The TCPA is so much fun. I mean, apart from all of its horrors and heartache.

Today we close another chapter of what-never-should-have-been in that great Book of TCPA lore I call life.

Back in 2006 the FCC decided to require opt-out notifications to prominently appear on the front of solicited faxes. If a solicited fax was sent without the notification the faxer faced liability for $500.00 per fax, minimum. This was quite the change from the existing rule of… nothing being required on such faxes. As you might imagine, with the trap set people began suing for receipt of faxes–even faxes that were specifically requested–that lacked the newly-required opt-out notifications.

So very many lawsuits followed. Many of those lawsuits were class actions. Many were certified. Millions of dollars were spent litigating and settling these suits. Faxers who had been caught unaware by the ruling lined up to submit petitions for retroactive waivers for exemptions from the retroactive application of the FCC’s new take on the content of invited faxes. What a mess.

Then we found out that the solicited fax rule was entirely illegal because the FCC never had the authority to regulate solicited faxes to begin with. See Bais Yaakov of Spring Valley, et al. v. FCC, 852 F.3d 1078, 1083 (D.C. Cir. 2017).

Lovely.

So all of the time, money, and consternation wasted battling the hundreds of TCPA cases the solicited fax rules spawned was entirely for naught. A byproduct of an FCC ruling it never had authority to make.  (BTW– this headache continues to this very week. On Monday a court issued a ruling addressing the solicited fax rule in the aptly-named follow-on case of Bais Yaakov of Spring Valley v. Educ. Testing Serv., No. 13-CV-4577 (KMK), 2019 U.S. Dist. LEXIS 43985 (S.D.N.Y. March 18, 2019). So the beat goes on.)

But somehow things get even more interesting.

The Supreme Court has very notably granted cert. to determine whether or not the FCC’s rulings under the TCPA have binding effect under the Hobbs Act. See  PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., No. 17-1705, 2018 WL 3127423 (U.S. Nov. 13, 2018). The outcome of that determination will have a huge impact on TCPAworld– the Court may find that the FCC rulings are not, and never were, binding on district courts. It may also alter the court/agency power paradigm forever if the Court also takes up the related question of  Chevron deference.

And here’s the rub– do you know what the vehicle used for the Supreme Court’s Hobbs Act review is? You guessed it–the very same 2006 Junk Fax rule that contained the solicited fax rule.

Interesting, no?

Well even more interestingly, in what may have been an an act of expert trolling–or just a coincidence–the FCC issued a rule withdrawing that portion of the Junk Fax ruling containing the solicited fax rule the day after the Supreme Court granted cert to review different portions of the same order. That Order can be found here: FCC Order on Junk Faxes

All of which leads us to today– Solicited Fax Freedom Day in TCPAWorld. (Its sort of like Bastille day, but with fewer beheadings.)  For today is the day that the FCC’s post Bais Yaakov ruling finally takes effect and the solicited fax rule is officially withdrawn ending 13 years of (figurative) bloodshed in federal courthouses over the content of solicited faxes.

We made it to the promised land folks. Sort of.

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Editor’s note: This article is provided through a partnership between insideARM and Squire Patton Boggs LLP, which provides a steady stream of timely, insightful and entertaining takes on TCPAWorld.com of the ever-evolving, never-a-dull-moment Telephone Consumer Protection Act. Squire Patton Boggs LLP — and all insideARM articles – are protected by copyright. All rights are reserved.  

Today, in a unanimous decision, the U.S. Supreme Court found that law firms performing nonjudicial foreclosures are not debt collectors under the Fair Debt Collection Practices Act (FDCPA). The Supreme Court’s decision in Obduskey v. McCarthy & Holthus LLP, No. 17-1307 (Mar. 20 2019) can be found here.

The court found that while McCarthy & Holthus LLP is subject to the FDCPA’s provisions specifically related to enforcing a security interest, it is not subject to the remaining provisions of the statute since it does not fall within the scope of the primary definition of “debt collector.”

