Oral arguments took place on August 30, 2018 in the consolidated case of FMS Investment Corp. (FMS) vs. United States of America (ED) vs. Alltran Education, Inc. (Alltran), Intervenor Defendant.

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This was the final argument on cross-motions for judgment on the administrative record. The issue currently at hand in this years-long protest is whether the Administrative Record (AR) reflects evidence that ED was rational in its decision to cancel the procurement for unrestricted (large) private debt collectors (PCAs). The 77-page transcript of the proceedings is sealed, but insideARM obtained a copy.

For readers who may need a refresher on the ED litigation — we are now in round four (my own classification) — this insideARM article describes how we got here.

Now, back to the August 30 hearing…the following arguments were made by the plaintiffs:

• The government can’t make up facts; ED must have a record that supports its May 3, 2018 decision to cancel the procurement for large PCAs.
• The decision must have been a rational one.
• A rational decision by ED would have reflected a clear understanding of its needs, a survey of options to achieve its requirements, and an evaluation of viable alternatives.
• One viable option has been the services of large PCAs, which are on the record as having been effective.
• The only other option the AR reflects is simply a recently-developed “vision” (or “idea”) to have its pre-default servicers use enhanced techniques – a vision which as yet has not been tested, has no allocated budget, and has no timeline for implementation.
• The NextGen procurement RFP (which ED says is the precursor to its enhanced servicing program) makes no mention of enhanced servicing, and in fact references PCAs.
• The number quoted in the NextGen RFP as potential debt collection volume (350,000 accounts per month) is different than the numbers relied upon in the May 3, 2018 RFP Cancellation Notice (120,000 accounts per month).
• ED’s claim that only small businesses are necessary to handle the accounts is false, as they are in fact using two large companies to do it now (Alltran and Pioneer, which have 2-year Award Term Extensions that expire in 2019).
• ED’s claim that it can simply award more small business contracts when it has a capacity problem is erroneous, because history (and a statement in court made by ED in June 2018) shows that it takes years to get new contractors up and running.
• ED’s claim that the small companies will perform well because if they perform poorly, “it would negatively affect [their] abilities to secure additional contracts” is erroneous because ED has said that, with enhanced servicers, there will be no new PCA contracts… so “there is no carrot here that’s …cajoling the smalls to perform well.”
• While such a direct statement has not been made by ED, the “evidence shows that they cancelled [the procurement] because there was a protest (not because there was a strategy change). The proof of this is that in January, Windham Professionals had a contract award. Nowhere in the record does it say if there hadn’t been a protest, they would have issued this May 3^rd cancellation decision cancelling that contract.”
• These are IDIQ (indefinite delivery/indefinite quantity). The government is not locked in – they only have to use the contractors if they have a need. Why cancel them when the new solution isn’t yet clearly in place?
• The overall student loan portfolio is growing at about 5.8 percent per year, according to ED’s records, but the default portfolio is growing at 5 percent per quarter. So they cannot claim that they’re keeping up adequately with the demand.
• ED is talking about wholly reinventing the way they service loans – defaulted and performing loans – and there’s no consideration. It sounds like they think they can just flip the switch and the whole system would be up and running.
• Many cases have ARs in the hundreds or thousands of pages. This AR is 33 pages. It doesn’t even include the solicitation being cancelled. The 2018 round capacity numbers included for the 11 small businesses and the 2 ATEs are not explained or supported at all. There isn’t a single chart or anything that analyzes capacity beyond December 2018. The record does not support the decision that has been made. ED has not done its job. They shouldn’t be let off the hook.
• Since 2009 ED has acknowledged that it needs both large and small businesses to effectively collect defaulted student loan debt. The agency has never used only small businesses to handle defaulted debt, because those entities historically have demonstrated much lower collection rates than large PCAs.

“Why do we need two contracts on January 11^th, but by May 3^rd we don’t need them anymore? So much do we not need them, that even if there weren’t any protests, we would cancel the contracts.”

• The timeline of ED’s cancellation decision (and their supporting reasons for the cancellation) is suspect:
  • In January 2018 ED awarded unrestricted contracts to two PCAs.
  • In January 2018 ED published a forecast on its website that it would solicit more PCA services; this forecast was removed from the website the day after FMS filed its complaint in this case.
  • The NextGen RFP was issued in February 2018 but did not mention “enhanced servicing,” yet ED claims that the higher number of 350,000 accounts per month was used to represent the potential volume – contemplating enhanced servicing – because they would be assigned much sooner to enhanced servicers than to PCAs.
  • On March 6, 2018 the court became convinced that plaintiffs had demonstrated a likelihood of success on the merits.
  • According to the AR, the enhanced servicing concept was hatched in April 2018, and the cancellation decision was implemented on May 3, 2018.
  • There is no timeline for the newly envisioned enhanced servicing program to be active.

