seeing some real revisions to the TCPA under Trump’s presidency.  Here’s why:

First, Trump really likes Twitter and Twitter really hates the TCPA. See Nunes v. Twitter, 14-cv-02843-VB (N.D. Cal. July 1, 2016)

Second, Trump really likes Trump, and Trump (or at least his official campaign committee) is being sued for TCPA violations right now. See  Thorne v. Donald J. Trump for President, Inc., Case No. 16-cv-4603 (N.D. Ill). Here is the offending Trump text message:

Reply YES to subscribe to Donald J Trump for President. Your subscription will help Make America Great Again! Msg&data rates may apply.

That’s pretty amazing but, strangely, not unprecedented. The Obama for America campaign faced a nearly identical lawsuit in Florida during Obama’s time in office. See Shamblin v. Obama for Am., No. 8:13-cv-2428-T-33TBM, 2015 WL 1754628, at *5 (M.D. Fla. Apr. 17, 2015). Whereas Obama was far too measured a fellow to take a TCPA lawsuit personally, Trump seems a touch more reactive. The ongoing litigation may well cause Trump to feel unjustly hemmed in by the statute and, better yet, to do something about it.

Third, like him or love him, Trump is a fantastic salesman.  “Salesmanship” is an extremely important quality when attempting TCPA reform because a lot of consumer groups are going to assume that more “robocalls” are necessarily a bad thing. But Trump, in his measured and logical fashion, will help guide the populace to see the truth. I look forward to future Tweets such as “The FCC is a mess” or “TCPA is a disaster for free speech.” Of course, I’ve been saying those things for years to no effect, but I only have 11 followers and Trump has about 2 trillion.

Fourth, speaking of the FCC, its directors are appointed by the President, approved by the Senate, and serve five year terms.  And all five of them will come up for appointment within Trump’s first term in office. How about that? Commissioner Pai and Rosenworcel’s terms are up for May 7, 2017 and the remainder of the Commissioners, including Chairman Wheeler, end their terms in November, 2018. If Trump cannot obtain help on the legislative front from Congress, he can always just backdoor TCPA reform via new FCC appointees.

Fifth, speaking of presidential appointments, the United States Supreme Court is also in play. Trump is guaranteed to appoint at least one Supreme Court justice to replace the late Justice Scalia thanks to some GOP Senate hardball that the New York Times told me was guaranteed to backfire.  Trump may also have the chance to appoint a few (or even several) additional justices as the average age of the Supreme Court justices is now over 69 years. Importantly, with the FCC’s TCPA Omnibus ruling on appeal to a feisty D.C. Circuit Court of Appeals, there is a good chance that the Supreme Court might be passing on TCPA issues in the next few years. Trump’s guiding hand on the Court might well inure to the TCPA’s great benefit.

Sixth, and finally, the TCPA really can be made great again. It was a good (perhaps great) statute when it was passed back in 1991—it prevented scattershot marketing calls that people hated. And it was fairly interpreted in 1992 by an FCC that recognized “[i]ndividuals’ privacy rights, public safety interests, and commercial freedom of speech and trade must be balanced in a way that protects the privacy of individuals and permits legitimate telemarketing practices.”   Indeed, the FCC’s original rules implied that only such random-fired telemarketing calls were governed by the TCPA and that calls to cell phones were only actionable if the “called party” was charged for the call.

Given the more ambitious elements of Trump’s agenda, I’d imagine that rolling back TCPA regulations by a mere 25 years in the name of free speech and Breitbart twitter alerts ought to be a no-brainer.

According to a new study from the UCLA Center for Health Policy Research, the Affordable Care Act (ACA) has not impacted federal Community Health Centers (CHCs) in the way that experts initially predicted, with CHCs seeing more patients, many of whom remain uninsured.

CHCs generally exist to help those in disadvantaged communities, such as people who are not eligible for Medicaid or coverage via the health insurance exchange. Before the ACA was signed into law in 2010, the law was expected to cause newly-insured patients to stop using CHCs and go elsewhere for their care.