Most persuasive to the court was the text of the FDCPA itself, which provides a limited purpose definition as it relates to enforcing security interests. The statute states that “for the purpose of section 1692f(6),” the term debt collector “also includes” [emphasis added] those enforcing security interests. The court was satisfied that using the term “also” means that entities that enforce security interests do not fall into the primary definition of debt collector.

A look at the FDCPA’s legislative history, according to the Supreme Court, further supports this. The language of the statute was the result of a compromise between competing versions of the bill, one of which completely excluded security interest enforcement from the statute.

The court was unconvinced by Obduskey’s argument that the limited-purpose definition was meant to apply to those who enforce security interests but have no direct communication with consumers, such as “repo men” who repossess vehicles in the dark of night. This was a topic hotly debated at the oral arguments for this case back in January. In its final decision, the Supreme Court noted that many state laws require communication with the debtor during the repossession process.

In a concurring opinion, Justice Sotomayor invites Congress to clarify the statute if the Supreme Court read the opinion wrong and stresses that the Court’s opinion does not give “blanket immunity” to those enforcing security interests.

U.S. Supreme Court cases are binding in all jurisdictions, both federal and state, in the United States.

Balance billing in healthcare is back in the limelight. An article published by NBC News highlights the experience of a Colorado patient who received a surgery at an in-network hospital, but the surgeon who operated on her was out-of-network. The result was a “surprise” bill, which ended up with a collection agency after it was not paid. The collection agency filed a lien on the patient’s home and began garnishing the patient’s wages.

Balance — or “surprise” — billing refers to the practice where healthcare providers request payment from patients for the difference between the cost of the medical services provided and the amount covered by the patient’s insurance company.

Several states have taken the initiative to protect their residents from receiving these surprise invoices. States that have already enacted balance billing laws include:

• Arizona — law went into effect at the end of December 2018.
• New Jersey — law went into effect in September 2018.
• Texas — law went into effect in September 2017.
• Oregon — law went into effect June 2017.

A few similar bills have been introduced on the federal level, such as the End Surprise Billing Act of 2019 (H.R. 861) and No More Surprise Medical Bills Act of 2018 (S.3592).

insideARM Perspective

This problem is bigger than all of us, especially as it relates to emergency procedures. Patients deserve to know how much they will have to pay out-of-pocket for medical services. Doctors and hospitals deserve to get paid. Collection agencies should be able to pursue legitimate unpaid bills through respectful and legal means. Insurance companies should be able to comprehend their true risk as they calculate premium rates. The complexity associated with the need for all points of contact to understand who will pay what for whom and when — often at a moment’s notice — is mindboggling.

I’d be very interested to learn the impact of the balance billing legislation enacted in recent years. Will the fact that it’s illegal to send a balance bill force more doctors to take more insurance plans? Will there be unintended consequences? 

Let this be a lesson that all is not lost if the judge rules against a debt collector at the summary judgment phase. The case at issue is Al v. Van Ru Credit Corp., No. 17-cv-1738 (E.D. Wisc.). Back in January, insideARM published an article about the judge denying defendant’s summary judgment motion, finding that the question of whether defendant’s letter was deceptive or misleading was best left to a jury. Well, the jury spoke and it found in Van Ru’s favor.

At issue in this case was whether instructing a consumer to act “promptly” confuses the consumer as to the time frame of the offer. The full sentence in the letter states:

The balance you owe as of the date of this letter is $462.31. Presently, we are willing to accept $277.39 to settle your account provided that you act promptly. We are not obligated to renew this offer.

The plaintiff also alleged that the phrase “we are not obligated to renew this offer” gives the impression that defendant could rescind the offer at any time without notice despite not being allowed to do so.

Despite the summary judgment denial (which included a denial of summary judgment on the bona fide error defense) and a class being certified, Van Ru continued the fight through trial. According to Van Ru’s counsel at Messer Strickler, Ltd., the jury deliberated for 24 minutes before deciding that Van Ru’s letter did not violate the Fair Debt Collection Practices Act.