Judge Wheeler asked whether, if hypothetically, the real reason for the cancellation was the desire to not litigate anymore, would that be a rational reason for cancelling the solicitation? The attorney for FMS said no, not under federal procurement law. He, along with other plaintiffs’ attorneys, offered multiple prior court and/or GAO cases they believe support their position (Mori Associates, Starry Associates, WHR Group, California Marine Cleaning, SMF Systems Technology, Phil Howry Company, and Superlative Technologies).

The attorney for lead Plaintiff FMS offers analogies to ED’s irrational decision to cancel the procurement:

• With winter coming, would it be rational to cancel your heating oil supplier for a difference source to heat your home, when you don’t know whether that source will be available?
• In the midst of a war, would it be rational for the Army to cancel a contract for ammunition because a team of diplomats has an idea to negotiate for a ceasefire?
• Finally, would it be rational to cancel the lease on your car because Metro had an idea that they were going to put a stop near your home?

He suggested none of these actions would be rational, but they are all good analogies for ED’s actions in this case.

Judge Wheeler asked what the legal standard would be for awarding bid and proposal costs for the efforts put into this solicitation. Plaintiffs responded that this is not the remedy they seek; what they want is to roll back to the situation prior to the May 3 cancellation, and to be able to compete for the contract in accordance with the law. Plaintiffs reassure the Court that this does not constitute micromanagement of the solicitation. Following the roll back, ED is free to do what it wants, but it must provide a rational basis for its actions (i.e. If the decision is to cancel, then the Metro stop must actually be built or far enough under construction that it’s rational to cancel the lease of the car).

The following arguments were made by the Government, on behalf of ED:

• Plaintiffs have ignored the numbers of accounts that have actually been assigned, and the role that has played in the cancellation decision. The historical record of accounts that have been assigned over the last 3.5 years has trended down.
• There have been consistent assignments to the small businesses over the preceding 12-18 months, they’ve been handling the work adequately, and they’ve been receiving more and more accounts. The two large PCA ATEs have received accounts, but they have not been getting regular assignments. The small businesses have been the focus.
• The 120,000 account per month number (which is the actual number that’s being assigned) is drastically below the estimated capacity of the small businesses. So all this focus has been on the future and what’s going to happen, but has ignored what has actually been happening.
• ED is trying to innovate and do something completely different. There are obviously entrenched interests here, so there is a lot of upset. But that’s the key change, and it’s been going alongside this procurement, which has been on the street since 2015.
• The NextGen proposal went onto the street on February 20, 2018. The proposals were due in April. They are currently being evaluated for phase 1, which is about implementing and developing this seamless online system. Right now, every PCA has their own website, and there are a lot of different mechanisms for borrowers to deal with whoever is handling their account, and the goal is to get on one platform that services the life of a loan.
• The one decision that needs to be made for ED (which won’t happen until they finish the phase 1 evaluation) is whether or not they are going to do the enhanced servicing strategy via phase 2 of the NextGen procurement, or if they’re going to separately procure it. They anticipate phase 1 evaluation to be completed in the early fall.
• One key element that plaintiffs skipped over is, once enhanced servicing starts, there’s no more assignments of accounts to PCAs. It stops. Because it goes to the new program. Every new default, every new – anyone falls behind in their payments, it goes to the new system. And then once the system is up and running, accounts will be brought from the small businesses.
• How it all plays out in the future, whether there’s subcontracting or other elements, that’s something that will be played out as it goes forward.
• For now, they have what they think is appropriate to deal with their needs. And that is the basis for a rational decision.

“So once that decision had been made in the spring of this year, why proceed with a procurement for services that are going the way of the dodo, according to how ED wants to do work going forward?”

As rebuttal, plaintiffs made the following comments:

• When ED said we’re litigating something that doesn’t matter anymore, that’s about as cavalier as we can get about this procurement. These folks have been through proposal after proposal chasing something that really does matter, that they’re required to collect as a matter of law.
• Assignment of accounts is not the test of capacity. The fact that you’ve got a bucket that will take all these accounts doesn’t mean you’ve got capacity to collect the defaulted debt.
• The parade of speculation is this enhanced servicer concept. It’s a neat idea, but there is not one piece of evidence in the record that existed before April that relates to enhanced servicers.
• The cancellation memo is based on the 11 small businesses doing the work, not the large business ATEs. So the record already shows that the rationale is flawed. You don’t need to second-guess what’s the right capacity decision; they’ve already crossed over into using large businesses to do this work.

And with all of that, the matter was left in the hands of Judge Thomas Wheeler, who took over the flailing case in December 2017, when it was in a previous incarnation (Continental Service Group Inc. et al. v. United States of America). He promised a ruling “in fairly short order,” which he typically delivers on.

insideARM Perspective

This article is long enough already, but I will add one point that was not mentioned during the hearing. Third party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA), but because of an exception, servicers who receive accounts prior to default are not subject to the same rules. Establishing the knowledge and systems to comply with the FDCPA is not a trivial undertaking. If ED decides to hold its pre-default servicers accountable to the same rules, it seems that this would certainly delay full implementation of NextGen post-default servicing.