This study of 31 CHCs from California, Georgia, New York, and Texas shows that CHCs are seeing over 30% more patients now than before the ACA was passed. Many of the patients still using CHCs lack health insurance and need to self-pay.

Two of the states studied expanded Medicaid (California and New York) while the other two did not (Georgia and Texas). That didn’t seem to make a big difference regarding the number of patients who visited CHCs. California and Texas both saw CHC patient increases of more than 40%, while New York and Georgia saw slightly more moderate increases.

The area where Medicaid expansion has a noticeable impact is in the number of uninsured patients visiting CHCs, who then need to self-pay. The states that didn’t expand Medicaid – Georgia and Texas – saw an increase in the number of uninsured patients visiting CHCs. The states that did expand Medicaid – California and New York – both saw a decrease in the number of uninsured patients.

Even among patients that gained insurance after the passage of the ACA, many of them had high-deductible health plans (HDHPs) that make patients need to self-pay for at least part of their care. Some patients are more able to do this than others, and providing uncompensated care is an ongoing issue for CHCs.

insideARM Perspective

This UCLA study shows how revenue cycle management and the relationship between patients and their bills are changing due to the ACA and the increased prevalence of HDHPs.

There are several recommendations for health care providers in the study relating to payment for healthcare. They are as follows:

• Find “the optimal balance of payer mix and services” depending on the needs in a particular locality.
• Expand Medicaid in all states to ensure “more stable revenue streams.”
• Providers should “move away from traditional volume-based reimbursement” and focus on “moving toward alternative payment models that require accountability” over time.

Also, be sure to read insideARM’s recent coverage on improving your revenue cycle processes, self-pay research, and relevant legislation currently under consideration.

TALAHASSEE, Fla. — Over 800 people recently attended the 6^th Annual Old School Open annual golf tournament, with a mission to support many philanthropic causes in the local community and State of Florida. It is the highest grossing annual golf tournament in the region. The 4-day event included such notable events as a wine dinner auction, concert by LOCASH and a golf tournament, all happening in and around Florida State University and attended by alumni, fans and other supports. The auction fetched high dollars with signature items like a helmet signed by Coach Bobby Bowden himself, exclusive resort packages and other unique experiences.

“We are so grateful to all of our sponsors, golfers and attendees who made this weekend a huge success. It was amazing to see the local community come together and support so many wonderful charities and have so much fun doing it.”, explains Mr. Randall Mills, Managing Director of Old School Club. “Data Signals was honored and proud to sponsor the weekend long event and happy to learn of the revenue generated for all the charities.  It was a fun weekend while supporting local charities.”, explains Michelle Yates, President of Data Signals.

Michelle continues, “Data Signals understands that charity groups often struggle with making the most of staff and volunteer times, especially those charged with seeking donors. We’re equipped and always ready to help charity organizations work more efficiently, sieving their databases for the best communications to make.”

About Old School Club

Old School was originally inspired by the 2003 blockbuster movie starring Will Ferrell, Luke Wilson and Vince Vaughn. Members are Florida State University alumni, fans, and supporters that gather at the Club and around the world to celebrate and enjoy our mutual passion for our beloved Seminoles. Members join and enjoy a first-class experience in a resort atmosphere. Located in the middle of campus and less than a mile from Doak Campbell Stadium, our private events include live entertainment, chef inspired foods and beverages served poolside or in a private cabana.

About The Society Foundation

The Society Foundation is a not-for-profit organization dedicated to using its vast resources to help charities and individuals in need raise money and awareness. Many organizations do not have the resources necessary to do this on their own. Created by lifelong Floridians and some of the state’s most prominent business leaders, the Society Foundation provides unparalleled donor access, fundraising support, advocacy consulting, event planning, promotion, marketing resources, infrastructure and support to assist charities in implementing successful fundraising campaigns and events. Over the past 5 years, Society Foundation has donated over $500,000 to 25 charities throughout the state of Florida.