When insideARM spoke to Nicole Strickler of Messer Strickler, Ltd., about the case, she commented:

Taking a case to trial is a tough decision for any company. But, when you have good facts, taking a case to trial can serve as a persuasive deterrent to mill consumer shops. We are proud to have represented Van Ru to a successful outcome in this case.

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A recent decision in the Northern District of Illinois (N.D. Ill.) suggests that even if the consumer and his or her attorney knowingly contrived a Fair Debt Collection Practices Act (FDCPA) violation, the debt collector is not entitled to a defense under the “unclean hands” doctrine. The legal theory of “unclean hands” suggests that a plaintiff who acted unethically or in bad faith in regards to the facts in the complaint should not be entitled to damages based on their own bad acts.

The case is Francisco v. Midland Funding LLC et al., No. 17-cv-6872 (N.D. Ill. Mar. 15, 2019). Plaintiff defaulted on a debt that was placed with Midland Credit Management (MCM) for collection. MCM follows a certain schedule regarding credit report files where it compiles reports on the first and third Monday of each month and sends the reports to the credit bureaus on the following Friday. According to the factual background in the decision:

Likely knowing this schedule, Francisco’s counsel sent a letter to MCM disputing Francisco’s debt on Sunday evening, August 20, 2017, hours before MCM compiled a batch of reports. Though MCM quickly processed Francisco’s dispute, because by that point MCM had already compiled its batch of disputes, MCM reported Francisco’s debt to Equifax on Friday, August 25, 2017, without reporting that it was disputed, in violation of 15 U.S.C. § 1692e(8).

MCM argued that plaintiff should not be entitled to relief in this case because her counsel intentionally timed the letter to cause a violation. In other words, MCM argued that the unclean hands doctrine applied.

While acknowledging that the court is not foreclosing the possibility that debt collectors can rely on defenses other than those specifically listed in the statute, the court refused to extend this to the unclean hands doctrine, arguing that it goes against the text and spirit of the FDCPA.

According to the court, unclean hands shifts the focus of attention to the consumer’s actions, rather than those of the debt collector. The court states:

Permitting a debt collector to commit FDCPA violations when the consumer’s counsel might have contrived the violation (or the consumer is otherwise unworthy in equity) would impermissibly shift the focus back toward the consumer’s wrongdoing, which the text, structure, and history of the FDCPA do not allow. Allowing an unclean hands defense would transform the rule from “Debt collectors may not make false claims, period,” to “Debt collectors may not make false claims, comma.”

[internal citations omitted.]

The court continues:

If the debt collector could probe the consumer’s or counsel’s actions for unclean hands, FDCPA litigation would devolve into disputes over the plaintiff’s and counsel’s actions and motivations, even where, as here, the FDCPA violation is clear. Debt collectors could mire the consumer in discovery irrelevant to the violation, making litigation costlier. And allowing counsel’s actions and motivations to prevent recovery for FDCPA violations could also chill counsel from taking steps to root out violations, hindering one of the FDCPA’s key enforcement mechanisms.

insideARM Perspective

The decision misses two major points. First, the FDCPA, when enacted, likely did not contemplate the cottage industry of plaintiffs’ counsel filing mass claims on hyper-technical issues. These suits take advantage of the gaps within the FDCPA that cause compliance confusion for well-meaning businesses who genuinely try to comply with the laws. Second, the court references the FDCPA’s key enforcement mechanisms, turning a blind eye to the creation of the Consumer Financial Protection Bureau since the statute’s enactment.

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The litigation dilemma issue has been thoroughly discussed on insideARM. Even courts are noticing a clog in their dockets with FDCPA claims, one judge going as far as finding that FDCPA litigation has become a debt evasion statute and one “to prop profits among the plaintiffs’ bar.” This decision is not helpful considering the current trend in credit repair organizations filing mass credit disputes, which overtake a debt collector’s resources to process and ultimately harms consumers with genuine disputes.

