Archives for December 2016

The National Review has just published another article written by attorney and former regulator Ronald L. Rubin. 

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In this latest article, which is really more of a novel, Rubin offers a scathing and wide-ranging insider’s view of how Elizabeth Warren and her team crafted the agency in a way that would insulate it from meaningful Republican oversight for many years, of how they pursued unethical – and potentially illegal – hiring practices, of the early development of policies of stonewalling and secrecy, and first hand evidence from an (educated) outsider’s perspective that things don’t seem to have changed a whole lot since those early days.

Here is an example,

Job seekers interviewed with two pairs of attorneys and most senior managers. All Office of Enforcement employees were invited to attend the weekly hiring meetings, where interviewers summarized the applicants. Any attendee could voice an opinion before each candidate’s verdict was rendered; even a single strong objection was usually fatal. Note taking was strictly forbidden, and interviewers destroyed their records after the meetings. I never missed one.

Clear verbal and non-verbal signals quickly emerged. The most common, “I don’t think he believes in the mission” was code for “he might not be a Democrat.” At one meeting, Kent Markus, a former Clinton-administration lawyer who had joined the bureau as Cordray’s deputy, remarked that an applicant under consideration “sounds like a good liberal to me.” After a few seconds of nervous laughter and eye contact around the room, Markus recognized his slip. “I didn’t say that,” he awkwardly joked. The episode so unnerved one attorney that he never attended another hiring meeting.

And another,

A knowledgeable friend within the bureau once debriefed me on the unit that handled oversight requests. The unwritten policy of its supervising attorneys, and in particular of one former Democratic Senate staffer, was “never give them what they ask for.” When the inspector general complained to Cordray about that supervisor, Cordray took no action because she had accepted a job in the White House. Another former Democratic staffer replaced her.

Soon, a career professional in the unit who had resisted pressure to engage in witness coaching and other unethical practices was reprimanded for insubordination and reassigned. The inspector general investigated and issued a report to Cordray that concluded the reprimand was unwarranted and the supervisors had engaged in obstruction. My own experience as a House Financial Services Committee staffer in 2015 left me no doubt the debriefing was accurate.

There is A LOT more. It’s called, The Tragic Downfall of the Consumer Financial Protection Bureau. You can read it here.

We’ve posted about other articles Rubin has recently written, including one about how the CFPB imposes the maximum possible fines by reviewing the financial statements of enforcement targets, and another about the CFPB’s failure behind the Wells Fargo scandal.

You can find Ronald Rubin here.

JACKSONVILLE, Fla. — Stellar Recovery, Inc is proud to announce that its new Interactive Voice Response (IVR) went live on December 15, 2016. In another successful collaboration with RevSpring, Stellar created a more robust IVR option for it’s consumers. RevSpring has been an integral partner in the development and implementation of a series of products that include a new, unique letter series as well as a new email strategy that was released earlier this year. The new IVR is the latest addition to the suite of options Stellar and RevSpring have created to help Stellar’s consumers self-manage their own accounts without interacting with an live agent.

The IVR offers consumers robust options such as paying via ACH, settlement negotiation options, and the ability to receive a text message receipt for their payment. It also gives consumers the option to transfer to a live agent if they have a question during the process of using the IVR. Chief Analytics Officer,  Kendra Vallerelli says ”The new IVR is far more sophisticated than the previous IVR that we had. It is integrated with the payment portal and it captures many more accounts than previously. We are excited to use analytics to measure how consumers use this option”. Since the new IVR has gone live there has been a 600 % increase in IVR payments. Stellar Recovery has been committed to creating account management options across consumer channels that reach a diverse group of consumers while remaining compliant in the process.   This allows all consumers to pay the way they want to pay.

About Stellar Recovery

Stellar Recovery Inc. is an ARM leader headquartered in Jacksonville, Florida. SRI 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.  Please visit our website at www.stellarrecoveryinc.com or contact us at 904-438-2500.

