Archives for May 2017

LiveVox will join other industry leaders to discuss forward-thinking approaches to Cybersecurity and best practices to defending contact center operations from potential threats on a panel at CRS 2017

• With a timely focus on payment line security, LiveVox will also share insight on the rising costs required to maintain PCI certifications and how cloud is helping offload a significant portion of the burden while adapting to changing consumer preferences.To learn more, click here.

• The panel takes place Thursday, May 11^th at 3:30pm PT at the 2017 CRS Conference in Las Vegas

SAN FRANCISCO – LiveVox Inc., a leading provider of cloud contact center solutions for enterprise operations, announced that it will join cybersecurity, operations, and technology experts to discuss top threats to cybersecurity and leading strategies to protecting operations from potential security breaches.

In today’s world, organizations must be prepared to defend against threats in cyberspace. Accessing and transmitting sensitive data requires that businesses are always up to date with the latest standards and regulations in protecting and storing data securely – a prime example of this is PCI certifications. As a changing consumer base continues to place greater pressure on regulatory bodies like the FTC to enforce stricter security standards, what once may have been given a pass in a PCI audit may now result in a fail. To meet these tightening audit requirements, contacts centers are left facing potential security expenses ranging from hundreds of thousands to millions.

On the topic, panelist Andy Avila, Sr. Director of Security, LiveVox states, “Cloud is changing how contact centers approach payment line security by helping offload a vast majority of the financial and resource burden of obtaining and maintaining PCI certifications through on-demand solutions that provide some of the highest levels of payment security. As security requirements continue to mount, it is imperative that businesses stay ahead of the curve with their security and risk-mitigation strategies. I am excited to join industry leaders to discuss best practices to mitigating risk exposure and sharing how Cloud is leading the charge in providing some of the most innovative and cost-effective payment data security solutions.”

To read more about how to offload the costs of securing payment lines for a changing a consumer base, read our latest blog post here.

 

About the event:

• EVENT: CyberSecurity for the Non-IT Collection/Recovery Professional
• DATE/TIME: Thursday, May 11th, 2017 at 3:30pm PT
• LOCATION: CRS 2017, Las Vegas, NV
• PANELISTS:

o   Mark Naiman, Absolute Resolutions Corp.

o   Todd Stephenson, ControlScan

o   Mike Wright, TECH LOCK

o   Andy Avila, LiveVox, Inc.

 

About LiveVox, Inc.
LiveVox is a leading provider of cloud contact center solutions for enterprise operations. The LiveVox multi-channel platform provides risk mitigation tools, such as Four Clouds, that simultaneously addresses key compliance concerns while optimizing performance efficiencies.  LiveVox Intelligent Email system is another example of how LiveVox is providing contact centers with a competitive advantage in a changing regulatory environment through innovation. To learn more, contact us at info@livevox.com

Yesterday PRA Group (PRAA) released its Q1 2017 financial results and hosted a conference call for investors. The company reported net income of $48.2 million (diluted earnings per share of $1.03 versus $0.69 in the first quarter of 2016), including the gain from the sale of the Company’s Government Services business in the first quarter of 2017. 

PRAA is one of the largest purchasers of defaulted receivables worldwide.

First Quarter 2017 Highlights

• Cash collections of $379.8 million versus $384.3 million in the year-ago quarter.
• Total revenues of $206.6 million versus $224.9 million in the year-ago quarter.
• Income from operations of $53.3 million compared with $70.9 million in the year-ago quarter
• Net income of $48.2 million compared with net income of $32.0 million in the prior year period
• Portfolio acquisitions of $227.8 million.
• Gain on sale of the Government Services business was $46.8 million pre-tax and excludes an additional $2.1 million in expenses associated with the sale in operating expenses. 
• Estimated remaining collections of $5.1 billion

Per the press release that accompanied the earnings announcement:

“PRA’s cash collections in the first quarter exceeded our expectations while cash operating expenses remained controlled.  We are pleased with the progress made in increasing our collector workforce in the U.S. to the appropriate level.  Both our existing collector workforce and our new hires continue to impress us with their work ethic and commitment to compliance,” said Steve Fredrickson, chairman and chief executive officer, PRA Group.  “Our cash efficiency ratio, measured as cash receipts less operating expenses divided by cash receipts, of 61% continues to compare well with previous years even with the impact of our current regulatory environment with its greater costs and negative impact on revenue.  We are also pleased with our first quarter investment, particularly in the U.S., where we see gradually improving volumes and pricing.” 

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. ECPG reported earnings last week; insideARM wrote about the report yesterday.

PRAA management provided a little less detail during the investor Q&A than their counterparts at ECPG.

Supply and Pricing

Kevin P. Stevenson, PRAA – Co-Founder, President, Chief Administrative Officer and Director discussed supply and pricing:

“We’ve seen indications in the market that supply in core Americas is increasing. Many articles have been written recently, discussing the post-crisis build in consumer credit in United States, and the predictable result of increased charge-off volumes that are now showing. Federal Reserve data shows charge-off rates increased in the fourth quarter of 2016 by 50 basis points to 3.56% versus 3.03% in Q3 of 2016 and 2.94% in Q1 of 2016.

Charge-off rates for some credit issuers are higher and expanding faster than this since these lenders also serve the mid-prime customer markets. Additionally, outstanding credit volumes continue to increase and we expect this combination of issuance and charge-off rate growth to provide increased supply into the sales market. Importantly, this supply increase is propelled by the increase in lending as well as normal, historical charge-off patterns and not an economic downturn like we’ve experienced during the global financial crisis.”