Washington is gearing up to be the next state to implement a privacy law, following California’s Consumer Privacy Act. In Washington, Senate Bill 5376 — formally titled as “an act relating to the management and oversight of personal data,” or the “Washington Privacy Act” for short — passed in the Washington State Senate and has been sent to the state’s House of Representatives for consideration.

The bill was introduced in the state Senate on January 18, 2019. It was referred to the Committee on Environment, Energy & Technology, where it passed on February 14. After making its way through the Ways and Means committee, the bill was ultimately passed in the senate on March 6, 2019. It was sent to the House of Representatives on March 8 and referred to the Committee on Innovation, Technology & Economic Development.

The first scheduled public hearing in the House of Representatives is set for March 22 at 10am Pacific. If the bill passes in the House, it would become effective in December 2020.

The text of the bill before the House of Representatives can be found here. The bill contains hints of both Europe’s General Data Protection Regulation and California’s Consumer Privacy Act. It allows consumers to be informed about what personal data is collected and whether that information is sold. It also allows consumers to request correction of inaccurate data and deletion of their personal data. Consumers can also object to the use of their data in direct marketing.

The Washington State Legislature website offers the ability to comment on the bill.

insideARM Perspective

While Europe started the wave of broad privacy protection, it seems the west coast is leading the pack in the United States. Companies are eagerly keeping their eyes on California’s privacy law, which has undergone a round of public forums and a Senate Judicial Committee hearing over the past couple of months, in order to get more information on how to implement and comply with the new requirements. The Washington bill discussed above has seen quick movement through its state senate, where it was passed a little over two months after introduction. If that trend continues in Washington’s House of Representatives, we could see the next state privacy law passed by summer.

Well that was scary.

One would think that using an outbound manual call process that included physical desk phones and that required agents to enter all 10 digits of a phone number on a keypad in order to launch a call would be TCPA-proof. Think again.

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As one defendant just found out, using a software-enabled workflow tool that also has dialing capabilities as part of a manual process can lead to dire TCPA consequences. This is true even where agents are ultimately putting fingers to keys to launch calls. Luckily, however, the defendant in Folkerts v Seterus, Inc., Case No. 17 c 4171, 2019 U.S. Dist. Lexis 42347 (N.D. Ill. Mar. 15, 2019) avoided liability when the court went on to determine that a dialing system must utilize random or sequential number generation to qualify as an ATDS under the TCPA.

There is lots to unpackage here, so let’s dive in.

Like many companies, the Folkerts defendant used several software systems in the course of its outbound calling efforts. For predictive mode calls, the defendant used a common predictive dialer platform – a product the court repeatedly characterized as an ATDS for some reason. For manual calls, however, the defendant used manual desktop phones, made by the same company that supplied the predictive dialer– Czar says that’s a no-no folks – and the evidence was clear that it was these desk phones that were used to call plaintiffs. The manual phones did not store any lists of phone numbers and cannot generate random or sequential numbers. Instead, to make a call using a manual phone, a representative picks up the phone and manually dials each digit of the phone number. So far, so manual.

But then things get integrated. The manual phones and the predictive dialer system of the same brand were both linked to SynTelate, “a software program on each representative’s computer through which a representative can log into their manual phone.” Uh oh.

Still, SynTelate does not seem to be a dialer – rather it is a workflow tool allowing “agents to access customer information, the loan databases and the telephone system” to “manage the note taking process.” As used by the defendant, SynTelate showed an agent on the computer screen the number that defendant wanted an agent to dial – the agent must then dial all 10 digits. But defendant’s policy and procedure manual (mistakenly?) described SynTelate as “a predictive dialer system. which interfaces with our servicing system.” *Face palm* (When asked about this discrepancy, the manager of defendant’s Contact Strategy Department, explained: “I would say that is an error. I do not know why they say that….”) And plaintiff’s expert opined that the company that made the workflow software also makes predictive dialers: “[t]he material published by Seterus and the manufacture[r] clearly show that it is a predictive dialer.” Oh, bother.