Since its inception, the Consumer Financial Protection Bureau (CFPB) has regularly issued enforcement actions in the form of Consent Orders intended to set industry-wide precedents; many of these orders include a penalty to be paid by the company. These penalties are deposited into the Bureau’s Civil Penalty Fund (Fund), which was established as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In these consent orders, the way the CFPB uses the Fund is generally described in vague terms. An example from a Consent Order issued in October 2016 against Navy Federal Credit Union, which required them to pay $5,500,000 to the Civil Penalty Fund, reads as follows:

Respondent must treat the civil money penalty paid under this Consent Order as a penalty paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, Respondent may not:

1. Claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Consent Order; or

2. Seek or accept, directly or indirectly, reimbursement or indemnification from any source, including, but not limited to, payment made under any insurance policy, with regard to any civil money penalty paid under this Consent Order.

Due to vague language used in these orders, some have wondered where that money ends up. A new audit from the Government Accountability Office (GAO) on the CFPB’s Fiscal Years 2016 and 2016 helps answer that question.

According to the audit, the Civil Penalty Fund had $170.1 million in funds available as of September 30, 2016. As you can see in the chart below, the amount collected by the Bureau has steadily increased:

To date, the CFPB has “spent” 61% of the funds they’ve collected, mostly in the form of victim compensation. Approximately 5.5% of the funds have gone to consumer education.

As you can see in the chart above, the Bureau has spent the vast majority of funds collected on victim compensation. They’ve not allocated nearly as much to consumer education and financial literacy programs – in fact, zero dollars were allocated to these programs in FY 2014 and 2015. Additionally, $4,573,322 has been allocated to administrative costs for FY 2013, 2015, and 2016.

The CFPB’s use of money from the Fund is governed by the Civil Penalty Fund rule, which requires the Bureau to regularly report on Fund activity. Under the rule, the Bureau’s Civil Penalty Fund Administrator allocates funds to victims and,

“to the extent that such victims cannot be located or such payments are otherwise not practicable, to consumer education and financial literacy programs.”

Allocations from the fund are made according to a schedule based on six-month periods. The Administrator “may allocate only those funds that were available as of the end of the six-month period, and may allocate funds to a class of victims only if that class had uncompensated harm as of the end of the six-month period.”

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The Bureau looks at allocations on a case-by-case basis, determining whether consumers in a given case are “eligible victims with uncompensated harm.” If eligible victims exist, the Bureau allocates funds to compensate them. The FY2015 audit notes one instance where “the total eligible uncompensated harm exceeded available funds,” and as a result, the Bureau allocated money from other cases without uncompensated harm.

In the majority of cases, victims have been compensated through direct redress stipulated in Consent Orders, though there are several cases in every period that the CFPB determined were worthy of compensation through the Fund.

With respect to future allocations from the Fund, the GAO audit notes that some distributions for FY 2016 are ongoing, and that “checks continue to be cashed by consumers” before distributions begin for FY 2017.

insideARM Perspective

The CFPB has issued numerous Consent Orders against ARM industry firms during the past few years. CFPB Director Richard Cordray told the Consumer Bankers Association in March 2016 that any company not adapting to the policies called out in the CFPB’s Consent Orders is committing “compliance malpractice.”

insideARM recently updated our guide to The CFPB’s Consent Orders Regulating the ARM Industry, a crucial tool to help you understand how to stay compliant.

AT&T, the second-largest provider of mobile telephone services in the United States, has announced a new service called “AT&T Call Protect.” According to a press release from the telecommunications company, the “free network-based service gives eligible AT&T wireless customers…more control over unwanted calls on their smartphones” and “harnesses the power of the AT&T network to give customers automatic fraud blocking and suspected spam call warnings.”

Consumers are able to sign up for the service through their AT&T accounts. The company is also releasing an app called “AT&T Call Protect,” which gives consumers the ability to temporarily block calls before they even reach a consumer’s phone and gives people “spam warnings” about some calls.