Later in the call, another analyst pushed management for more specific detail on pricing.  Steven D. Fredrickson, PRAA – Co-Founder, Chairman and CEO responded:

“I think, other than Kevin’s points that we believe we’re buying the higher IRRs than we were a quarter ago or a year ago, we’re buying a wide variety of quality of paper and we also win deals at a fairly large range of IRR. And so it’s very difficult. I’d say it’s impossible to say that pricing has moved by X percent. This is not an efficient market. This is not a commodity market. And we believe that there’s a fair amount of inefficiency in pricing. And so other than to say we think the pricing has moved in a meaningful way, I’m not going to make a guess as to what percentage it might be.”

TCPA and Regulatory Environment 

Frederickson also discussed the TCPA and current regulatory environment. He said:

“We’ve seen very little concrete movement in Washington as it relates to regulation. However, there has been some recent commentary on the TCPA by a Commissioner of the FCC which gives us hope that they’ll overturn the past misguided ruling and allow businesses to appropriately utilize today’s technology to contact customers. We’re awaiting a ruling from the D.C. circuit on the industry appeal that was filed and argued in 2016, but are hopeful that regardless of that outcome, the FCC will revisit the current interpretation of the TCPA.

There’s been no further definitive communication on debt collection rule making from the CFPB, but we anticipate that they’ll continue to work with the industry in crafting rules that are fair to both consumers and business. As we mentioned last quarter, with almost a year having passed since we implemented new operating rules related to our consent order, we now feel our operations have stabilized and we’re beginning once again to be able to fine-tune processes to improve efficiency.”

Later in the earnings call one of the analysts pressed management on what impact any change in the TCPA might have on production. Stevenson responded:

“It would be an impact that we would certainly talk to you about. Assuming that happens tomorrow, we would have our dialers turned on within a couple days. But I think it would be a fairly meaningful impact. And we’ve been talking about this for years and it would allow us not only to be more efficient with our reps but also continue to penetrate our portfolios more deeply because, to your point, we don’t use dialing equipment for calling cellphones at all.”

Finally, at the very end of the earnings call, one of the analysts asked a question about the delayed CFPB debt collection rulemaking and whether the change in administration might lead to some modification or reversal of the consent order PRRA signed with the CFPB in September of 2015. The analyst felt that PRAA and ECPG were being forced to a higher standard than others in the industry. See insideARM story on the consent order here.

Frederickson responded:

“I mean, we would love to see uniform industry-wide rules be promulgated that are, as I’ve said, fair to consumer and businesses. And that’s our hope. We’re doing what we can do with our conversations with lawmakers and regulators to try to make that result come about. But I think it’s a fool’s error to make a guess on what’s going to happen on the regulatory front, other than saying we’re hard at work to try to influence what we can. Ultimately, what comes out of it, we can only try to influence and then wait and watch.”

The gain from the sale of its government services business in Q1 provided a significant boost to PRAA’s numbers for the quarter. Without that boost the number would be quite different. It will be interesting to watch the company performance over the next 12-24 months as they are buying more paper, and buying the paper at more attractive prices. 

One consistent item from both the ECPG and PRAA reports was the fact that while volume is increasing for both, the average balance per account is decreasing. Lower balances may impact legal collections in the future as the cost of litigation often precludes legal involvement on smaller balances.

PHOENIX, Ariz. – Empereon-Constar, a leading provider of end-to-end customer engagement and customer management solutions, announced plans today to open a new inbound call center in Lacy Lakeview, Texas. The move brings 900 full-time customer care, customer service and tech support jobs to the Greater Waco area with an expected annual payroll impact of approximately $20 million. 

“As Empereon-Constar continues to invest in the US labor force, the new Waco center of excellence will play an important part of our 2017 domestic growth strategy,” said Travis Bowley, CEO. “We are excited to announce the opening of another new flagship mega-center in Waco with over 900 seats to support our clients’ domestic growth needs in 2017.”  

Located at 1205 N. Loop 340 in Lacy Lakeview (formerly the General Dynamics building), the 68,312-square-foot call center is projected to open in July. Available positions include customer service and tech support representatives, operations management, quality assurance, IT, and other staff. All positions offer competitive pay, paid training, and benefits.  

“Waco was selected after beating out 15 other cities across the U.S. due to its impressive labor force, a beautiful plug and play facility, and a welcoming city leadership team,” said Toby Parrish, Senior Vice President, Inbound Operations. “As Empereon continues to invest in the US labor force, Waco will play an important part of our 2017 domestic growth strategy.” 

Hiring is already in process, individuals interested in applying for these positions can visit http://tinyurl.com/empereoncareers. 

About Empereon-Constar

Empereon-Constar is a leading business process outsourcing company providing end-to-end customer engagement and customer management solutions for New Sales Account Generation, Risk and Fraud Operations, Collections Operations and Tech Support across the entire customer account lifecycle. 

Empereon-Constar’s full range of consumer and commercial services includes: lead generation, inbound / outbound sales, account origination, customer care, customer service, technical support, first party collections, recovery collections, credit bureau dispute management, fraud risk management, anti-money laundering, loan servicing and loan processing. Our world-class services and unique global strategy allows us to meet the needs of our client partners across multichannel (email, chat, phone) communication platforms, provide exceptional customer experiences, and consistently deliver world-class performance results, while maintaining the highest level of data security and compliance. Visit www.empereon-constar.com for more information.

Editor’s note: Rozanne Andersen, VP & Chief Compliance Officer for Ontario Systems, has written an informative and educational series of articles on payment systems. This is the fourth in the series. Read the others: 

1. Electronic Payments Step One – Understand the Terminology  
2. Electronic Payments Step Two – Understand Your Authorization Requirements
3. Electronic Payments Step Three – How to Create and Sign an Electronic Payment Authorization

This article previously appeared on Ontario System’s blog and is republished here with permission.