At summary judgment, plaintiff’s entire case rested on asking the court to find that the SynTelate workflow tool was an ATDS “used” to “make” the manual calls. In addressing the core issue of ATDS usage, the court first rejected the defendant’s argument that no reasonable jury could find that SynTelate was used to call plaintiffs’ phones. In the court’s view, testimony that SynTelate “make[s] the queueing happen for manual outbound calls” and that representatives “log into their manual phones through SynTelate” was sufficient to treat SynTelate as the system used to make the calls at issue.

Let that sink in, friends. The TCPA governs calls “made” using an ATDS. The equipment used to make the calls here seem to be desk phones – not the workflow tool, which did not dial plaintiffs’ numbers. Yet the court is focused on how the numbers were presented to the agents to begin with. Perhaps the critical testimony related to “logging in” to the manual phones through the software – that is a little weird – but what a leap the court takes in suggesting that software that merely presents phone numbers was “used” to make calls. Unnerving to say the least.

The scary analysis is not done yet, though. Next, the court concludes that the workflow tool has the “capacity to dial numbers,” even if that capacity was not used with respect to the plaintiffs. Here, the court would not allow the defendant to escape the contents of its errant policies and procedures. Although the statements in the manuals are not binding on the defendant, they are evidence to be weighed against the testimony of the defendant’s witness. The court finds that the jury could disregard the 30(b)(6) witnesses’ testimony in favor of the manuals if they so decided. Eesh.

But, just when things are at their darkest, a little St. Patrick’s day luck finds the defendant. The court reads the TCPA as requiring random or sequential number generation – a pretty reasonable interpretation, since that is what the statute actually says – and finds there is no evidence that SynTelate can “presently” generate numbers in that fashion. And just like that, Folkerts is a great case for defendants.

In addressing the issue of ATDS functionality, the court concludes that: (1) to be an ATDS, the equipment at issue must have the present, as opposed to merely the potential, capacity to function as an ATDS; and (2) equipment that merely has the ability to dial numbers from a stored list, as opposed to producing numbers using a random or sequential number generator, does not qualify as an ATDS. Folkert at *18. Wonderful! Thus, as Folkertsexplains, a “predictive dialer” no longer automatically qualifies as an ATDS and “the ‘potential capacity’ of defendant’s systems is irrelevant; in other words, using a system that could function as an autodialer only if some other software was added to it does not constitute use of an ATDS.” Well, pop the champagne and cue the kazoos!

After teeing up the legal issues thusly, it was a short road to concluding judgment was proper for the defendant. Plaintiff had no evidence that either SynTelate or the manual phone had the present capacity to randomly or sequentially dial numbers. And plaintiff cannot prevail on a TCPA claim by demonstrating merely that defendant owns an ATDS – it must prove usage of the ATDS. Plaintiff did not. So, Defendant wins.

Folkerts will be widely heralded as a big win for TCPA defendants – and it is – but there is also a dark side to the decision that shows why TCPA compliance officers and call center operators must remain ever vigilant.

A few nuanced takeaways here. Although the court found that random and sequential number generation is required to qualify as an ATDS it also, somehow, found that Defendant’s predictive dialer is an ATDS, which is weird because: (1) that issue was not before the court; and (2) the dialer (which I am not allowed to name in  this piece– hate that) is one I am well aware of and it does not randomly or sequentially generate numbers. Nonetheless the court treated the system as if it were certainly an ATDS. See Folkerts at *18-19 (“Certainly, once the [predictive dialer] is employed, defendant is able to make autodialed calls…”) Weird and weird. The court also finds that errant descriptions of ATDS capabilities within a defendant’s manuals can be used as evidence of a system’s capacity; even if the 30(b)(6) testimony is contrary.