Yesterday, five agencies that oversee financial institutions issued a joint statement regarding the role of supervisory guidance. The Federal Reserve Board, the Bureau of Consumer Financial Protection, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency confirmed that supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance. 

The statement — which follows — explains that supervisory guidance can outline the agencies’ supervisory expectations or priorities and articulate the agencies’ general views regarding appropriate practices for a given subject area.

Difference between supervisory guidance and laws or regulations

The agencies issue various types of supervisory guidance, including interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions, to their respective supervised institutions. A law or regulation has the force and effect of law. Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance.  

Rather, supervisory guidance outlines the agencies’ supervisory expectations or priorities and articulates the agencies’ general views regarding appropriate practices for a given subject area. Supervisory guidance often provides examples of practices that the agencies generally consider consistent with safety-and-soundness standards or other applicable laws and regulations, including those designed to protect consumers. Supervised institutions at times request supervisory guidance, and such guidance is important to provide insight to industry, as well as supervisory staff, in a transparent way that helps to ensure consistency in the supervisory approach. 

Ongoing agency efforts to clarify the role of supervisory guidance

The agencies are clarifying the following policies and practices related to supervisory guidance:

• The agencies intend to limit the use of numerical thresholds or other “bright-lines” in describing expectations in supervisory guidance. Where numerical thresholds are used, the agencies intend to clarify that the thresholds are exemplary only and not suggestive of requirements.  The agencies will continue to use numerical thresholds to tailor, and otherwise make clear, the applicability of supervisory guidance or programs to supervised institutions, and as required by statute.

• Examiners will not criticize a supervised financial institution for a “violation” of supervisory guidance. Rather, any citations will be for violations of law, regulation, or non-compliance with enforcement orders or other enforceable conditions. During examinations and other supervisory activities, examiners may identify unsafe or unsound practices or other deficiencies in risk management, including compliance risk management, or other areas that do not constitute violations of law or regulation. In some situations, examiners may reference (including in writing) supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations. 

• The agencies also have at times sought, and may continue to seek, public comment on supervisory guidance. Seeking public comment on supervisory guidance does not mean that the guidance is intended to be a regulation or have the force and effect of law. The comment process helps the agencies to improve their understanding of an issue, to gather information on institutions’ risk management practices, or to seek ways to achieve a supervisory objective most effectively and with the least burden on institutions.

• The agencies will aim to reduce the issuance of multiple supervisory guidance documents on the same topic and will generally limit such multiple issuances going forward.    

• The agencies will continue efforts to make the role of supervisory guidance clear in their communications to examiners and to supervised financial institutions, and encourage supervised institutions with questions about this statement or any applicable supervisory guidance to discuss the questions with their appropriate agency contact.

insideARM Perspective

This is certainly a change from the position taken by former CFPB Director Richard Cordray, who famously warned a group of bankers in March 2016,

“Without undermining the confidentiality of the supervision process, we are providing this de-identified information so that everyone can see and respond immediately to violations and remedial actions being taken elsewhere.”

(emphasis added) and

“[I]t would be ‘compliance malpractice’ for executives not to take careful bearings from the contents of these orders about how to comply with the law and treat consumers fairly.”

Indeed, nearly all supervised industries under the CFPB complained that rules were effectively being written – and retroactively imposed – without proper administrative process, and based on actions against specific companies for specific fact patterns, or based on vague supervisory documents.

Also worth noting is industry’s support for guidance, when properly issued and used. In response to the Bureau’s call for evidence regarding its Guidance Bulletins, the Consumer Relations Consortium (CRC) urged the agency to continue – or even increase — the practice of offering guidance to provide clarity where needed. The group highlighted multiple examples of important guidance provided in the past by the Federal Trade Commission, and noted that guidance can be helpful in addressing elements of laws that have become outdated or “gray” due to market advancements. For example, technology has evolved so greatly during the last several years that some of the positions addressed in the November 2013 Advanced Notice of Proposed Rulemaking (ANPR) for debt collection have become moot, or at least outdated to the point where they ought to be reconsidered from scratch. 

The process of rule (or law) making is, by definition, a slow one. But markets are changing at an ever-increasing pace. The joint statement issued yesterday addresses the need to provide interim guidance, while maintaining the integrity of the rulemaking process that carefully considers many perspectives.