Jeff Bradley, AT&T’s Senior Vice President of Device and Network Services Marketing, is quoted in the press release as follows:

“Nuisance calls are an industry-wide problem that unfortunately affect many people…We’ve listened to our customers and know they want a network that provides tools to proactively assist in blocking nuisance calls. AT&T Call Protect, along with others, will help put customers more in control of the calls they receive.”

insideARM Perspective

This is a negative development for the ARM industry, and will make it more difficult for firms to contact consumers if they’re targeted as a “nuisance” caller by AT&T or a consumer, regardless of the legitimacy of a call. Similar services are being offered by other telecommunications companies, including Sprint’s “Premium Caller ID” and Charter Communications’s partnership offering of “Nomorobo.”

Collection firms continue to face challenges communicating with consumers. That challenge will be exacerbated as more companies provide ways to allow their customers to block calls from targeted numbers. 

insideARM suggest that ARM companies will need to more closely track calling data to determine which numbers are ineffective. 

The Federal Communications Commission (FCC) has also been looking closely at the issue of robocalls in recent months. According to the FCC, robocalls are their number one source of complaints and have “become a plague to U.S. consumers.” Unfortunately, legitimate calls from legitimate ARM businesses have been lumped into the broad, highly inflammatory caetegory of “robocalls.”

That said, FCC Chairman Tom Wheeler will be stepping down on January 20, 2017, as previously covered by insideARM. There will potentially be a change in direction for the FCC when his replacement’s tenure begins. Such a change could affect federal policy towards the definition of “robocalls” and the ARM industry in general. It would be helpful for the industry to develop a system for tracking data to document the impact of this latest technology.

ARLINGTON, Va. — Convoke, a leader in SaaS solutions for the debt collection market, today announced its latest enhancement to its debt validation technology. Since Convoke first brought debt validation technology to the market in 2010, its software has been used to support debt validation for over 10 million consumer loans.

“This software update targets a crucial problem in the collections industry: credit issuer oversight of third party debt collector efforts to validate consumer debt,” said David Pauken, CEO of Convoke. “Convoke now provides a tool that allows our customers near real-time visibility into the debt validation process with the consumer, something that has never been seen in the collections industry.” When consumers request debt validation by a third party debt collector, Convoke software enables the credit issuer to track the interaction with the consumer, from beginning to end. This unparalleled transparency promotes credit issuer compliance in an evolving regulatory environment.

Since its inception, credit issuers and third party debt collectors have used Convoke to validate debt by housing the supporting documents in a way that is easy to access and verify, but now they can also monitor the third party’s interaction with the consumer during the validation process. Convoke added this important oversight capability to its debt validation technology because credit issuers and debt collectors expressed a serious commitment to ensuring that consumer debt is properly supported.

About Convoke

Convoke is a leader in SaaS solutions for the debt collection market. Its mission is to securely organize collection information across credit issuers and third party debt collectors (collection agencies, law firms, and debt buyers), making it accessible and useful. This enables them to solve complex business, vendor oversight, and regulatory compliance requirements. Convoke’s online platform includes workflow tools to easily validate debt, obtain and track collection information from third parties, and promote responsible treatment of consumers. Convoke is headquartered in Arlington, VA. For more information on Convoke, please visit www.convokesystems.com.

On December 15, 2016 the Government Accountability Office (GAO) issued to Congress its annual bid protest report. While this report does not specifically relate to the recently announced Department of Education (ED) debt collection contract awards, it provides some very interesting and encouraging information for 41 accounts receivable management companies that were not selected.

insideARM wrote about the RFP selections on December 10, 2016 and again on December 12, 2016. Earlier this week, on December 19, we suggested that many of the 41 unsuccessful bidders would likely seek a formal debriefing from ED and that multiple formal protests were likely to follow.