About Data Signals

Data Signals is a predictive analytics company that helps solve business challenges for Call Center clients across all verticals including Charities and Philanthropic organizations. Combining the client’s data with appropriate big data technologies and predictive analytical capabilities, Data Signals enables smarter business decisions across the entire call center. Data Signal’s call center solutions enable their clients to create efficiencies throughout the call center and drive top line revenue, all demonstrated through measurement and dashboard reporting tools.

JACKSONVILLE, Fla. — Stellar Recovery is excited to announce the addition of its new email strategy to the suite of options designed to meet the needs of consumers and clients. The new emails are in full color and give consumers a direct link to our website and payment portal.

This new strategy is fully customizable to meet the needs of individual clients that includes email scrubs to ensure that the correct consumer is receiving the communication about their account. It has also provided a significant cost savings in comparison to sending letters through traditional mail. Consumer response time is down from 18 days to 12 days. The new strategy has increased our payment portal traffic by 800%. 

Stellar has also seen an increase in inbound calls and mail responses and significant decrease in lawsuits by 85%. Chief Analytics Officer Kendra Vallarelli says, ”Stellar has seen good returns since the email strategy was implemented. We are very pleased with the results.” Stellar Recovery continues to leverage the use of technology to build its strategies to reach a diverse group of consumers.

About Stellar Recovery

Stellar Recovery, Inc is a collection agency based in Jacksonville, Fl. and is dedicated to excellence in the accounts receivable industry by meeting and exceeding our client’s expectations. Stellar Recovery leverages the use of technology to drive effective and efficient collections, while eliminating risks. Visit our website at www.stellarrecoveryinc.com or contact us at 904-438-2500.

According to a press release yesterday, Intrum Justitia and Lindorff have announced their intention to combine to create the industry leading provider of credit management services (“CMS”). An agreement has been entered into pursuant to which Intrum Justitia will acquire all the outstanding shares in Lindorff in exchange for newly issued shares in Intrum Justitia.

Intrum Justitia and Lindorff shareholders will own approximately 53% and 47% of the shares, respectively, in the combined entity. Nordic Capital Fund VIII, currently the indirect majority shareholder in Lindorff, will become the largest indirect shareholder in the combined entity. The transaction is subject to Intrum Justitia shareholder approval as well as regulatory and competition authority approvals. The transaction is expected to close in the second quarter of 2017.

The combination of Intrum Justitia and Lindorff creates the industry leading CMS company with local presence in 23 markets across Europe and a team of more than 8,000 professional, committed and caring employees. By joining forces, both local and global clients will benefit from a strong pan-European platform, enhanced service offering, innovative solutions and best in class compliance.

“Together we have the scale and unique position to capture the unprecedented opportunity for growth and expansion presented by ongoing structural trends in the banking sector. We share the ambition to lead the industry and the belief that we can contribute to a sound economy in Europe. Both companies have, each in their own right, pioneered efforts to transform how our industry does business with a focus on compliance and fair and respectful collection”, said Mikael Ericson, President and Chief Executive Officer of Intrum Justitia.

“This combination is a great fit both geographically and from a segment expertise and clientele perspective. It will strengthen our local presence and give us the international platform to continue to further improve our services to both small and large clients. Together with Mikael, I look forward to combining our employees’ skills and industry expertise to create the leading credit management services organization in the industry,” said Klaus-Anders Nysteen, President and Chief Executive Officer of Lindorff.

“We are really excited about this combination of the two longest standing credit management companies in Europe and recognize the strength of the companies and the opportunities in the industry. Given the growth trajectory of both businesses and the benefits that will come from the combination Nordic Capital looks forward to continue supporting the combined business as a listed company and sees significant potential for further value creation”, said Kristoffer Melinder, Managing Partner, NC Advisory AB, advisor to the Nordic Capital Funds.

In late 2015 insideARM reported that Intrum Justitia had announced its intention to grow aggressively through acquisition in the coming years.

The company wants to do “at least two, or more, acquisitions, on average over a few years,” said acting Chief Executive Officer Erik Forsberg in his first full interview since taking over the position from Lars Wollung on Nov. 2 of this year. Earlier, in May, Wollung had set the takeover target at two smaller companies a year, on average, over five years.

It seems they are making good on these plans.