LIVONIA, Mich. and ST. PAUL, Minn. — RevSpring and Apex Revenue Technologies announced that they have entered into a definitive agreement to combine in a strategic transaction. The combined company, which will continue to conduct business as RevSpring, will be the leading provider of intelligent multi-channel consumer and patient engagement solutions, electronic and printed communications, and billing and payments solutions. On behalf of their customers, the combined companies generate over one billion consumer financial communications and $4 billion in consumer payment volume annually. The transaction is being led by GTCR, a leading private equity firm based in Chicago which is currently the majority shareholder of RevSpring. Closing is expected to be in the fourth quarter of 2018 after the receipt of regulatory approvals. Following closing, GTCR will be the majority shareholder with substantial ownership held by management of the combined companies. 

RevSpring and Apex are pioneers in intelligent, analytics-driven consumer engagement and multi-modal communications platforms designed to drive the right message to the right consumer at the right time to drive the best outcome for both the patient and the healthcare provider. The companies’ solutions are differentiated by proficiencies in consumer behavior analysis, propensity-to-pay scoring, intelligent design, and user experience best practices. These solutions allow healthcare providers and others to improve their revenue cycle management, increase customer and patient engagement, better leverage data and increase overall efficiency.

“Every day, over 700 team members at RevSpring and Apex strive to drive the best outcomes for their customers by leveraging technology to intelligently engage with each consumer. We all care deeply about the patients we serve and believe that every communication matters,” said Rahul Gupta, RevSpring CEO. “I am thrilled that we can bring these two great companies together, creating enhanced scale and deeper capabilities. This combination will augment our capability to further evolve our powerful healthcare solutions and to continue our innovation on behalf of all our customers. I look forward to working with the Apex team to leverage our combined strengths.”

“I am a strong believer in the merits of this combination,” said Brian Kueppers, Apex Founder and CEO. “I am so extremely proud of the entire Apex team and all that we have accomplished together. This combination represents the next chapter in our mission to deliver world-class technology and data-driven solutions to this marketplace.”

“We are gratified that RevSpring is joining forces with Brian Kueppers and the Apex team,” continued Collin Roche, Managing Director at GTCR. “We have long respected Apex’s position in the market and their service orientation. We believe that RevSpring and Apex have a shared perspective and commitment to their customers in healthcare, financial services and other industries. Our plans going forward are to continue to invest heavily in technology and further expand product offerings and solutions for current and future clients.”

“We could not be prouder of Brian Kueppers and the Apex team. Their focus on serving their customers’ needs and developing unique solutions has been the hallmark of Apex’s growth,” said John Turner, Partner of WestView Capital, a member of Apex’s board of directors. “Together, we have accomplished great things, and while we won’t be part of the next step in their journey, could not be more excited about the future of the combined Apex and RevSpring.”

About RevSpring

RevSpring is a leader in patient communication and payment systems that tailor engagement touch points to maximize revenue opportunities in acute and ambulatory settings. Since 1981, RevSpring has built the industry’s most comprehensive and impactful suite of patient engagement, communications and payment pathways backed by behavior analysis, propensity-to-pay scoring, intelligent design and user experience best practices. RevSpring leverages “Best in KLAS” software and services to deliver over 1 billion smart medical communications each year that drive increased patient engagement and payment rates. To learn more visit https://revspringinc.com/healthcare/.

About Apex Revenue Technologies

Founded in 1995, Apex Revenue Technologies is a leader in healthcare technology solutions that provide insight into how patients pay to improve financial outcomes for providers and their patients. Apex’s cloud-based software promotes patient financial engagement, streamlines patient billing processes, increases revenues and reduces the cost to collect from patients. The company’s award-winning Apex Connect™ platform dynamically tailors financial communications and payment options to match healthcare provider goals with the needs of the patient for better results. To learn more, visit www.apexrevtech.com.

About GTCR

Founded in 1980, GTCR is a leading private equity firm focused on investing in growth companies in the Financial Services & Technology, Healthcare, Technology, Media & Telecommunications and Growth Business Services industries. The Chicago-based firm pioneered The Leaders Strategy™ – finding and partnering with management leaders in core domains to identify, acquire and build market-leading companies through transformational acquisitions and organic growth. Since its inception, GTCR has invested more than $15 billion in over 200 companies. For more information, please visit www.gtcr.com.

About WestView Capital Partners

WestView Capital Partners, a Boston-based private equity firm focused exclusively on middle market growth companies, manages approximately $1.7 billion in capital across four funds. WestView partners with existing management teams to sponsor minority and majority recapitalizations, growth, and consolidation transactions in industries such as healthcare technology and outsourcing business services, software and IT services, consumer, and growth industrial. WestView invests in companies with operating profits between $3 million and $20 million with investment sizes ranging from $10 million to $60 million. For more information, please visit www.wvcapital.com.

The Treasury Inspector General for Tax Administration (TIGTA) issued a report on September 5, 2018, regarding the Internal Revenue Service’s (IRS) most recent attempt at its private debt collection (PDC) program. The report did a thorough review of the current PDC program, finding that the Private Collection Agencies (PCA) performed well despite setbacks caused by the IRS’s management and oversight of the program.