The most interesting item in the GAO report was this statistic:

“Of the protests resolved on the merits during fiscal year 2016, our office (GAO) sustained over 22 percent of those protests.”  (Emphasis added.)

The report also provides a chart of historical statistics for comparison purposes.  For example, in fiscal year 2015, GAO sustained only 12 percent of the protests resolved on the merits. In fiscal years 2014, 2013, and 2012 the sustain rates were 13%, 17%, and 18.6% respectively.

The report also provides this statement regarding reasons for sustaining protests:

“Our review shows that the most prevalent reasons for sustaining protests during the 2016 fiscal year were: (1) unreasonable technical evaluation; (2) unreasonable past performance evaluation; (3) unreasonable cost or price evaluation; and 4) flawed selection decision.” 

Finally, the report states:

“It is important to note that a significant number of protests filed with our Office do not reach a decision on the merits because agencies voluntarily take corrective action in response to the protest rather than defend the protest on the merits. Agencies need not, and do not, report any of the myriad reasons they decide to take voluntary corrective action.”

insideARM Perspective

As noted above, insideARM has heard from several industry experts that, after the debriefings, multiple protests are likely. There are significant dollars at stake. The volume of accounts for placement to private collection agencies continues to grow.  

Per the GAO website on Bid Protests, (See: http://www.gao.gov/legal/bid-protests/search) there have been two protests filed already, one by Pioneer Credit Recovery, Inc. and the other by General Revenue Corporation. Both were filed on December 19th. Both of those companies are wholly owned subsidiaries of Naviant Corporation.

insideARM will continue to monitor this important story and report developments.

This article previously appeared on Ballard Spahr’s CFPB Monitor and is re-published here with permission.

It has been reported that President-elect Donald Trump has nominated South Carolina Republican Congressman Mick Mulvaney to be Director of the Office of Management and Budget (OMB).  Mr. Mulvaney has been described as a “staunch deficit hawk” and his nomination is viewed as sending a signal that federal regulations are likely to face tough scrutiny in a Trump administration.

Although the CFPB is currently not required to submit its regulations to OMB for review, that could change as a result of the D.C. Circuit’s PHH decision.  As we previously reported, one of the decision’s potential impacts is that the CFPB would be considered an “executive agency” subject to the regulatory review process of the Office of Information and Regulatory Affairs (OIRA) within OMB.   Pursuant to Executive Order 12866, federal agencies, other than those defined as an “independent regulatory agency” by 44 U.S.C. Sec. 3502(5), must submit proposed and final regulations constituting a “significant regulatory action” to OIRA for review prior to publication in the Federal Register.

In PHH, the D.C. Circuit ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and, to remedy the constitutional defect, severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.”  As the court stated, the consequence of this structural change is that the CFPB is no longer an “independent agency” and instead “now will operate as an executive agency.”

The D.C. Circuit’s decision is not yet effective because the court issued an order directing the Clerk of the Court of Appeals to “withhold issuance of the mandate herein until seven days after disposition of any timely petition for rehearing or petition for rehearing en banc.”  On November 18, 2016, the CFPB filed a petition for rehearing en banc and the D.C. Circuit has entered an order that provides that PHH’s response to the petition must be filed by December 22.  (The Solicitor General was also invited to file a response which must be filed by December 22.)

Notwithstanding that the CFPB is currently defined as an “independent regulatory agency” by 44 U.S.C. Sec. 3502(5), if the D.C. Circuit’s decision takes effect, it is possible the CFPB would no longer be considered an “independent regulatory agency” for purposes of Executive Order 12866.  Alternatively, Congress could amend the provision so that it no longer defines the CFPB as an “independent regulatory agency” or the new President could revise Executive Order 12866 to subject CFPB regulations to OIRA review.

CHERRY HILL, N.J. — New Jersey-based debt collection agency MRS BPO, LLC, one of the country’s premiere accounts receivable management firms, continued its tradition of partnering with the Salvation Army to help provide gifts for children in need.