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Before closing the books on electronic payments, remember your responsibilities to notify the consumer of their rights and changes in terms. Depending on whether you are a third-party debt collector, credit issuer, government entity or healthcare provider, your duties may vary.

Third-party debt collectors: Third-party debt collectors must comply with 15 U.S. Code § 1692 f of the Fair Debt Collection Practices Act (FDCPA) when processing electronic payments. Section 808 f of this section provides, “A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:”

• The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
• The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector’s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit.
• The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.
• Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.

With regard to subparagraph (1) do not overlook the fact you cannot simply charge the consumer a convenience fee because they pay by debit, credit, prepaid card or ACH transaction. First, you must determine if the additional charge is authorized in the underlying contract between the consumer and the creditor or permitted by law. Second, if permitted, the fee must be reasonable, and third, you must offer the consumer a free option. This means you must explain how they can make the payment to avoid the convenience fee charge. 

With regard to subparagraph (2), you must send the reminder notice to the consumer required by this section before you process the electronic payment. Subparagraph (3) seldom presents a problem to the responsible debt collector but it is wise to include this prohibition in your electronic payment policy as a reminder. Most importantly, citing subparagraph (4), make sure you and your payment processor understand how critical it is that electronic payments are actually processed according to the authorization of the consumer. This means you process payments in the amount and on the day you said you would do so – not a day too soon and not a day too late.

Payees – All Types:

Regardless of the nature of your business, if you accept electronic payments from consumers you have special duties when it comes to processing recurring preauthorized electronic funds transfers which vary in amount or timing. Before processing a preauthorized electronic funds transfer which differs in amount or timing from the authorized amount or the agreed upon recurring payment date, third party debt collectors, credit issuers, governmental entities or healthcare providers must provide the consumer with written notice of the amount and date of the transfer at least 10 days before the scheduled date of transfer. [See 12 CFR 10(d) (1)]

All processors of electronic payments must also provide notice of the all-important revocation or stop payment notice. As is the case with all authorizations, consumers have the right to revoke or stop payment of the authorized payments. It is your responsibility to provide consumers with notice of the time, place and manner in which they may revoke or stop payment on the transaction(s). Specifically and when obtaining the authorization for the recurring preauthorized electronic funds transfers you must inform the consumer they can notify your company orally or in writing at any time at least  three business days before the scheduled date of the transfer (12 CFR 1005.10(c)(1)). Alternatively, you may require written confirmation of an oral stop payment order to be made within 14 days of the consumer’s oral notification. If you opt to require a written confirmation, you must inform the consumer of the requirement and provide the address where confirmation must be sent when the consumer gives the oral notification. An oral revocation or stop-payment order ceases to be binding after 14 days if the consumer fails to provide the required written confirmation. [See 12 CFR 1005.10(c) (2)]

Finally, the law affords bona fide error protection to those who fail to comply with the authorization and disclosure requirements for preauthorized recurring electronic funds transfers if the consumer mistakenly tells them the account is a credit card account. For this reason when taking authorizations by phone or web you should always ask the consumer to confirm whether the account subject to the preauthorized transfers is a credit card account or a debit/checking account. 12 CFR 1005 10 (c)

If the consumer indicates use of a credit card account when in fact a debit card is being used, you do not violate the requirement to obtain a written authorization if the failure to obtain written authorization was not intentional and resulted from a bona fide error, and if you maintain procedures reasonably adapted to avoid any such error. Procedures reasonably adapted to avoid error will depend upon the circumstance. Generally, requesting the consumer to specify whether the card to be used for the authorization is a debit (or check) card or a credit card is a reasonable procedure.

If you believe at the time of the authorization that a credit card is involved, and later find the card used was a debit card (for example, because the consumer later brings the matter to your attention), then you must obtain a written and signed or (where appropriate) a similarly authenticated authorization as soon as reasonably possible, or cease debiting the consumer’s account.

Electronic payments processing can be challenging. 

Meeting the compliance requirements of the various laws and regulations requires organizational discipline and a keen understanding of the requirements. Never hesitate to learn on your partners to help you manage the complex environment of electronic payments, evaluate your talk offs, review your quality assurance program, assist you in writing policies and procedures, train your team and most importantly give you the support you need when you need it. 

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Disclaimer: Ontario Systems is a technology company and provides this blog article solely for general informational and marketing purposes. You should not rely on the content of this material for any other purpose or as specific guidance for your company. Ontario Systems’ advice, services, tools and products described herein do not guarantee compliance with any law or industry standard. You are ultimately responsible for your own company’s actions and compliance efforts. Because everyone’s situation is different, you must consult your own attorneys, accountants, and/or other advisors to obtain specific advice on your company’s compliance, legal, tax, regulatory and/or other business needs. Despite Ontario Systems’ efforts to provide current and up-to-date information, you need to recognize that the information contained herein may become outdated quickly and may contain errors and/or other inaccuracies. 

© 2017 Ontario Systems, LLC. All rights reserved. Information contained in this document is subject to change. Reproduction of this publication is not permitted without the express permission of Ontario Systems, LLC.

On Tuesday Performant Financial Corporation (PFMT), announced financial results for the first quarter of 2017. 