On two prior occasions, the IRS attempted to implement PDC programs. 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.

In the most recent PDC program, the IRS awarded contracts to CBE Group, ConServe, Performant, and Pioneer (collectively, the PCAs). Of note, the report states that PCAs performed well in both quality and customer satisfaction. Combined initial quality scores of all PCAs were:

• Customer Accuracy: 99.7 percent,
• Professionalism: 99.9 percent,
• Timeliness: 99.8 percent,
• Regulatory Accuracy: 98.5 percent, and
• Procedural Accuracy: 97.2 percent.

Customer satisfaction scores, taken through a survey at the end of telephone calls with PCAs, show the following anonymized scores:

• PCA 1: 95 percent,
• PCA 2: 90 percent,
• PCA 3: 95 percent, and
• PCA 4: 91 percent.

The report discusses that the PDC program’s collection rate (1%) is lower than the national debt collection average (9.9%). However, the report lists many reasons that explain this, the most influential of which is the average age of accounts placed with PCAs. The average age of assigned accounts is 3.97 years, which, according to the report, are thought to be nearly uncollectible accounts.

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The report also points to other obstacles faced by PCAs due to the IRS’s procedures for the program and the current climate. For example, the report notes that the IRS does not provide PCAs with the taxpayer’s telephone number upon placement. PCAs also face difficulty placing telephone calls to taxpayers because they must verify the taxpayer’s sensitive information in an environment where telephone scams involving IRS impersonators are widespread.

The report also calls out several IRS procedures for the PDC program that may be harmful to consumers. As one example, the report highlights the potential harm caused by the required verification process. In the current process, the letters received by the taxpayer from both the IRS and the PCA contain a Taxpayer Authentication Number (TAN), which is unique to each taxpayer. PCAs are to use the TAN along with other personal information to ensure they are speaking to the correct person. However, if the taxpayer does not have his TAN available, he may verify the account using his social security number (SSN). To do this, the taxpayer would provide the first five digits of his SSN and the PCA would then provide the last four digits of the SSN. The report notes that this procedure could allow scammers to get access to the taxpayer’s sensitive information.

Another example is the IRS’s lack of standardization of a complaint process. This issue is twofold. First, the report notes that the IRS should have a complaint panel or have a complaint process that alows taxpayers to lodge compalints directly to the IRS rather than relying on PCAs to self-report complaints. Second, the IRS needs to clarify the definition of complaint so that the PCAs can self-report complaints consistently. The report found that the disparity in self-reported complaints (44% by one PCA, 6% by another) is indicative that the IRS has not provided clear guidance to the PCAs on what qualifies as a self-reportable complaint. The report notes that a complaint panel consisting of a cross-functional group would ensure that “the person in charge of reviewing complaints agast the PCAs are not the same people who are responsbile for the success or failure of the PDC initiative.”

The report states that with the current inventory of delinquent taxpayer accounts, the IRS could do a better job at placing more promising accounts with PCAs. For example, inventory management and placement could be more profitable if assignment was based on dollar value of the account, age of the case, the taxpayer’s financial position, or the availability of taxpayer contact information. The IRS responded to this recommendation by stating it currently places accounts based on type and balance due, but any further analysis would result in a significant technology investment.

The report also notes that the IRS made it difficult to forecast the future financial success of the program. Specifically, the report states that the IRS failed to identify which expenses for the program were one-time start-up costs versus recurring operational costs. Without this information, it is difficult to accurately extrapolate the program’s future financials.

Despite all of this, the current PDC program appears to be a success financially, as previously reported by insideARM. As of May 31, 2018, the program’s revenue ($56.65 million) was higher than the costs associated with the program ($55.33 million).

insideARM Perspective

This report provides a positive review of the PCAs, showing that they are doing very well despite the inventory, information, and oversight provided by the IRS. Even would-be criticisms of PCAs, like the inconsistency of self-reporting complaints, are directed at the IRS, finding that PCAs did not receive clear guidance from the IRS. A review of the report as a whole gives the impression that the IRS is trying to balance oversight of the PDC program with the need to keep costs low and manageable so the program does not result in a net loss like its predecessors. Considering that the program is currently running in the black, it appears that the IRS’s efforts are working in that area, which may mean the current program avoids the fate of the two prior attempts.

RICHMOND, Texas — ContactRelief, provider of the Disaster Decision Engine, today announced John Watson has joined the company as its chief executive officer. Watson will replace existing CEO and Co-Founder Mike Chandler, who will become the company’s chairman. Current Chairman and Co-Founder Doug Schultz will join the company’s board of advisors.

Watson brings more than 15 years of leadership experience, most recently serving as chief executive officer of ARS National Services, a national leader in the accounts receivable management industry. Watson is also board chair of KIPP San Diego, a public middle school focused on getting children from low-income neighborhoods in Southeast San Diego to and through college.

