Archives for December 2021

It has felt a bit like drinking through a firehose when it comes to keeping up with changes in the compliance landscape over the past year.  Undoubtedly, the biggest challenges have been Hunstein, Regulation F, and Covid.  As the Regulation F implementation date is upon us, everyone in the industry is working hard to change their processes and procedures to comply with the new guidance from the CFPB.  I have been regularly consulting and working with industry members to effectively make these changes and alter existing practices. 

Below are what I view as the top three regulatory issues as we begin implementing Regulation F:

• The Model Notice Validation Letter.  No surprises here, everyone has been working diligently to either utilize the model notice or conform their current validation notice to the requirements under Regulation.  By far the most challenging piece of this is the itemization table and making this work for the many types of debts that our industry manages.  But getting the model notice right is critical because, if it is, you are granted safe harbor from liability and, if it isn’t, you are susceptible to class action liability.  To be sure, plaintiff’s attorneys will be scrutinizing these letters and challenging them in court

• Medical Debt.  Trying to use the Model Validation Letter to collect on medical debt is a bit like fitting a square peg in a round hole.  One of the biggest issues with medical debt is that there are frequently several small accounts with different dates of service being collected at the same time against the same consumer.  While the CFPB attempted to address medical debt in its Final Rule and in recent FAQ guidance, it has left many more confused and unsure of how to collect on multiple debts in a single letter.  I believe this will be an area ripe for consumer lawsuits challenging the interpretations of the CFPB’s guidance.

• Record Retention.  This is a regulatory issue that not many are focused on yet.  Regulation F requires organizations to keep documents evidencing compliance or noncompliance for three years after the last date of collection activity.  In addition, if an organization records calls, those calls must be retained for three years after the date of the call.  Keeping recordings for three years takes up a lot of data space and will increase costs and require additional resources.

Over the next year, I expect to see many challenges to validation letters, particularly in the medical debt arena.  On the bright side, however, I also hope to see the ability to collect and communicate with consumers to increase through the use of email, text, and website portals.  Hopefully, the additional methods of communication and ways to engage the consumer will begin to offset the costs associated with implementing the Final Rule.  I also expect that 2022 will bring a final resolution to the Hunstein conundrum.  I believe that we will finally get confirmation that the use of letter vendors to collect debts is not only permissible under the rules, but necessary in today’s collection climate.

About the Consumer Relations Consortium

The Consumer Relations Consortium (CRC) is an organization comprised of more than 60 national companies representing the diverse ecosystem of debt collection including creditors, data/technology providers and compliance-oriented debt collectors that are larger market participants. Established in 2013, CRC is evolving the debt collection paradigm by engaging stakeholders—including consumer advocates, Federal and State regulators, academic and industry thought leaders, creditors and debt collectors—and challenging them to move beyond talking points and focus on fashioning real-world solutions that actually improve the consumer experience. CRC’s collaborative and candid approach is unique in the market.  CRC is managed by The iA Institute.

Learn more at www.crconsortium.org.

About the iA Innovation Council

The iA Innovation Council is a collaborative working group of product, tech, strategy, and operations thought leaders who envision the future of collections and map how to get there. Group members meet throughout the year to engage in substantive dialogue and whiteboard sessions with the creative thinkers behind the latest innovations for the industry, the regulators who audit and establish guardrails for new technology, and educators, entrepreneurs and innovators from outside the industry who inspire different thinking. 

Learn more at www.iainnovationcouncil.com.

It was easy to forget this year that anything outside of Hunstein and Reg F existed.  While many of us were focused on compliance, compliance, compliance, the world of accounts receivable management kept going. Collection agencies kept collecting, and litigation kept churning. Some things, such as the disciplinary actions filed earlier this year by Maryland and Virginia against consumer attorney Ernest Paul Francis, were highly fascinating.

The Maryland and Virginia disciplinary actions resulted from the conduct Mr. Francis exhibited in representing his client:  a consumer who had been sued by American Express (Amex) for an outstanding credit card bill.  After American Express filed suit, Mr. Francis brought a suit alleging violations of the Fair Debt Collections Practices Act (FDCPA) against Amex’s attorneys. As a result of his actions in the FDCPA case, on March 23, 2021, the state of Virginia revoked Mr. Francis’s license to practice law, and the state of Maryland followed on August 24,  2021.

What did he do?