But most importantly – Folkerts is a first of its kind decision that holds, rather directly, that if a workflow tool has the capacity to operate as an ATDS a defendant can be held liable for “using” an ATDS even with a manual process that utilizes fingers on keys and physical desk phones to launch calls. While that worked out ok for defendant in Folkerts – the court rejected Marks and followed the Pinkus line of reasoning requiring random and sequential number generation – another court following Folkerts’ reasoning on workflow software might yet reach a different conclusion on ATDS functionality – and that could have far-reaching and devastating consequences for a defendant. (Any of you with call centers still using a dialer program as your workflow tool in your manual process may want to give me a call right about now.)

Stay safe out there TCPAworld.

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Editor’s note: This article is provided through a partnership between insideARM and Squire Patton Boggs LLP, which provides a steady stream of timely, insightful and entertaining takes on TCPAWorld.com of the ever-evolving, never-a-dull-moment Telephone Consumer Protection Act. Squire Patton Boggs LLP — and all insideARM articles – are protected by copyright. All rights are reserved.  

BUFFALO, N.Y. — ABC-Amega, a global commercial receivables management firm headquartered in Buffalo, NY, is pleased to announce that CEO, David Herer, has been reappointed to the U.S. Department of Commerce Trade Finance Advisory Council (TFAC). 

The TFAC was established in 2016 by the International Trade Administration (ITA) and re-chartered in August 2018. The TFAC serves as the principal advisory board to the Secretary of Commerce on matters relating to access to trade finance for U.S. exporters. Herer is one of twenty members who will continue to serve on this board.  In his role, David provides counsel on issues and concerns that affect trade finance in the United States. 

“The work of the Trade Finance Advisory Council is important to U.S competitiveness, and trade policy is a vital concern of our clients,” said Herer. “I am thrilled to be part of this board for another term and continue this important work.” he added.

About ITA

The International Trade Administration (ITA) is the premier resource for American companies competing in the global marketplace. ITA has 2,100 employees assisting U.S. exporters in more than 100 U.S. cities and 72 countries worldwide. For more information on ITA visit www.trade.gov. For information on the ITA’s Strategic Partnership Program, please visit: http://export.gov/CSPartners.

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About ABC-Amega

Founded in 1929 as The American Bureau of Collections, ABC-Amega is an award-winning commercial collections agency specializing in global debt collection and accounts receivable management solutions.

ABC-Amega partners with clients to improve and manage credit, cash flow and customer retention with services in third-party commercial debt collection, first-party accounts receivable outsourcing, industry credit group management, and credit and A/R management training and education. The firm is also a certified member of the CCA of A, dual-certified by the CLLA/IACC and is a platinum partner of the Credit Research Foundation (CRF).

For additional information, please contact info@abc-amega.com or visit www.abc-amega.com.

This Amendment of Solicitation, dated March 6, 2019, makes a number of updates to the Department of Education’s (ED or FSA) Enhanced Servicing Solution RFP, including setting a March 27th deadline to sumbit bids. The previous deadline was “TBD.” insideARM described FSA’s three new NextGen solicitations (R0005, R0007 and R0008) here on January 16, 2019. This Amendment concerns R0005.

The revised Solicitation refines the requirements for post default collection activities, including the addition of references to skip tracing. Under the heading “Digital engagement layer,” the following was added: “Solution shall provide Skip Tracing tools to identify updated contact information for bad postal mail and bad phone numbers until another solution is capable of such needs.”

Under the heading “Business process operations,” the sentence “This is an optional task” has been added, along with other changes (noted in bold):

Business process operations: This is an optional task. Solution may serve as the sole business process operations (both contact center support and back-office processing) provider for all customer accounts as they are migrated onto the new servicing platform until the multiple vendors to be awarded under the separate Business Process Operations solicitation are fully operational. Once the Business Process Operations vendors are fully operational, no less than 80% of customer accounts will be re-assigned to the separate Business Process Operations vendors. The percentage allocated to this Solution may increase, at the discretion of ED, in the public’s interest. The solution will cease providing Business Process Operations no more than 12 months after the separate Business Process Operations vendors are fully operational. 