SARASOTA, Fla. — NARCA-The National Creditors Bar Association is pleased to announce the NARCA 2016 Scholarship Program winners. The scholarship program was established to promote financial literacy to our future leaders of our communities. Applicants were asked to submit a video on the topic “Buying College Credits with Credit: What am I really getting myself into when I take out student loans?” The submissions were judged on originality, clarity and insight on the subject.

Members of NARCA’s client community willingly served as judges this year.  NARCA wishes to thank the following judges for their commitment to this worthwhile project:

Maureen Killian – Calvary Portfolio Services, LLC

Brad McCurnin – Harvest Strategy Group, Inc.

Matthew Russel – TRAKAmerica

The following scholarship recipients were announced at the NARCA 2016 Fall Conference in Las Vegas last month:

First Place Winner – Danae Findley

Danae from Patenaude & Felix, APC received the $5,000 Award. She has been admitted to the Dental Hygiene Program at Southwestern College in Chula Vista, California and will start in Spring of 2017.

Second Place Winner – Akshay Prabhushankar

Akshay from McNeile Pappas PC received the $1,500 Award. He is a sophomore studying computer science with a minor in economics at New York University in New York City, New York.

Third Place Winner – Samantha Damsky

Samantha from Forster and Garbus LLP received the $500 Award. She is a freshman studying accounting at Hofstra University in Hempstead, New York. ​

About NARCA

NARCA – The National Creditors Bar Association is a nationwide professional trade association of over 600 creditors rights law firms and in‐house counsel of creditors.  NARCA members are committed to being professional, responsible and ethical in their practice of creditors rights law. More at www.narca.org

LAS VEGAS, NV — NARCA held elections for President-Elect and Board of Directors concurrent with the NARCA 2016 Fall Conference in Las Vegas. Two NARCA members ran for President-Elect, and eleven NARCA members ran for six Board Member seats.

Newly Elected Board Officer

President-Elect

Yale Levy is owner of Levy & Associates, LLC in Columbus, OH, where he represents clients in creditor rights matters. In August of this year, the CFPB and SBA invited Mr. Levy to serve as a Small Entity Representative on the Debt Collection SBREFA Panel. He served on the NARCA Board of Directors prior to his election to President-Elect. As a NARCA member, he has been actively involved in a number of committees, including co-chairing the 2016 Spring Conference Committee and the Professional Standards and Grievance Committee.

Newly Elected Board of Directors Members

Nicole Strickler is with Messer Strickler, Ltd in Chicago, IL. She concentrates her practice in the defense of corporations in civil matters but particularly focuses in the defense of consumer litigation throughout the country. This includes representing clients in both individual and class actions involving state and federal consumer laws. As a member of NARCA, Nicole has taken an active role including serving as co-chair of the 2016 Education – Defense Sub-Committee.

Mitchell Williamson is with Barron & Newburger, P.C. in Somerset, NJ Previously, he was in-house defense counsel to Pressler & Pressler, LLP for 13 years. Prior to working in the creditors rights arena, Mr. Williamson specialized in complex civil litigation, primarily handling environmental coverage disputes, toxic torts, NASD Broker-Dealer disputes, labor disputes, professional malpractice claims, and other issues involving SEC regulations. He as served on and led several NARCA education committees including the 2014 Spring & Fall Conferences Committees, 2015 Spring & Fall Conference Programming Committees, and 2016 Education – Defense Sub-Committee.

Re-Elected Board of Directors Members

Alane A. Becket is Managing Partner of Becket & Lee, LLP in Malvern, PA. She is an AV® rated attorney providing comprehensive nationwide representation of creditors and debt purchasers in bankruptcy matters. In addition to client and industry relations, she focuses on litigation strategy. Ms. Becket’s service to NARCA includes serving on the Board of Directors since 2015, and leading the Education Committee, Education – Attorney Practicum Sub-Committee, and Professional Standards and Grievance Committee.