Mr. Francis stipulated that he:  

• Made substantive decisions regarding the case without his client’s consent;
  
• Submitted offers that were his “standard demands”; he never discussed them with his client as he did not have time to make customized demands in Fair Debt Collection Practices Act cases;
  
• Rejected settlement offers and did not inform his client until a later date that offers were made;
  
• Submitted court filings with factual representations he knew to be false;
  
• Threatened bar complaints against defense counsel and frivolously opposing motions (such as a motion for pro hac vice admission, after he had previously agreed to the admission);
  
• Violated the ethics rules, including his scope of representation, communications, meritorious claims and contentions, and truthfulness in statements to others.

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The judge in the Virginia disciplinary action found that:

• Acrimonious litigation could have been avoided had Mr. Francis adequately communicated with his client;
  
• Mr. Francis pursued the litigation beyond the point at which his client had any interest;
  
• Mr. Francis’s failures amounted to reckless indifference to the law;
  
• The record against Mr. Francies was replete with incivility.
  

In addition to the above, the consumer testified that he would not have accepted money from Amex since he was the one who owed American Express, not the other way around. He further testified that he never took issue with the amount he owed Amex and confirmed he suffered no harm that would justify the litigation and did not want the relief sought in the case. 

The Maryland Petition for Disciplinary Action, which includes the Virginia action can be found here. 

insideARM Perspective:

Not all consumer attorneys act this way; far from it. However, those who have spent any considerable time filing collection lawsuits or defending FDCPA claims have surely had their suspicions regarding whether settlement offers have been conveyed to a consumer.

When I read the disciplinary action in this case, I couldn’t help but think of a counterclaim case I litigated as a novice collection attorney. It was a simple, straightforward credit card collection case, and a consumer attorney filed a counterclaim. There were no actual damages alleged, and during the court of 18 months of litigation, the consumer rejected several settlement offers conveyed to his attorney. 

Although I knew attorneys had an ethical duty to convey settlement offers to their clients, I had long suspected that my client’s offers had not been conveyed since no actual damages were alleged, and my client had been offering to pay the consumer and forgive the entirety of the $3,000.00 debt. It was basically free money for the consumer, and my client and I couldn’t understand why the offers were rejected. 

After one of these rejections, I filed a motion asking the judge to order us to mediation – with the consumer and my client present. The judge granted my motion but included a stipulation that he would be the mediator (later, I found out he was tired of reading our disputes and back and forth motions). At the mediation, the consumer happily accepted the forgiveness of the debt and payment from my client of $1,000.00, total. 

Three things happened after that, each of which is seared into my memory: (1) I overheard the consumer telling someone he was “so excited” because “he had just won his case!”; (2) His attorney, who got a check for $1,000 for 18 months of significant litigation, looked like he had just been forced to eat a pile of glass; and (3) my client was ecstatic because the litigation was over, and we had been offering well more than $1,000 for over a year to make the case go away.  At the end of the day, it appeared my suspicions were correct; the attorney never conveyed our previous offers to his client.

I bring that story up to share that this phenomenon is not new and likely won’t disappear. However, disciplinary actions like that filed against Mr. Francis should remind us that while this conduct may occur often, it is not ok, and may violate ethics rules regardless of how a consumer attorney attempts to justify it.  

I am certainly not suggesting that defense attorneys and collection attorneys wage war on consumer attorneys when they suspect offers are not being conveyed. However, I am suggesting that people remember these disciplinary actions and that ethics rules apply to consumer attorneys too and sometimes it is worth it to go outside the norm and pursue correcting something that isn’t right.

Roswell, Ga. — ACA International, The Association of Credit & Collection Professionals, has added Learn.net’s Eterna compliance training platform to its Alliance ACA program. The Alliance ACA program is made up of a select group of trusted vendors who provide valuable and affordable products and services to the accounts receivable management (ARM) industry. The Eterna program was selected after a stringent due-diligence process and approval by members of the ACA Holding Company Board of Directors.

Learn.net’s software platform, Eterna (https://www.learn.net/platform), delivers one daily training question with reinforcing feedback from an extensive library of ARM-focused tests on topics such as the FDCPA (including Reg F), FCRA, HIPAA, UDAAP, SCRA, cyber security and more.

Microlearning technology allows compliance and training officers to measure the proficiency levels of collectors and office staff, while identifying potential shortcomings in compliance training. Employees typically spend no more than 60 seconds answering and reviewing their daily question.