TransitionalServicing-related contact center support: Solution shall be equipped to provide world-class customer experience in responding and resolving servicing-related inbound customer inquiries across multiple channels (e.g., phone, email, chat, social media, SMS/text, fax) across the entire financing lifecycle, and executing outbound outreach as directed. This includes servicing-related support currently provided by multiple current FSA call centers, including but not limited to, FSA Information Center (FSAIC), Default Resolution Group, Borrower Defense Customer Support, servicers, and private collection agencies (PCAs). Refer to Attachment “13 – Existing FSA Contact Centers (Not Exhaustive)” and https://studentaid.ed.gov/sa/contact for a broader list of current contact centers.

There are numerous references to “servicing related” that have been changed to “transitional.” This means the bidder chosen for the Enhanced Servicing Solution will provide BPO services while FSA issues an RFP and hires multiple BPO vendors which may take up to twelve months to four years because the term of this “transitional” contract is two base years plus an additional two option years.

Under the Milestones section the Amendment clarifies,

“Solution shall begin migrating all existing customer accounts, except for DMCS and Perkins, to the Enhanced Processing Solution no later than six months after award”…and “shall complete migration of all existing customer accounts, except for DMCS and Perkins, by no later than ten (10) months after the start of the migration.” (The migration timing for DMCS and Perkins was updated to be completed no later than 16 months after award.)

The Amendment also clarifies,

“If optional task is exercised, establish transitional business process operations no later than six (6) months after award.”

Under the Expected Volumes section:

Customer outreach and communications – inclusive, though not comprehensive, of servicer, private collection agencies, and most other FSA contact center (e.g., FSAIC, Ombudsman, DRG, Student Loan Support) volumes:

Inbound debt collection communications

• 3148 million inbound calls received annually, with an average handle time of 7 minutes

Outbound communications

• 309 million outbound calls initiated annually, 282 million are collections-related

On Page 65 the Amendment adds the requirement of a Staffing Plan:

Offeror shall submit a Staffing Plan that explains their execution strategy and details their support for the EPS system and any transitional tasks, including:

• Personnel hiring, management, and retention plan, and
• Employee training and coaching approach.

There is an un-mentioned hurdle to accomplishing the staffing plan; security clearance. It’s unclear how any servicer will be capable of meeting the staffing requirements in the timeframe expected.

insideARM Perspective

According to my math, the call volumes contemplated in this RFP require approximately 12,000 FTEs for debt collection alone. (Note: While the RFP estimates 48 million inbound calls to average 7 minutes, no estimated call time is provided for outbound. I used 3 minutes. Also, I’ve added 25% to the required FTEs in order to account for management and supervision.)

Here’s the thing. All contractor staff, in order to work on the federal student loan contracts, require security clearance. Sources tell me that this clearance goes through the Office of Personnel Management (OPM), that there is currently a backlog of over 600,000 applications, and it currently takes, on average, 4 – 6 weeks to receive a security clearance for one collector. (Note: While the RFP does not breakout the number of inbound debt collection calls vs. servicing calls, as it does for outbound, I’ve kept the full amount for this calculation because all employees require security clearance.)

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Also, the rule used to be that an employee could work while waiting for the clearance to process. This rule was updated in July 2018, so that the work-while-waiting ability has been eliminated. While one can imagine the rationale for this change, one could also conclude that meeting the needs of this contract in the timeframe required will be virtually impossible.

Across all PCAs there had previously been a total of approximately 18,000 FTEs. Sources estimate the number is now closer to 3,000 because of the loss of contracts and work delays while this matter has spent several years in litigation). Security clearance was an issue as collectors needed to be replaced, but an entire workforce of clearances was not required at once, as will will be the case to stand up this new contract.