PFMT is one of the few publicly traded companies in the ARM space. The company has also historically been one of the Department of Education’s (ED) top performing private collection agencies. However, the firm’s contract with ED expired in April of 2015 and they have not received placements from ED since then. Last month ED had PFMT (and other agencies whose contracts expired in 2015) return all open inventory.

insideARM previously wrote about the December 2016 announcement from ED regarding their selections for the new student loan debt collection contract. Performant was not selected, and the company was among those that filed a protest with the GAO over the award. The GAO sustained their protest (and the protests of 11 other firms) in March of this year. In that decision, the GAO directed ED to reevaluate the RFP process.

The entire ED RFP process is tied up in multiple lawsuits at the Court of Federal Claims. insideARM wrote an extensive article on the protests and litigation on April 20, 2017.

First Quarter Highlights

• Total revenues of $33.1 million, compared to revenues of $38.3 million in the prior year period, down 13.5%.
• Net loss of $3.0 million, or $(0.06) per diluted share, compared to a net income of $0.1 million, or $0.00 per diluted share, in the prior year period.
• Adjusted EBITDA of $2.8 million, compared to adjusted EBITDA of $7.4 million in the prior year period.
• Adjusted net loss of $1.9 million, or $(0.04) per diluted share, compared to an adjusted net income of $2.0 million or $0.04 per diluted share in the prior year period.

In the press release that accompanied the earnings announcement PFMT commented on the quarter: 

“Despite ongoing challenges with the Department of Education and the old CMS recovery audit contracts, we made solid progress during the quarter by expanding our technology and services into new markets,” said Lisa Im, Performant Financial’s Chief Executive Officer. “Additionally, although we were encouraged by the GAO’s decision to sustain both of our protests related to the Department of Education contract award, even if were we to receive a contract award in the very near term, we do not anticipate that it would have a material impact on our 2017 results.” 

insideARM Perspective

Insights we gained from Tuesday’s investor call: 

ED RFP

It was noted that during the quarter, without any new placements for 24 months, ED still accounted for $1.7 million of revenues. That number highlights why the ED contract is so desirable. Management commented on the ED RFP, protests and litigation. Hakan L. Orvell, PFMT – CFO, VP and Secretary said:

“As it relates of the Department of Education contract award, the GAO issued its decision in late March, sustaining both of our protests. It is still unclear what remedial action the Department will take, but the GAO determined that the process was flawed and recommended that the DOE, at a minimum, reevaluate the RFP process. Regardless, even with a very near-term contract award, we will not anticipate this contract to have a material impact on our 2017 results.”

Lisa Im, PFMT Chairwoman and CEO, later offered additional color on the ED opportunity when asked about strategic alternatives for the company as the ED RFP process continues to drag on. Im commented: 

“We actually should know probably a lot more in the very near future. We — you’ve been following, I’m sure, and you’ve read through all the different court arguments and where the protests are. And the Department of Education, from what we have understood from publicly reported sources, is supposed to come up with a mitigation or a remediation plan by the 22nd of May. So, I think we’re going to have — we obviously want to wait and see what that is.” 

Treasury Contract 

On May 9, 2017 insideARM reported that PFMT was awarded a new contract with the United States Department of Treasury, Bureau of the Fiscal Service. Ms. Im provided a short statement on that positive news.

“We also won a re-compete of the Treasury contract. It’s a 5-year term broken into annual renewals, similar to most other federal contracts. We are the only vendor to have served on this contract since its inception in 1997.”

IRS Collection Contract

PFMT was one of the four companies selected in September of 2016 to begin work on a new IRS private collection program. See our September 27, 2016 article here.  Ms. Im also commented on the IRS program.

“The IRS program is a pay-for in the Highway Transportation Bill, which targets a $2.4 billion return to the government within a 10-year time frame. With the IRS, we just started. So they started with very low volume and want to make sure the program is right. But the intent is, assuming all goes well, that there will be material increases in the folks whom we’re allowed to contact over the next few months. So, we should certainly learn more as we get through this quarter, and we’ll — we can provide more information about how we think that’s shaping up as we move through the first few months of both contracts. But we do expect revenue in the fourth quarter of this year.”

In short, though the first quarter was not particularly encouraging for PFMT, the company has positive momentum for additional revenue growth.  Much will depend upon the ramp up of the IRS program and the eventual outcome of the ED RFP saga.

In Part 1 of this article, we looked at the origins of the so-called “meaningful involvement” doctrine by reviewing the decisions that established its existence without defining its scope. Now, we will consider whether and when it may be appropriate for collection attorneys to disclaim any “meaningful involvement” in their communications with consumers.    

Disclaiming Meaningful Involvement

Can a collection attorney avoid liability under the “meaningful involvement” doctrine by including a disclaimer in the collection letter, informing the consumer that no attorney of the firm has conducted any meaningful review of the file? The answer is unclear.

In Greco v. Trauner, Cohen & Thomas, 412 F.3d 360 (2d Cir. 2005), the letter was on the law firm letterhead, but was not signed by any attorney.  On the front of the letter, in addition to the language required by section 1692g of the FDCPA, the following statement was included: “At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.  However, if you fail to contact this office, our client may consider additional remedies to recover the balance due.”  Id. at 361.  The Court rejected plaintiff’s claim that the letter violated the FDCPA, noting that an attorney can send a collection letter to a consumer “without being meaningfully involved as an attorney within the collection process, so long as that letter includes disclaimers that should make clear even to the ‘least sophisticated consumer’ that the law firm or attorney sending the letter is not, at the time of the letter’s transmission, acting as an attorney.”  Id. at 364.  The Court held that “the defendant’s letter included a clear disclaimer explaining the limited extent of their involvement in the collection of Greco’s debt.”  Id. at 365; see also Jones v. Dufek, 830 F.3d 523 (D.C. Cir. 2016) (no FDCPA violation where law firm used Greco disclaimer on front of letter stating: “Please be advised that we are acting in our capacity as a debt collector and at this time, no attorney with our law firm has personally reviewed the particular circumstances of your account.”).