June Coleman is a shareholder at Kronick, Moskovitz, Tiedemann & Girard in Sacramento, CA where she is a defense litigator in the firm’s Business Services Practice Group. Her areas of emphasis are the FDCPA, the FCRA, the TCPA, commercial litigation, and creditor rights. She has served on or led a number of NARCA committees including the Education Committee, Education – Defense Sub-Committee, Defense Bar Steering Committee, Bylaws Committee, and Amicus Brief Sub-Committee.

Scott Sharinn is with Sharinn & Lipshie, P.C. in Uniondale, NY. He is a second generation NARCA member, and has served on or led NARCA committees including the Membership Committee, SCBA Forum Sub-Committee, Leadership Development Committee, Legal Learning Committee, and New Membership Division.

Alison Walters is with Kelley Kronenberg in Tampa, FL, where she practices in the areas of commercial litigation, creditors rights, bankruptcy, and insurance subrogation. Mrs. Walters is a member of the Hillsborough County Bar Association, The Tampa Bay Bankruptcy Bar Association, Business Law section of the Florida Bar, National Association of Subrogation Professionals and the Hillsborough Association of Women Lawyers.  Additionally she is a Past President of the Florida Creditors Bar Association. She has served on or led numerous NARCA committees, including most recently the Education Committee,

Bylaws Committee, and Conference Committees going back several years.

Contact Information

Jim Podewitz

Communications Specialist

NARCA – The National Creditors Bar Association

Direct: 202-861-0706

Email: jim@narca.org

Web: www.narca.org

NARCA – The National Creditors Bar Association is a nationwide professional trade association of over 600 creditors rights law firms and in‐house counsel of creditors.  NARCA members are committed to being professional, responsible and ethical in their practice of creditors rights law. 

On Monday, November 7th, PRA Group (PRAA) reported its financial results for the third quarter of 2016. The company reported diluted earnings per share of $0.74 versus $0.36 in the third quarter of 2015 and non-GAAP diluted earnings per share of $0.68 for the third quarter of 2016 compared to $0.85 for the year-ago quarter.

It also hosted a conference call for investors.  PRAA is one of the largest purchasers of defaulted receivables worldwide.

Second Quarter 2016 Highlights

• Cash collections of $371.7 million, currency adjusted cash collections of $377.0 million, versus $380.8 million in the prior year period.
• Cash collections for the first nine months of 2016 were $1,143.2 million versus $1,170.1 million in the prior year period.
• Total revenues for the quarter of $222.0 million, currency adjusted revenues of $224.2 million, versus $229.4 million in the prior year period.
• Income from operations of $67.5 million, non-GAAP income from operations of $69.8 million.
• Net income for the quarter of $34.3 million, non-GAAP net income of $31.7 million, compared with $17.4 million in the prior year period.
• For the first nine months of 2016, net income was $102.7 million, compared with $127.0 million in the prior year period and non-GAAP net income was $109.5 million, compared with $153.6 million in the prior year period. 
• The net income margin in the third quarter of 2016 was 16.5%.
• The net income margin for the first nine months of 2016 was 15.7%
• $161.3 million in investments.
• Estimated remaining collections of $5.25 billion. 

In the press release that accompanied the earnings announcement, Steve Fredrickson, Chairman and Chief Executive Officer, PRA Group, commented on the quarter:

“We continue to evolve the Company in a number of areas including normalizing operations in the U.S. legal collection channel despite increased documentation requirements.  From an investment perspective, we also continue to deploy capital at good returns, especially in the US and Brazil, and maintain strong relationships with global sellers of nonperforming loans, providing them with a compliant and responsible global partner.” 

insideARM Perspective

insideARM suggests that parties interested in PRAA also review the quarterly earnings announcement for Encore Capital Group (ECPG) to get a broader picture of the debt buying industry. insideARM also wrote about the ECPG quarterly earnings report today.

As usual, the earnings conference call provided more interesting information and perspective than the press release and written reports. It is interesting to compare the PRAA comments on the various issues with those articulated in the ECPG call.

Regulatory Environment/Supply/Pricing

It was interesting that the regulatory environment and U.S. supply and pricing were not significant topics on the PRAA call.  