In order to estimate how many months (years?) it might realistically take to process all of the required clearances, I reached out to OPM to ask:

a) Can you confirm this backlog number?

b) Can you estimate how long you expect it will take to clear the backlog — or do you expect this to be a perpetual queue? 

c) Can you estimate the number of hours required to complete one clearance for a debt collector? 

As of the time of publication, OPM has not responded.

UPDATE: Friday March 15 at 3:30pm. Per an OPM spokesperson, “The backlog you refer to, as of Monday (3/11), was 542,000 and dropping. The goal of ‘Steady State’ we are trying to reach is between 220,000 and 250,000, and at the rate we are going we project to be at ‘Steady State’ in June of 2020. As far as the number of hours required to complete one clearance for a debt collector, we do not have that data because every case is unique.”

Meanwhile, on a related note: As ordered last week by Judge Thomas Wheeler at the Court of Federal Claims, on Wednesday the Department of Education submitted the Administrative Record (AR) related to the cancellation of Solicitation No. ED-FSA-16-R-0009. That AR, however, has been sealed at ED’s request. ED was also supposed to submit the AR regarding its Next Generation Solicitation on Wednesday but requested an extension to yesterday. That request was granted. I suspect that too will be sealed. So we won’t know for some time the details behind ED’s justification for 1) cancelling the procurement it was prohibited from canceling and 2) bundling debt collection servicing with other student loan servicing activities in NextGen. I wonder why it’s such a secret.

UPDATE: Monday March 18 at 8:30am.

On Friday afternoon March 15th FSA published the following update regarding NextGen Solicitation R0007, dubbed the ‘Optimal Processing Solution’: “The March 25, 2019 due date for proposals has been postponed and will be changed to a future date, to be determined via a forth coming solicitation amendment.” 

On Saturday March 16th the plaintiffs filed a motion to postpone the March 18, 2019 status conference “until later in the week after [ED] has decided which portions of the record do not merit protection and filing under seal, which will enable protesters’ clients to see the unprotected version of the record, evaluate ED’s representations and share their views with their counsel… At present time, undersigned is optimistic that the Government will file public versions of the administrative record on Monday and, if that occurs, a continuance until Wednesday afternoon would be welcome. If the Government is unable to file the public version of the record until Tuesday, we would request until Thursday afternoon for the hearing.” 

A new quarterly report to Congress on the Internal Revenue Service’s (IRS) Private Debt Collection (PDC) Program shows continued success. Since the third iteration of the PDC Program was implemented, it brought in total revenue of over $130.6 million. Less the overall costs of the program, which were $77.6 million, the program’s latest net balance is $52.9 million. The report focuses on Fiscal Year 2019, which begins on October 1 for the federal government, through December 13, 2018.

The IRS has contracts with four collection agencies for this program: CBE, ConServe, Performant, and Pioneer. The number and balance amount of receivables placed among the four agencies seems to be a roughly even spread.

CBE takes the crown for most dollars collected with a whopping $11.59 million in total payments. This is $1.3 million more than the amounts collected by Pioneer, who came in second with $10.26 million. Performant collected $10 million and ConServe collected $9.9 million.

CBE also entered into the highest amount of installment agreements at 9,736. ConServe, which trailed on the amounts collected category, had the second highest amount of installment agreements at 7,390.

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insideARM Perspective

Third time’s the charm for the PDC Program. Prior to the current program, the IRS attempted to implement PDC programs on two other occasions. Both times, the programs resulted in a financial net loss to the government according to the report. The 1996 pilot program resulted in a $17 million net loss and was cancelled after 12 months. The 2006 initiative resulted in a $20.9 million net loss.

The last quarterly report of this program showed a positive net balance, and it seems that trend continues. This is despite the IRS’s management of the program, which is less than stellar according to the Treasury Inspector General for Tax Administration report issued about a month prior to the last quarterly report.