For a flat monthly fee, ACA member organizations will receive a comprehensive training platform that includes: a 30-day free trial; free tests, which are regularly updated; gamification (badges, certificates, leaderboards); adaptive microlearning; an enterprise-class learning management system (LMS); micro-course authoring software to create annual re-certification courses; unlimited support, including help desk and admin training; next-day deployment; and a branded website.

Contact Kim.Summerlot@learn.net for a free, no-obligation 30-day trial of Eterna.

Atlanta-based Learn.net (https://www.learn.net) provides microlearning and LMS technology to the financial services, retail, construction and manufacturing industries. Its CADE suite of applications includes the Eterna microlearning applications, an enterprise-class learning management system (LMS), and authoring software in an integrated platform. Contact Johan Praats at johan.praats@learn.net

Founded in 1939, ACA International brings together third-party collection agencies, law firms, asset buying companies, creditors, and vendor affiliates, representing more than 230,000 industry employees. ACA establishes ethical standards, produces a wide variety of products, services, and publications, and articulates the value of the accounts receivable management industry to businesses, policymakers, and consumers. Contact Nick Moreno at moreno@acainternational.org.

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Show Notes:

The Consumer Financial Protection Bureau (CFPB) has always been curious of Big Tech and its penetration into the financial services sector. That curiosity took center stage last month when the CFPB ordered six (6) of the most well-known technology companies (Google, Apply, Facebook, Amazon, Square and PayPal) to turn over information about their “products, plans and practices” when it comes to their payment platforms. Dan Smith,  Executive Vice President, Head of Regulatory Affairs at the Consumer Bankers Association stops by #Creditecotogo to discuss and forecast how the CFPB will use this data collection to shape policy about consumer-authorized use of financial data. As a former Assistant Director at the CFPB, Dan reminds us that back in 2017 the CFPB issued a set of Consumer Protection Principles around data sharing and aggregation. Like the Rime of the Ancient Mariner, 2022 will reveal how the CFPB will navigate this sea of data.  

DISCLAIMER – No information contained in this Podcast or on this Website shall constitute financial, investment, legal and/or other professional advice and that no professional relationship of any kind is created between you and podcast host, the guests or Clark Hill PLC. You are urged to speak with your financial, investment, or legal advisors before making any investment or legal decisions.

For most in the industry, it’s hard to imagine not being totally obsessed with Regulation F. But, it’s possible the average consumer wasn’t even aware of a change in debt collection law until they saw this NPR article, or one like it. And while the industry has been hyper-focused on complying with Regulation F, its real impact remains to be seen.

Possibly the biggest shock to consumers as it relates to the New Rule is social media contact. If a consumer doesn’t understand that social media direct messaging is permitted (and maybe even if they do), contact via direct messaging may result in a number of consumer complaints.

On November 30, 2021, in an attempt to prepare consumers for the change, the CFPB released a Reg F FAQ for consumers. The FAQ covers the following key issues:

• Debt validation notices
  
• Call frequency guidelines
  
• Credit reporting
  
• Social media contact
  
• Limited contact messages
  

Hopefully, providing this information will make the transition to a post-Reg F collections world smoother for both consumers and agencies, but as we covered here, it’s important for those in the industry to make a note of what is working, as well as what is not working, as we begin to experience the real-life consequences of Reg F.

Chesapeake, Va. — Spring Oaks Capital has hired Tim Rees as Director of  Operations. In this role, Tim will lead the  day-to-day operations of our  Chesapeake-based contact center and  report to Chief Operating Officer Jason  Collins. Tim joins Spring Oaks Capital  after holding key positions with both  HSBC (NYSE: HSBC) and PRA Group  (NASDAQ: PRAA) as well as roles in the credit union and fintech sectors. Tim’s background  serving in senior executive positions within both publicly traded companies and innovative venture capital-backed fintech platforms provides him with highly relevant experience to  make an immediate impact at Spring Oaks. 

“I could not be more excited to have this opportunity. The leadership team at Spring Oaks  has built an outstanding culture within the contact center, focused on customer experience  and purpose-driven execution where employees are highly valued for their contributions. I  am humbled by the chance to join such a high performing team,” stated Mr. Rees. 