Portions of the CFPB’s recent consent order with the Works & Lentz law firm suggest that the Bureau approves of the use of a Greco-type disclaimer in some circumstances.  In the Findings and Conclusions recited in the Order, the CFPB alleged that the firm had violated the FDCPA by, among other things, sending letters to consumers that “did not include any disclaimer to alert Consumers that no attorney had review their account prior to the initial demand being mailed.”  See In the Matter of: Works & Lentz, Inc., et al., Administrative Proceeding File No. 2017-CFPB-0003 (“Order”) para. 12-14, 18-23.  The Consent Order mandates that in the future, whenever the firm sends a letter to a consumer and no attorney has been “meaningfully involved in reviewing the Consumer’s account” and no attorney has “made a professional assessment of the delinquency,” the letter must “

1. Clearly and prominently disclose that no attorney has reviewed the Consumer account at issue;
2. State in the signature block that the letter is from the Collection Department; and
3. Omit the name of any attorney and the phrase “Attorney at Law” from the signature block of any Demand Letter.”  Id. at para. 44. 

At best, then, the Order suggests an attorney can send a collection letter without being “meaningfully involved” in an account, but it provides no definitive guidance for how attorneys can discharge their “meaningful involvement” obligations.  Nowhere in the Order does the CFPB explain what is required for an attorney to be “meaningfully involved in reviewing the Consumer’s account” or what an attorney must do in order to make “a professional assessment of the delinquency” on an account. 

Including a disclaimer of attorney involvement in a collection letter does not always insulate an attorney from liability under the FDCPA.  For example, in Gonzalez v. Mitchell N. Kay, 577 F.3d 600 (5th Cir. 2009), the letter was sent on law firm letterhead but was not signed.  The front of the letter included the section 1692g notice, and directed the reader to “Please see reverse side for important information.”  Id. at 602.  On the back of the letter was a notice stating: “At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.”  Id.  The court noted that the debtor “would not learn that the letter was from a debt collector unless the consumer turned the letter over to read the “legalese” on the back. The disclaimer on the back of the letter completely contradicted the message on the front of the letter-that the creditor had retained the Kay Law Firm and its lawyers to collect the debt.”  Id. at 607.  The Court therefore reversed the district court’s holding that the plaintiff had failed to state a claim for relief under the FDCPA.

Similarly, in Lesher v. The Law Offices Of Mitchell N. Kay, 650 F.3d 993 (3d Cir. 2011), the Court held that settlement letters sent on a law firm’s letterhead with the Greco disclaimer on the reverse side of the letter violated the FDCPA.  According to the Court, “the least sophisticated debtor, upon receiving these letters, may reasonably believe that an attorney has reviewed his file and has determined that he is a candidate for legal action.”  Id. at 1003.  The letters “raise[d] the specter of potential legal action,” and were therefore false and misleading because the firm was not acting in a “legal capacity” when it sent the letters. Id. 

Where does all of this leave us?

The answer is a clear as mud. The “meaningful involvement” doctrine does not appear in any statute, rule, or regulation. What exactly does it require of attorneys who seek to comply with it? When can attorneys disclaim it? What, if anything, should clients insist upon from their collection attorneys? This judicially-created doctrine has been around for the twenty-four years, and has been widely embraced by many courts and by regulators. Despite this, collection attorneys are still at a loss as to what they must do to comply with these unwritten requirements, and it remains unclear whether a “disclaimer” of attorney involvement will always be accepted. Collection attorneys and their clients must continue to do their best to piece together all available authority on how to comply with this amorphous doctrine. 

The CFPB Complaint Process is a valuable tool for the CFPB (or Bureau), but it has also been a lightning rod issue for companies. Consumers benefit whether they participate in the complaint process or not. Companies, on the other hand, are predictably averse to their dialog with consumers being published publicly, and therefore are not positioning themselves to realize the benefits of the CFPB Complaint Process. While the Bureau has placed the Complaint Process at the center of its operations, companies are simply responding to complaints, and not always taking advantage of what the Bureau is handing to them. 

There is a reason the CFPB places so much focus on Complaints. One of the more complicated requirements faced at the Bureau’s onset was prioritizing its work; deciding what to tackle first, determining what could be worked simultaneously, and strategically applying the resources to accomplish initiatives set forth by the Dodd-Frank Act.

Consider that – in the years since – no other regulator has collected complaints at the rate the Bureau is collecting complaints, or shared complaint data with other regulators, states, and congressional offices. This is an important subject.

The Complaint Process has also helped the CFPB in unexpected ways. For example, during the later stages of the mortgage crisis the Bureau used complaint data to prioritize its work. When writing regulations, the Bureau uses complaint data to determine where an existing regulation may be too weak or too strong.  Researchers and economists at the Bureau use complaint data to help validate their theories, and to identify problem areas with surgical precision.

The Office of Service Member Affairs used the data to identify complaint concentrations around military bases; further analysis of the data allowed the Bureau to learn of serious potential predatory practices. Rather than simply hypothesizing, the Office of Service Member Affairs looked at complaint data to prioritize its work. Nearly every enforcement action taken has been initiated or supported by CFPB complaint data.

Evidence suggests that the value of the data is not the company’s response, which only began supporting the Bureau’s work in recent years. Rather, you will find the CFPB uses trends associated with geography, product, issue, and keywords from the consumer narratives.