For the past seven years, MRS employees have brought joy to many children in the local community of Camden, New Jersey.  The Salvation Army, through its Angel Tree program, provides new clothing, shoes, and toys for children of families in need through the support of local donors.  The Salvation Army provides gift requests for children of all ages.  These requests are printed on “angel” cards which decorate a tree at MRS’s office.  Employees select a card(s) from the tree and then purchase the requested gift printed on the card for “their” child.  For associates who do not have time to purchase a gift, the Salvation Army also accepts donations to purchase gifts for children who may not have had their tag chosen.

The delivery of donations has become a favorite tradition at MRS as employees collectively gave hundreds of toys and shoes recently to The Salvation Army Kroc Center in Camden, New Jersey.  “This year, The Salvation Army Kroc Center in Camden assisted over 500 families. We were blessed and overwhelmed by the generosity of many and were able to give more toys to more children,” said Major Susan Wood, of The Salvation Army Kroc Center in Camden.  “We are sincerely grateful to MRS Associates for their partnership in assisting local families in need.”

“The generosity and compassion of our staff never ceases to amaze us,” said Jeff and Saul Freedman, Co-CEOs of MRS.  “We are proud of our staff and their contributions to our customers and to our local community.”

ABOUT MRS BPO, LLC

MRS BPO, LLC is a full service accounts receivable management firm based in Cherry Hill, New Jersey. The company’s unique combination of experience, technology, and compliance management processes allows them to provide industry-leading debt recovery solutions while enhancing their client’s brand and reputation. For more information on MRS BPO, LLC, visit them online at www.mrsbpo.com.

A recent opinion issued by the U.S. District Court for the Northern District of Illinois held in Janetos v. Fulton Friedman & Gullace, LLP (United States District Court, N.D. Illinois, Case No. 12-1473) that debt collector Asset Acceptance, LLC (Asset) could not escape liability for a violation of the Fair Debt Collection Practices Act (FDCPA) by law firm Fulton Friedman & Gullace, LLP (Fulton) taken on Asset’s behalf. A copy of the opinion can be found here.

Background

Plaintiffs Mary T. Janetos, Erik King, Pamela Fujioka, and Ignacio Bernave alleged that form debt collection letters sent by Fulton violated the FDCPA through using confusing language.

Previously, on appeal of entry of summary judgment for defendants, the Seventh Circuit reversed the lower court and held that Fulton’s failure to make mandated disclosures violated the FDCPA as a matter of law and that Asset, the debt collector, could not escape liability for Fulton’s conduct:

“A debt collector should not be able to avoid liability for unlawful debt collection practices simply by contracting with another company to do what the law does not allow it to do directly … [W]e think it is fair and consistent with the Act to require a debt collector who is independently obliged to comply with the Act to monitor the actions of those it enlists to collect debts on its behalf.”

The Seventh Circuit remanded the case back to the District Court for further proceedings, after which the plaintiffs filed a motion for summary judgment and Asset filed a cross-motion on the measure of class damages.

Opinion

Judge Thomas M. Durkin began discussion of the case by noting the FDCPA’s civil liability provision calling for actual and statutory damages in addition to attorney’s fees and costs for individuals and class members if a FDCPA action successfully enforces liability. According to Judge Durkin, the relevant portion of the FDCPA for this case is the following:

“any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable . . . in the case of a class action . . . [for] such amount as the court may allow for all [unnamed] class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector.”

In this case, it was undisputed that Fulton has a net worth of $0, while 1% of Asset’s net worth exceeds $500,000.

Asset cited Section 13 of the Restatement (Third) of Torts to argue that Fulton is the only liable party in this case. The plaintiffs argued “that all liable debt collectors must be held separately to the penalties set forth in the statutory damages provision.”