Steve Fredrickson did comment:

“The regulatory environment in the US has been an operational headwind especially over the last few years but it has helped drive the substantial consolidation we’ve seen in the US market, creating what we believe is now a significant competitive advantage for PRA. It has been fulfilling to see our diversification strategy that included a number of significant strategic moves over the past few years or so, allow us to deploy capital globally directing it to opportunities where we see the most attractive returns. Now more than ever we feel geographic and product diversification are absolutely necessary for our long-term success. As demonstration of the success of the strategy our third-quarter results show the increasing importance our non US investments.”

However, a couple issues discussed on the ECPG call were also prominent in the PRAA call.

Increased Disputes

Kevin Stevenson, Portfolio Recovery Associates, Inc. – EVP, Chief Financial and Administrative Officer, Treasurer and Assistant Secretary, commented on this issue.

“We mentioned on the first quarter call that the increase in our dispute rate was impacting productivity and generating a cash delay. Wanted to share with you some more color on the impact since we have more experience now and a better understanding of the process on a go forward basis. So first, dispute volumes have grown given the new requirement to treat verbal disputes the same way as written disputes, along with the higher volumes of disputes coming through the credit bureau process. As such, our cost to investigate and process them have increased compared to prior years.

We do expect the excess cost to taper off in the longer term as we implement and refine systems and processes, which for at least the next few quarters we will be operating in this fashion as we smooth out the process. Second, the dispute process is causing delays that have impacted value. Coding an account as a dispute causes all proactive collection efforts until the dispute is resolved. The increased volume of disputes combined with a new process meant that disputes resolved in PRA favor have not been returned to the collection floor as quickly as we had hoped. As we said before this is causing cash collection delays but now that we’ve had some time and some experience with this data we believe it is also causing some loss in value as well.”

Legal Collections

Stevenson also discussed the legal process:

“We have been able to make significant headway on the backlog of legal accounts but we are not completely caught up. Sellers are now in a better position to comply with the requirements of providing account documentation upfront and are generally delivering in a very timely fashion.

Just like disputes it is now a matter of us normalizing this process and streamlining operations. The number of documents that we are receiving has significantly increased when compared to the past. We have invested very heavily in implementation of new document systems and processes over the past four quarters. Beyond the brute force applied to the high volume of documents and systems there’s a great deal of nuance that goes into this process and we’re adjusting accordingly. We continue to deal with the regulatory environment that is constantly changing in regards to legal collections.

For example, during the quarter we had two states change the requirements around lawsuits and another implement an e-file process. It takes time to adapt and comply with each of these requirements and it slows the process and our current quarter, as we and our external firms, change accordingly.”

Per Zacks Equity Research, both PRAA and ECPG missed analysts estimates revenue and net income for the quarter. PRAA missed Consensus Estimates by less than 5%.  ECPG missed Consensus Estimates by 88%.

On Wednesday, November 9^th Encore Capital Group (ECPG), reported its financial results for the third quarter of 2016, reporting a loss of $1.5 million in its third quarter. On a per-share basis, the San Diego-based company said it had a loss of 6 cents.

The company also hosted a conference call to discuss the results. ECPG is an international specialty finance company with operations in eight countries that provides debt recovery solutions for consumers across a broad range of assets.

Highlights for the Second Quarter of 2016:

• Investment in receivable portfolios was $206 million, including $142 million in the U.S., compared to $187 million deployed overall in the same period a year ago.
• Gross collections declined 4% to $407 million, compared to $422 million in the same period of the prior year.
• Total revenues were $179 million, compared to $279 million in the third quarter of 2015, with the difference primarily driven by a $94 million gross consolidated portfolio allowance charge.
• Total operating expenses decreased 19% to $201 million, compared to $248 million in the same period of the prior year, primarily reflecting the benefits of strategic cost management programs and the impact of the CFPB settlement in the third quarter of 2015. Adjusted operating expenses increased 1% to $167 million, compared to $165 million in the same period of the prior year.
• Adjusted EBITDA decreased 7% to $245 million, compared to $264 million in the same period a year ago, reflecting the adjustment to deferred court costs.
• Total interest expense increased to $48.6 million, as compared to $47.8 million in the same period of the prior year, reflecting the financing of recent acquisitions and portfolio purchases.
• GAAP loss from continuing operations attributable to Encore was $1.5 million, or $0.06 per fully diluted share, as compared to a loss of $13.2 million, or $0.52 per fully diluted share in the same period a year ago, reflecting the allowance charges for certain European pool groups in the third quarter of 2016 and the impact of the CFPB settlement in the third quarter of 2015.
• Adjusted income from continuing operations attributable to Encore was $3.6 million, compared to $32.2 million in the third quarter of 2015, with the decline mainly attributed to the portfolio allowance charges for certain European pool groups.
• Adjusted income from continuing operations attributable to Encore per share (also referred to as Economic EPS) was $0.14, compared to $1.25 in the same period of the prior year. In the third quarter of 2016, Economic EPS was not adjusted for shares associated with Encore’s convertible notes. In calculating Economic EPS for the third quarter of 2015, 0.8 million shares associated with convertible notes that will not be issued but are reflected in the fully diluted share count were excluded for accounting purposes.
• Estimated Remaining Collections (ERC) increased 1% to $5.73 billion, compared to $5.65 billion at September 30, 2015.
• Available capacity under Encore’s revolving credit facility, subject to borrowing base and applicable debt covenants, was $176 million as of September 30, 2016, and total debt on a consolidated basis was $2.8 billion.

insideARM perspective

We have commented before that ECPG and Portfolio Recovery Associates (PRAA) quarterly reporting provides an excellent overview of the debt-buying industry. We also suggest the reports should be viewed together. (Editor’s note: PRAA reported their second quarter earnings on November 7th. insideARM will also report on that announcement today.)

As usual, the earnings conference call is always more interesting than the raw numbers.  Five items stood out.

First, during the earnings call, Kenneth A. Vecchione, ECPG President and Chief Executive Officer discussed pricing and supply:

“We believe we are seeing a turn in our industry cycle in which pricing and supply are improving. The U.S. market for charged-off receivables is becoming an increasingly attractive market for us and continues to show signs of improvement. Supply in the U.S. is on track to rise 15% in 2016, accompanied by meaningful declines in price from last year. Newly committed forward flows are being booked at higher returns for 2017 than they were for 2016, a continuation of the trend we have been seeing for approximately the last 12 months.”

Second, Vecchione also discussed the litigation process on domestic accounts:

“In the domestic market, issuers have now caught up with our documentation requests to support our legal collection efforts. We do not see this as a problem going forward, and indeed the improved documentation is enhancing our legal collections.

Although we have encountered delays in both collection and expenses, we are beginning to ramp back up to a more typical collection run rate, and expect to be fully ramped as we enter 2017. Legal collections delayed in 2016 will be shifted to 2017, with no material impact to revenue.”

Third, Vecchione commented on the CFPB debt collection rule making:

“I would like to remind everyone that we are entering one of the last phases of the CFPB’s formal rule-making process. When we spoke about this a quarter ago we acknowledged that the new rules were going to create a level playing field for participants in the US market, that the outline of proposed rules aligns well with Encore’s current practices, and that we were pleased that many of the proposed rules were consistent with our own recommendations or current practices. Because of this alignment, we believe we are well positioned and, in fact, far ahead of others in the industry as these new rules are rolled out.

The substantial investments of time and resources we have made over the last several years have developed our compliance pedigree and given us a competitive advantage. I’d like to add that we continue to have thoughtful dialogue with the CFPB on several areas of the proposed new rules where we suspect that a small subset of the current proposals may lead to unintended consequences for consumers.”

Fourth, an analyst asked about the dispute process and its impact on collections and expenses. Ashish Masih, Encore Capital Group, Inc. – President, Midland Credit Management responded:

“As you can imagine, due to the nature of a collections business, there are always some consumers who will dispute the debt, including in our call centers when they speak to our account managers.

Now through training, we have been able to ensure that consumers truly understand the origin of their debt and not dispute it. We have found dispute volumes in our call centers very much in control since the consent order went into effect earlier this year.