Some have noted that complaint data entered by the consumer is not always accurate; consumers may enter the incorrect product, or the issue is not fully representative of the facts. This is where industry misses the boat. While companies complain that data is inaccurate, or that complaints are technically declarations of dissatisfaction (rather than complaints), the Bureau is more interested in determining whether real issues exist where they see trends.  The Bureau would not and could not rule based only upon what the consumer states in a complaint.  Why companies concern themselves with whether a complaint is technically a complaint or whether the data is accurate, and do not look at the broader picture as the Bureau does, is beyond me. The value is in the trends, which only unfold with proper analysis.

When a complaint is not accurate, a company should simply respond with a level of substance sufficient for that response. The Bureau checks a little further than the complaints before taking legal action.   Would the Bureau be interested in why so many consumers don’t know what product they have? Yes, and you should be concerned. How about geographical concentrations, gender, issue trends, or simply the number of complaints? In my opinion, companies are more worried about whether a complaint is technically a complaint, while the Bureau uses the same data to walk in your door and know exactly where to look. Don’t believe me? Look at your engagement letters and have a data analyst determine whether your complaints could have predicted exactly where the Bureau is looking.  My bet is, yes they could. 

I am upset with companies who receive MOUs or other actions in situations where the complaint data revealed their issues since day one. I am troubled with companies being sidetracked into arguing that the process is not fair, while not leveraging the tremendous value the Complaint Process provides.  This is not a problem with company complaint response teams, but rather company leadership, who should demand the following from their data teams (not response teams):

1. A heat-map of complaints by geographic location and their changes over time
2. Assignment and reporting of complaints by division, department, process, regulation
3. Analytics on the narrative fields, looking for trends which may indicate UDAAP or Fair Lending clues and phrases
4. Reporting of all investigations (request for additional information) individually and analysis of data within this set (this will tell you where the Bureau might be looking)
5. Comparative analysis of any public data on geographic, product, issue, and survey (coming soon) rating against a true peer group. Avoid thinking that all offering your product are your peer group because they are not (put some thought into peer group definition by major product category)
6. Reporting of debt collection by creditor, analyzing separately against your clients and beyond:
   • Vendor or Client name
   • Product – always identify the “product” (i.e. selected by the consumer)
   • Analysis of narratives within each set and across all creditors or vendors
   • The existence of an investigation
   • Perform analysis by creditor (or vendor if you are the creditor) complaints to determine if you have opportunities

The CFPB Complaint Process is extremely valuable to the Bureau.  I argue that there is more value to the company that looks at the data, analyzes its customers’ feedback, and leverages the data to mitigate risk and report clearly to executives. Establishing this process will allow your company to be ahead of the CFPB with regard to potential actions. Knowing where you are receiving feedback, and displaying a dynamic process of evaluation and reporting, will go a long way towards reducing complaints and avoiding any regulatory surprises. 

 

Jim McCarthy was a founding member of the CFPB and expert on the CFPB complaint process. Until September 2015 he was a Senior Product Adviser and Stakeholder Division Manager in the Office of Consumer Response. He is currently a consultant, delivering solutions to companies that leverage complaints to improve their Compliance Management Systems and predict emerging issues in real time.

 

Last week Encore Capital Group (ECPG), reported its financial results for the first quarter of 2017. The company announced net income of $22.3 million, or $0.85 per fully diluted share, as compared to $28.9 million, or $1.12 per fully diluted share in the same period a year ago. Of note, the firm’s CEO commented that issuers are selling much sooner than in the past.

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 Q1 2017

• Investment in receivable portfolios was $219 million, including $123 million in the U.S., compared to $257 million deployed overall in the same period a year ago.
• Gross collections declined 2% to $441 million, compared to $448 million in the same period of the prior year.
• Total revenues were $272 million, compared to $289 million in the first quarter of 2016, with the difference primarily driven by currency effects and the trailing impact of the allowance charge taken in the third quarter of last year in Europe.
• Estimated Remaining Collections (ERC) grew $184 million compared to the same period of the prior year, to $5.85 billion.

Kenneth Vecchione, President and CEO, made the following comments on the results:

“The U.S. market for charged off receivables continues to improve as growing supply and lower prices, along with improved liquidations, contribute to increasingly favorable returns. We achieved a first quarter purchase price multiple of 2.0 for new defaulted credit card portfolios, a level we haven’t seen since 2013. We believe we are well positioned to continue to benefit from these increasingly favorable trends, allowing us to take further advantage of our capital availability and collections capacity.

Internationally, we had a strong deployment quarter in Europe and preparation for a potential IPO for our subsidiary Cabot Credit Management announced in February remains on track. We’ve also reached a milestone overseas as the Encore Asset Reconstruction Company is now operational and has recently completed initial small purchases in the Indian debt buying market. Our deployment will be slow and measured initially as we gain comfort with this substantial market opportunity.”

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 yesterday after the market closed. insideARM will report on that announcement later this week.)

Now, on to the more more interesting news… from the conference call. Four things stood out.

First, the company announced that President and Chief Executive Officer (CEO) Ken Vecchione will be leaving the company to become the President of Western Alliance Bancorporation. Following Encore’s long-established succession plan, Ashish Masih will become Encore’s President and CEO. insideARM published the full press release on that announcement on Monday.

Second, when discussing availability of debt for purchase, Vecchione said:

“In the first quarter, defaulted debt rose and is likely to continue to grow as domestic charge-off volume rises in the U.S. This trend leads us to believe that defaulted credit card volume that will be sold in U.S. will grow 15% again in 2017 similar to last year’s 15% rise.