The Court granted the plaintiffs’ motion and denied Asset’s motion for three reasons:

• The FDCPA civil damages provision does not distinguish liability between debt collectors, instead applying to “any debt collector who fails to comply.”
• The violation in this case is “statutory, not tortious,” and Asset’s liability in the case “derives from a failure to supervise, making it culpable in and of itself.”
• Concern about setting a bad precedent. Judge Durkin notes that “if Asset Acceptance were permitted to hide behind Fulton’s insolvency, it would be encouraged to outsource unethical debt collection practices to judgment-proof debt collectors like Fulton,” which “would undermine the purpose of the FDCPA.”

The Court did agree with Asset with respect to duplicative damages, ruling that “actual damages may not be double collected” and that Asset’s net worth is relevant to determining class damages. Judge Durkin also noted that the following is true in this sort of case:

“In determining the amount of class damages, courts must consider ‘the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector’s noncompliance was intentional’ in determining damages.”

insideARM Perspective

This case has been working its way through the courts for a long time, and has been previously covered on insideARM in April 2016 and in February 2015.

This is a negative result for the industry, which highlights the importance of ensuring your company’s compliance with the FDCPA, as well as making sure any partner of yours is also compliant

Readers should compare this result with the case we wrote about on December 13, 2016, Petri v. Mercy Health d/b/a Mercy Hospital St. Louis (United States District Court, E.D. Missouri, Case No. 15-1296). In that case, the court did not find vicarious liability for the client that hired a collection agency that violated the FDCPA.

NASHVILLE, Tenn. — Frost-Arnett today announced that George Buck will be transitioning out of his current role as President of the company at the end of the year. The company also stated that Paul Sachtleben will move into the President position while Jason Meyer will serve as the company’s Chief Executive Officer.

“George has been instrumental in the success of Frost-Arnett,” said Frost-Arnett’s Chairman, Charles Martin, Jr. “He has been a contributor not only to the financial success of the company, but he has had a tremendous influence on the development of our corporate culture.”

George has been with Frost-Arnett for 37 years and has held the President position since 2002. “George has helped to steer the company to substantial growth, as evidenced by our recent announcement to move our corporate headquarters from James Robertson to Elm Hill Pike,” said Martin, Jr. “We will miss George in his current role and are grateful that he will stay with the company and recognize his substantial contribution to the company.”

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In announcing the change of duties, Buck said, “This is the culmination of a two-year process. It’s time for the next generation of leaders to take the helm. I’m extremely grateful for the opportunities that have been afforded me, and I look forward to continuing to add value to the organization.” George will remain with the company as President Emeritus and focus on client relationship development, being an advocate for the ARM industry in our ever-changing regulatory environment as well as continuing his role on the national speaking circuit as an industry thought leader.

Paul Sachtleben, who has been with the company for 17 years, has been responsible for day-to-day operations for the last eight years and will continue to run operations while focusing on continuing improvement of client performance and results. “Paul knows our company and this business as well as anyone at our company.  He has been the main architect behind our operations and workflow and will continue to be a tremendous asset to the company in his new role,” said Charles Martin, Jr.

Jason Meyer, who joined the company in 2015, will primarily be responsible for setting the strategy of the company, client and business development and setting the company’s growth initiatives. “Jason brings a wealth of experience in sales, management and corporate strategy from his many years in investment banking and consulting,” said, Charles Martin, Jr.  “He and Paul are the perfect combination to lead Frost-Arnett into the future.”

About Frost-Arnett

For more than 120 years, Frost-Arnett continues to be the leader in the Accounts Receivable Management for the healthcare industry in developing and providing innovative solutions to our Client’s accounts receivable and collection needs. The Nashville, Tenn.-based company has built a reputation for Service and Results second to none in the market, specializing in Bad Debt Collections and Early-Out Recovery. For more information, visit www.frost-arnett.com or call 877-277-9475.

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Editor’s Note: We at insideARM and The iA Institute have worked closely with George over the years. We can say without hesitation that he is a man of integrity, insight and compassion… and is a true gentleman. We are thrilled that George will have more time to be an advocate for the industry. He will serve us all well!