During his 14-year tenure with ARS, Watson held multiple leadership roles, including chief financial officer, chief operating officer and president. Prior to ARS National Services, Watson held senior roles in the strategic consulting, transaction advisory, and assurance groups of Ernst & Young in Silicon Valley.

“With the increasing threats of natural and man-made disasters and the need for contact centers to optimize inbound and outbound contact strategies, we recognized the value of adding new talent to the team,” Chandler said. “In harnessing John’s years of industry experience, we plan to drive adoption of ContactRelief’s Disaster Decision Engine in the financial industry and beyond.”

In the role of CEO, Watson will be responsible for ContactRelief ‘s overall strategy, focusing on innovative growth initiatives through fostering new partnerships, while utilizing his years of contact center industry experience to ensure ContactRelief continues to exceed customer expectations.

“I’m excited to join the exceptionally talented team at ContactRelief, who is focused on leveraging technology and data in innovative ways,” said Watson. “The company’s first product, the Disaster Decision Engine, serves as a major proof point that doing what’s right while simultaneously meeting organizational goals are, in fact, complementary business imperatives and not competing objectives.”

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An industry pioneer, ContactRelief uses hyper-localized, real-time data to help contact centers optimize their efficiencies during disasters. Their innovative Disaster Decision Engine helps guide user’s contact suspension activities, ultimately making operations 5x more efficient during disasters, protecting collection revenue streams and ensuring consistency of actions across collection networks.  

About ContactRelief

ContactRelief is a Houston, Texas based information service company founded in 2017 by Doug Schultz, Mike Chandler and other owners and executives formerly with United Recovery Systems, then one of the largest privately held account receivables management companies in the United States. In 2008, Mr. Schultz started the Schultz Family Foundation. The foundation’s focus is to provide funding to disaster relief charities as quickly as possible after a major disaster. For more information visit: www.contactrelief.com.

When the Bureau of Consumer Financial Protection (Bureau of BCFP) announced it would be accepting applications for new members to its Consumer Advisory Board (CAB or Board), insideARM published an article asking whether the Bureau would choose more than one ARM industry representative for the Board. On Friday, the industry finally got its answer, and that answer is no.

In June Acting Director Mick Mulvaney disbanded all advisory boards, including CAB, saying the boards were too big and that they cost too much to operate. He said at the time that boards would be selected (and none of the just released members would be eligible to participate). Last Friday afternoon the Bureau announced its appointments. While the new CAB contains a member in the loan servicing space, noticeably absent from the list, in a year when rulemaking is expected, is representation from the debt collection industry. 

The new CAB members include:

• Liz Coyle, Executive Director, Georgia Watch, a consumer advocacy group in Georgia.

• Sameh Elamawy, Chief Executive Officer, Scratch Services, Inc., a technology-based loan servicing company. Prior to joining Scratch, Mr. Elamawy was a product manager at both DropBox and Pinterest.

• Manning Field, Chief Operating Officer, Acorns, a mobile investing app that rounds up purchases made to the nearest dollar and invests the difference in the market. Prior to joining Acorns, Mr. Field spent many years at Chase in multiple roles, including those related to marketing and innovation.

• Jason B. Gross, Chief Executive Officer, Petal, a credit card provider. Mr. Gross worked as an attorney prior to his current role.

• Clinton B. Gwin, President and CEO, Pathway Lending, a loan provider.

• Ronald A. Johnson, President, Clark Atlanta University. In addition to his many roles in higher education, Dr. Johnson is also an investment management consultant.

• Brent Neiser, Senior Director of Strategic Programs and Alliances, National Endowment for Financial Education. Mr. Neiser is the only member of the dismantled CAB that was appointed to the new CAB.

• Sophie Raseman, Director of Product, Brightside, a service created to benefit employees by optimizing their net income. Ms. Raseman previously served as the Director of Smart Disclosures for the U.S. Treasury Department and was the co-chair of the Task Force for Smart Disclosures for the National Science and Technology Council.

• Luz Urrutia, Chief Executive Officer, Opportunity Fund, a non-profit micro-lender.

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insideARM Perspective

As mentioned above, noticeably missing from this list is representation of the debt collection industry, which the BCFP oversees. The previously-dismantled CAB contained a single ARM industry member, the CEO of True Accord, Ohad Samet. Samet was a new-comer to the industry, and the leader of what is essentially a technology firm with a business model quite different from traditional collection agencies. He was viewed by many as an interesting choice, as he had limited background in debt collection. Nonetheless, he has been effective in leading many to accept the new idea that there may be a path to primarily email-based collections.

Prior to that, Joann Needleman, member at Clark Hill and leader of the firm’s Consumer Financial Services Regulatory & Compliance Practice Group, served as the sole industry member on the CAB until her 3-year term expired. Needleman was previously president of the National Creditors’ Bar Association, and was widely viewed as a solid choice to represent the industry. 