Higher defaulted volume will regulate pricing and should continue to keep pricing below last year. We are optimistic regarding industry returns. Pricing continues to move in our favor as we maintain our disciplined approach to capital allocation. However, some industry participants have been less disciplined than others. We believe as supply becomes available, the market will follow our approach, increasing our ability to sustain our improved returns. To be clear, we are not chasing volume at the expense of lower returns.

We’re off to a good start from a purchasing perspective, as we secured more than $350 million in commitments for 2017.”

During the Q&A portion of the earnings call one analyst asked for additional color on the pricing of fresh debt.  Vecchione responded:

“In the fresh arena, it‘s a solid 15% reduction in the first quarter of 2017 on top of a full-year reduction in 2016 of 15%. And that‘s what we‘re seeing. I‘m going to guess that some of our competitors are not seeing as substantial decline as us. And again, as I said in some of my prepared remarks, I think they are happy with last year‘s pricing decline. But we believe that given where the volume in the industry is going, where those that have capital can deploy it, I think that‘s why we‘ve seen an incremental decline into start of 2017.”

When asked about the age of the debt the company is buying, Vecchione said:

“So if you go back two years ago, we probably were seeing about 60% of our paper, 62% of our paper be fresh paper. Today, it’s 82%. So the issuers are not putting it through one agency and then a second agency and then selling to us, they’re actually selling at the point or just after the point of charge-off. They’re doing that to minimize their charge-off rate with the recoveries they have and also probably to put more earnings into a particular quarter.

So I know what they say, but what they’re doing is something completely different. And I don’t see them stopping that. Once you go down that path of selling and driving in earnings into your company, it’s hard to slow that down, and to then roll it out through either internal processes or an external agency.”

One surprise from the earnings call was the lack of extended discussion on the Federal Communications Commission (FCC) and potential changes to the Telephone Consumer Protection Act (TCPA). This had been a significant topic in prior quarters. One analyst did ask about any potential reduction in domestic cost to collect if the FCC, with a new Chairman, would ultimately amend the TCPA to allow businesses like ECPG to use auto dialers to call mobile devices?

Vecchione provided this response:

“Yes, that‘s an interesting question. In fact, it was as early as today that the new – there were some comments made that kind of got me excited by one of the FCC commissioners, I believe, it‘s O‘Rielly, who said that with the change in administration and new leadership at the FCC that they‘re going to be relooking at the TCPA and a chance that I think his quote was, undo the misguided and harmful TCPA decisions of the past. (Editor’s note: read O’Rielly’s comments)

I‘m hopeful that there is change in TCPA, but one of the things you‘re seeing with the new administration, they make bold pronouncements upfront, and it takes a little bit of time to implement them. So I hope they get to this right away, but from a betting man and I am, it‘s probably something that happens towards the end of the year, if not, the early part of next year. But if it comes earlier, we‘ll take it, because these are expenses that are easier to eliminate.”

This is Part 1 of a two-part article. Read the second part here.

Grappling with the meaning of the so-called “meaningful involvement” doctrine is one of the most elusive and frustrating compliance challenges for collection attorneys and their clients.  What exactly must a collection attorney do to ensure they are “meaningfully involved” in a file before sending a collection letter to a consumer?  When, if ever, should collection law firms include disclaimers on their collection letters, indicating that no attorney of the firm has reviewed the particular circumstances of the debtor’s file?  What steps must an attorney take to be “meaningfully involved” when filing a collection lawsuit?  What role, if any, should a creditor client play in setting standards for the attorneys who collect on its behalf? 

Finding the right answers to these questions is difficult, and the stakes can be extremely high.  Courts across the country, and regulators like the Consumer Financial Protection Bureau (“CFPB”), have insisted that collection attorneys be “meaningfully involved” in reviewing the accounts they handle for their creditor clients, and that creditors are responsible for ensuring their attorneys are complying with the consumer protection laws.  In the past two years, the CFPB has imposed consent orders on large collection law firms and debt buyers, in part because the Bureau has taken issue with the level of attorney involvement in the collection process.  Consumer attorneys, meanwhile, routinely assert “meaningful involvement” claims in FDCPA lawsuits filed against collection attorneys and their clients. 

Adding to the confusion, some court decisions, and a recent CFPB consent order, have recognized that in some circumstances, collection attorneys may include “disclaimers” in their collection communications to indicate that no attorney has yet been meaningfully involved in reviewing the particular circumstances of the consumer’s account.  How can these authorities be reconciled?  If the requirement for “meaningful involvement” is truly meaningful, can it safely be disclaimed away? 

The Origins Of Meaningful Involvement

First, a brief history lesson is in order.  What exactly is the “meaningful involvement” doctrine anyway?  If you have read the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”), from beginning to end, you are probably still looking for the phrase “meaningful involvement.”  You can stop looking, because it is not in the Act.  Section 1692e(3) of the FDCPA contains a simple prohibition:  collectors may not make any “false representation or implication that any individual is an attorney or that any communication is from an attorney.”  15 U.S.C. § 1692e(3).  The meaningful involvement doctrine was created by judicial decisions that have slowly stretched the plain language of this section beyond recognition.

Courts have expanded section 1692e(3) to imply a broader mandate that         collection attorneys be “meaningfully involved” in the review of a consumer’s file before a collection letter is sent.  See, e.g., Clomon v. Jackson, 988 F.2d 1314, 1320-21 (2d Cir. 1993); Avila v. Rubin, 84 F.3d 222, 228-29 (7th Cir. 1996).  This “meaningful involvement” doctrine has slowly morphed into a theory used by consumer attorneys, and later by regulators, to second-guess not only the collection letters mailed by attorneys, but also the methods used by collection attorneys when preparing and filing state court lawsuits.  The doctrine has now become a vehicle for courts and juries to decide on an ad hoc basis what collection attorneys must do when representing their clients.