Jason Collins added: “We are excited to welcome Tim to our leadership team. His  experience in building highly effective operation teams will be critical in helping us build  upon our rapid growth and success since launching in 2019. I look forward to working with  him to build a best-in-class operations team and an employer of choice in our industry.” 

About Spring Oaks Capital, LLC  

Spring Oaks Capital is a national financial technology company, focused on the acquisition  of credit portfolios. The Company subscribes to an employee and consumer-centric  operating philosophy that creates high-value jobs, a significant performance lift, and the  highest standards of compliance. Spring Oaks’ business strategy is rooted in innovative  data-driven technology to maximize collection results and a contact platform that offers  multi-channel options to meet each consumer’s communication preference. Spring Oaks  has the management vision and experience to nurture a culture and DNA that is unique in  the space. The executive team maintains deep experience end-to-end across the consumer  finance lifecycle with some of the largest global banks and innovative FinTech platforms. To 

learn more about Spring Oaks and our revolutionary FinTech platform, please visit  www.springoakscapital.com.

Encore Capital Group has published its first Economic Freedom Study, which details consumer sentiment around their financial situations, as well as the economy in general, in both the US and UK. The survey included 2,600 people in the US and UK, with 300 low-income respondents in each location. 

General Highlights:

• 57% of respondents in the US still feel positive about their personal financial future.
  
• 33% of respondents in the US ranked credit card debt as their biggest source of stress.
  
• 32% of low income respondents in the US ranked medical debt as the most stressful.
  

Pandemic Shifts:

• 69% of US respondents indicated that prior to the pandemic, their sentiment toward their financial future was positive. 57% reported feeling positive about their financial future in August, 2021.
  
• For low-income respondents, the numbers are similar. 62% reported a positive sentiment pre-pandemic, and 51% still felt positive in August, 2021.
  
• 42% of US respondents reported feeling that the future of the economy in general is worse off than it was in August, 2020.
  
• In early 2021, consumer credit scores in the US hit record highs as a result of consumers using stimulus money to pay off debt.
  
• However, now 50% of American respondents state they are in more debt than before the pandemic began.
  

Financial Goals and Challenges:

• 64% of respondents in the US rank having an emergency fund as their top financial goal, with 47% of US respondents reporting eliminating debt as their top financial goal.
• 53% of US respondents believe that receiving incentives for good financial habits would help them achieve their financial goals.
  
• 61% of US respondents believe they can reduce their debt in the coming years, with most (56%) planning to pay their debt off in small increments over time.
  
• Most US respondents (58% and 57% respectively) believe that pausing repayment due to hardship and having additional time to pay off their debt would be helpful in reducing/eliminating their debt.
  

Ethical Collections:

• 40% of US respondents believe that in order for a collection agency to be considered ethical, it would need to offer debt forgiveness.
• Far fewer US respondents (15%) believe that social responsibility is important.
  

insideARM Perspective: While 2020 was a banner year for many collections agencies as a result of consumers paying their past-due debts with stimulus money, 2021 has not been quite as flush. Consumer spending was down in 2020, which meant fewer account placements to agencies. However, as the report indicates, we can likely expect to see an uptick in placements in 2022, since 50% of US respondents are reporting having more past-due debt than they did pre-pandemic. 

Consumers are also clear about what they are looking for in ethical collections companies. While there is concern about data privacy, consumers are clearly looking for collections agencies to provide flexible payment options and consistent hardship policies. As the number of charge-offs increase, it will be important to keep this in mind.

On November 23, 2021, the FTC released its 2021 Do Not Call Registry Data Book. This is the 13th year of publication for the data book. 

Highlights:

• Robocalls topped the list of consumer complaints (almost 594,000 were reported during the FY ending in September 2021)
• Many of the complaints were related to imposters falsely posing as government representatives, or legitimate business entities
• Calls about supposed debt reduction made up the third most commonly reported complaint
• The DNC registry contained 244.3 million actively registered phone numbers, which is an increase from 241.5 million at the end of FY 2020 
• The top five states reporting the most complaints in 2021 were: Maryland, Delaware, Arizona, Colorado, and Virginia 

insideARM Perspective:

The number of consumers adding their phone numbers to the FTC Do Not Call Registry increased for the second year in a row. Combined with the call caps laid out in Regulation F, reaching consumers by telephone is becoming more difficult. If they are not already, those in the debt collection industry would be wise to evaluate their outbound contact strategies and make adjustments based on consumer trends.