Now that said, there are some consumers who still feel the need to dispute, and we have a process — we have always had a process, actually — to pause collections temporarily while we investigate the dispute reasons. And this temporary pause is not a new process for us. We have always had this.

What is new — to your question — is that since the consent order, when consumers dispute, we are now required to send the documentation to the consumer. What we have found is over the last several months, about half our disputed accounts, or cases, we have the documentation ready and we are able to respond to the consumer within two or three days, in a very timely manner, and put the account back into collections. So there is no delay.

For the remainder, we are able to go back to the issuers and sellers, and in majority of cases, obtain the documentation. It takes a month or two. But for the majority, we are able to do that. Now, just keep in mind, for more recent purchases and for all future purchases, we receive full documentation on all accounts in a portfolio, so over time, this minor issue will become even smaller over time.

And in terms of collections impact, we have actually not seen any negative impact of these disputes on our collections. We also have staffed up well in advance of the March deadline — implementation deadline that we had, so our current expenses also fully reflect on that staffing, as well.”

Finally, a financial analyst asked management a very good question – “If pricing continues to improve like it is now, is there any risk that some issuers could pull back from selling, maybe perhaps off to keep some more and just use third-party agencies instead of selling to third-party debt buyers?”

Vecchione’s response was interesting and somewhat negative to the traditional third party ARM community. Vecchione commented:

“I think that’s a well-thought-out question. And we wrestled with that, as well, but I will tell you where I think the market’s going. The proposed CFPB rules, which has in there contacting consumers six times a week. We believe that agencies will not be able to figure out that puzzle. We are well on our way to figuring it out, and I think our decision science support is world-class.

So if the larger issuers are going to move money over to the agencies, I don’t think the agencies are going to fulfill their expectations — that’s one. But the other story is capacity. We do not believe that some of the larger issuers have the ability to ramp up their capacity. We don’t believe that the agencies can ramp up their capacity in a way that will be effective, given where the new proposed CFPB rules wind up.

Even if those new rules go from six times a week to a greater number, we still don’t think that they’re going to be as effective. And I think that’s why we’re comfortable that debt sales will continue to occur at the pace that they have been occurring at.”

Per Zacks Equity Research, both PRAA and ECPG missed analysts estimates revenue and net income for the quarter. PRAA missed Consensus Estimates by less than 5%.  ECPG missed Consensus Estimates by 88%.

This article originally appeared on www.tcpablog.com.  It is republished with permission from the authors (Eduardo Guzman and Andrew Van Houter).

The Second Circuit last week confirmed that entries of judgment satisfying an individual plaintiff’s claims moot TCPA class actions.

In Bank v. Alliance Health Networks, LLC, No. 15-cv-4037 (2d Cir. Oct. 20, 2016), the Second Circuit affirmed the dismissal of the class claims after an entry of judgment, pursuant to the defendants’ offer of judgment, rendered the class claims moot. The Second Circuit acknowledged that the Supreme Court held in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) that an unaccepted offer of judgment does not moot a plaintiff’s claims. “But where judgment has been entered and where the plaintiff’s claims have been satisfied, as they were here when [the plaintiff] negotiated the check, any individual claims are rendered moot.” The Second Circuit then held that since the individual plaintiff’s claims were rendered moot, he was no longer in a position to pursue the class claims. The Second Circuit acknowledged that there are certain exceptions to this rule, such as the relation back doctrine, but reasoned that “absent a class certification decision or any other reason to link [the plaintiff’s] once-live claim to the now-independent class claims, that line of cases is simply inapplicable.”

The Second Circuit also rejected the plaintiff’s argument that his ability to obtain an incentive award afforded him a personal stake in the litigation sufficient to confer standing upon him. Noting that a plaintiff must allege a concrete injury to meet standing requirements, the Second Circuit held that “[a] purely hypothetical possibility of recovery is not sufficient to meet the requirements for standing.”

The Alliance decision is a useful clarification on the limits of Campbell-Ewald, which the plaintiffs’ bar has brandished in its efforts to pursue class claims even after the individual claims have been satisfied.