Defining Meaningful Involvement

Given that courts and regulators have insisted collection attorneys must be “meaningfully involved” when sending letters and filing lawsuits, it is reasonable to assume there is a universal set of requirements attorneys can follow in order to be compliant.  Wrong.  There are many examples of what is not “meaningful involvement,” but no court or regulator has set out any definitive standards or procedures an attorney can follow in order to ensure compliance.

For example, in Clomon the defendant, an attorney, was a part-time general counsel of a collection agency.  The agency (not the attorney) mailed letters to “approximately one million debtors each year” using a computerized mass-mailing system, with a letterhead referencing the defendant – “P.D. Jackson, Attorney at Law, General Counsel, NCB Collection Services” – and defendant attorney’s mechanically-reproduced “signature.”  Clomon, 988 F.2d at 1316-17.  The attorney never reviewed the letters, and never decided whether or when the agency should mail them.  See id.  The text of the letters falsely suggested defendant had personally reviewed Clomon’s case and had advised his client litigation was a real possibility.  See id. at 1317.   

Similarly, in Avila, a collection agency – not an attorney – mailed letters on an attorney’s letterhead “‘signed’ with a mechanically reproduced facsimile” of the attorney’s signature.  Avila, 84 F.3d at 225.  The agency mailed nearly 270,000 similar letters each year – roughly 1062 each working day.  See id.  The attorney, Rubin, had not personally prepared, signed, or reviewed any of these letters.  See id.  All of the letters threatened suit, but the Seventh Circuit observed it was “unclear (but we think doubtful) whether [Rubin & Associates] litigate anywhere,” id. at 224, and noted that “Rubin is not personally or directly involved in deciding when or to whom a dunning letter should be sent,” id. at 228.

The attorney-defendant in Nielsen v. Dickerson, 307 F.3d 623, 635 (7th Cir. 2002), was completely uninvolved in the letter process.  The Court held that the creditor client – Household Bank – had violated the FDCPA, because the bank was the “true source” of the letters sent using the attorney’s name.  See id. at 639.  The defendant attorney “did not make the decision to send a letter to a debtor; Household did.”  Id. at 635.  The attorney had no “involvement with the file of any debtor slated to receive his form letter and played no meaningful role in the decision to send a debtor such a letter.”  Id.

Without even trying to establish a standard for complying with the “meaningful involvement” doctrine, cases like Clomon, Avila, and Nielsen held that the FDCPA was violated.  One court that at least tried to establish a “test” of sorts was Bock v. Pressler & Pressler, LLP, 30 F. Supp. 3d 283 (D. N.J. 2014).  There, the court held a law firm violated the FDCPA by making an “implied representation that an attorney was meaningfully involved in the preparation of the complaint.”  Id. at 303.  Even though none of the claims made against the debtor in the underlying state court complaint were alleged to be false, the district court nonetheless found an FDCPA violation, because the attorney who reviewed the complaint did not spend enough time doing so.  See id. at 305-06.  The court held that a collection complaint is “inherently” false and misleading, unless, at the time of signing it, the attorney “1) drafted, or carefully reviewed, the complaint; and 2) conducted an inquiry, reasonable under the circumstances, sufficient to form a good faith belief that the claims and legal contentions in the complaint are supported by fact and warranted by law.”  Id. at 304.  Although the Bock court at least attempted to establish a standard governing the “meaningful involvement” doctrine, the court provided zero guidance for what an attorney would need to do in order to meet the standard it had articulated.

Now we have considered the origins of the “meaningful involvement” doctrine and its elusive definition.  In Part 2 of this article, we will explore whether and when it is appropriate for an attorney to “disclaim” their meaningful involvement in collection communications, and how attorneys and their clients are trying to handle this compliance challenge. 

CHICAGO, Ill. — Commercial Collection Agencies of America recently announced that through its initiative, Commercial Collection Agencies of America Gives Back, a portion of the proceeds of its recently held meeting in Atlanta, Georgia has been given to the Atlanta Ronald McDonald Houses.

At the general membership meeting, attendees offered overwhelming support to this worthy initiative and enthusiastically suggested charitable organizations to which the association should donate.

Since 1979 the Atlanta Ronald McDonald Houses have been called “home” by more than 46,000 families with ill and injured children receiving medical care nearby. The Houses are built on the simple idea that nothing else should matter when a family is focused on the health of their child – not where they can afford to stay, where they will get their next meal or where they will lay their head at night to rest. They believe that when a child is hospitalized, the love and support of family is as powerful as the strongest medicine prescribed.

“We are humbled to be able to support the endeavors of the Atlanta Ronald McDonald Houses in our own small way. Commercial Collection Agencies of America Gives Back was uniquely created by the Board of Directors in order for the Association to offer assistance to those in need,” commented Executive Director, Annette M. Waggoner. She continued, “Commercial Collection Agencies of America has also been fortunate enough to donate a portion of the profits from previous meetings to The Cystic Fibrosis Foundation, Wounded Warrior Project, Blessings in a Backpack and The ALS Association-Greater Chicago Chapter.”

For more information regarding the Atlanta Ronald McDonald Houses, please visit www.armhc.org.

About Commercial Collection Agencies of America

Commercial Collection Agencies of America is an organization of commercial collection agencies, creditors’ rights attorneys and law list publishers, many of whom have been certified for over four decades. It is the only certifying body in which all agency members are certified.  For more information or to locate a certified commercial collection agency, please visit, www.commercialcollectionagenciesofamerica.com