The choice to not include debt collection representatives on the CAB — and the extremely brief section devoted to debt collection in the Bureau’s Supervisory Highlights released last week — leave some wondering what the future focus on the debt collection market will look like. The industry has been fiercely advocating for rules that specifically accommodate modern technology for use in communicating with consumers. Given the multiple technology-based companies on the CAB, and the Bureau’s newly formed Office of Innovation, perhaps the door has opened.

On August 6, 2018, the Bureau of Consumer Financial Protection (BCFP or Bureau) released its Supervisory Highlights (Highlights) addressing its observations from December 2017 through May 2018. This Highlights issue is the first issued under Acting Director Mulvaney, and contains a very brief section on debt collection.  

The comments about debt collection relate to verification of debts. The Bureau observed that one or more debt collectors:

• Forwarded verification requests to creditors for the creditor to review and send a response to the consumer;
• Accepted the creditor’s determinations that the debt was owed without receiving verification or sending such verification to the consumer; and
• Continued debt collection on accounts in violation of 809(b) of the Fair Debt Collection Practices Act (FDCPA).

The Bureau noted that in response to its examination findings, one or more debt collectors are modifying their policies and procedures related to verification of debt.

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insideARM Perspective

Albeit brief, the debt collection portion of the Highlights is loaded with questions and items for consideration.

Verification by Creditor

While the text of the FDCPA states that verification of debt must be sent to the consumer by the debt collector, there is some question about whether this is the most beneficial avenue for consumers. An issue faced by consumers and debt collectors alike is the desire — and requirement on the debt collector’s end — to ensure they are speaking to the correct party. Consumers are familiar with and can identify the creditors with whom they opened a line of credit; they are less familiar with the collection agencies working on behalf of such creditors. The proliferation of robocalls and other harmful actions by third parties cause consumers to question whether the person or entity they are communicating with is a legitimate debt collector or just another wrongdoer trying to scam them. Receiving verification of debt directly from the creditor can help bridge the trust gap and confirm for the consumer that the debt collector is indeed working on behalf of the creditor.

Additionally, the creditor, as the entity that extended credit to the consumer and the entity that owns the debt, is the party better suited to respond to verification requests if they choose to do so. Creditors are the holders of all account documents and information. Any response from a debt collector to a verification request will contain information received from the creditor, so practically speaking there is little difference between the verification coming from the creditor or the debt collector.

Verification Procedure

The Highlights leave open the question of what exact investigative procedure is triggered by a request for verification of debt. Back in March, insideARM published an article about a Seventh Circuit decision that found section 809(b) of the FDCPA requires verification of the debt collector’s records, not the creditor’s records. The Seventh Circuit, which is one of the more consumer-friendly jurisdictions in the United States, stated that requiring a debt collector to investigate the validity of the amount owed would be “burdensome and significantly beyond the [FDCPA’s] purpose.”

With the limited information provided in the Highlights, it is difficult to determine specifically what the Bureau took issue with regarding the verification process. Was it the failure to send the verification to the consumer? Was it the level of investigation conducted by the debt collector? If the latter, is the Bureau requiring a debt collector to do a more thorough investigation than the Seventh Circuit found was necessary under the FDCPA? With the Highlight’s brevity regarding this issue, debt collectors are left with vague — and, quite possibly, conflicting — guidance on how to proceed with verifying debts.

New Jersey’s Out-of-Network Consumer Protection, Transparency, Cost Containment and Accountability Act (the Act), codified as NJSA 26:2SS, in now in full effect. The Act, signed by New Jersey Governor Phil Murphy on June 1, 2018, is designed to protect consumers against surprise medical bills from out-of-network providers. Per section 18 of the law, it went into full effect 90 days after enactment.

The law requires healthcare facilities and providers to provide certain disclosures. For example, prior to scheduling a non-emergency appointment, healthcare facilities and providers are required to inform the patient if they are out-of-network, provide expected costs of services upon request, and provide a disclosure of the patient’s financial responsibility related to out-of-network services. For non-emergency procedures, physicians are also required to identify any other provider scheduled for the procedure so the patient can check whether these providers are in-network.

The law also calls for certain procedures for emergency and urgent care services, including not billing a patient in excess of any deductible, copayment, or coinsurance amount if the patient inadvertently received out-of-network emergency or urgent care services. The law also lays out voluntary arbitration procedures for situations where an out-of-network facility and insurance carrier cannot agree on the final offer of reimbursement.

Several states have taken the initiative to address the issue of balance billing. New Mexico’s Office of the Superintendent of Insurance released a study in late 2017 that indicated many patients are surprised by certain medical bills. Earlier this year, insideARM published an article about four other states (Washington, Oregon, New Hampshire, and Virginia) that were reviewing the issue. Since the article was published, the Oregon, New Hampshire, and now the New Jersey measures have been signed into law and are in full effect. These states now join other states that already have either comprehensive or partial protections against balance billing in place.

insideARM Perspective

As laws pertaining to balance billing go into effect, they bring a new set of complexities to the healthcare billing and collection space. While New Jersey’s law places the burden on healthcare providers and facilities, it is likely that billing disputes related to this law will trickle down to the collection agency level. Since other states have already enacted similar laws, there is likely some guidance available related to compliance. Balance billing appears to be an issue of interest in many states so similar laws are likely to continue popping up in other parts of the country.

GENESCO, N.Y. — Coast Professional, Inc. (Coast) presented a check for $13,060.00 to the Geneseo Central Education Fund at the company’s Geneseo, NY office on August 23, 2018. Coast’s donation is a result of the company’s dress down for charity program in which employees donate $20 or more for the option to wear jeans and business casual attire for the month. The donations include the employee contributions from Coast’s Geneseo, N.Y. office and the company match of up to $500 per office per month.

The employees of Coast selected the Geneseo Central Education Fund to be the recipient of the charity dress down program for the months of June and July as a result of the impact that this organization has in the local area. The employees vote bimonthly for the charity that will receive the donations raised through the program for the upcoming period.

The proceeds from the donation will benefit the Geneseo Central School District and their Geneseo Central Education Fund. The donation will help provide access to extra-curricular school trips, tours, and events; will create an Emergency Fund for families for school supplies and equipment; and will create grants for teachers to receive additional professional development, and enhance and enrich educational opportunities for students and staff.

“As a company that is dedicated to the education sector, we understand the importance that education has on the lives of children and adults,” stated Brian Davis, CEO and Co-Chairman of the Board. “We strive to create meaningful change throughout our region and have created this dress down program to positively impact the lives of people in our community. This donation is a result of our employee’s commitment to help students and families overcome financial obstacles while ensuring the availability of lasting and impactful education. Coast is honored to support the Geneseo Central School District and their outstanding effort to change the lives of our local youth.”

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About Geneseo Central School District and Geneseo Central Education Fund

The Geneseo School District presently enrolls approximately 900 students in grades K-12.  The District encompasses 70 square miles. The school is housed in a well-maintained, modern campus consisting of three adjoining buildings and ample athletic facilities.  The Elementary School includes grades K-5. The Middle School/High School houses grades 6-12. The buildings and grounds contain a beautiful 600-seat auditorium, a fitness center, two gymnasiums, playing fields, a lighted stadium for football and soccer, an all-weather track, and a competition indoor pool. The Geneseo Central School District has been a leader among the Genesee Valley schools in the area of instructional technology.  Each classroom has a digital projector and most have an interactive whiteboard. There are four general use computer labs in the school along with a state-of-art computer-drafting classroom. The media centers also contain enough computers to accommodate an entire class for student research projects.

About Coast Professional, Inc.:

Coast Professional, Inc. is an accounts receivable management company, dedicated to the respectful and ethical collection of higher education and government debt. Coast provides professional collection services to over 200 campus based colleges, universities, and government clients. Coast is a five time honoree on the Inc. 5000 list for American’s Fastest-Growing Private Companies provided by Inc. Magazine and in 2016, was recognized for the third consecutive year as one of the “Best Places to Work In Collections” by insideARM.com and Best Companies Group. Since 1976, Coast has worked closely with clients to increase recoveries by assisting consumers in resolving their financial obligations. Coast’s success is exemplified by exceptional recoveries, superior service, and dedication to the highest levels of compliance. More information about Coast can be found at www.coastprofessional.com.

Editor’s Note: This article is published by insideARM with permission from the author, G. David Carter of Innovista Law PLLC. The firm’s blog, TCPA Defense Force, can be read here.

This week, Judge Brett M. Kavanaugh of the United State Circuit Court of Appeals for the D.C. Circuit will appear before the Senate Judiciary Committee to testify during confirmation hearings for his nomination to become an Associate Justice of the United States Supreme Court. Kavanaugh was nominated by President Trump on July 9, 2018, to fill the seat of the long-serving Justice Anthony Kennedy, who officially retired on July 31, 2018.

As we prepare for what may be a contentious election-year confirmation process, I explore what Judge Kavanugh’s elevation to the high court could mean for the future of the Telephone Consumer Protection Act (TCPA). Based on his many years of service on the D.C. Circuit – the federal appellate court that handles the largest volume of appeals involving issues of federal agency decision making – as well as his speeches and writings, a road map emerges that suggests Justice Kavanaugh may profoundly impact how agencies, such as the FCC, do their work. As a result, this course correction may make it easier for businesses to comply with the TCPA, helping to reduce risk for those companies that strive to comply with the law.

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Judge Kavanaugh Knows the Serious Risks of the TCPA

Judge Kavanaugh is already acquainted with the TCPA. In 2017, he authored the D.C. Circuit’s opinion in Bais Yaakov of Spring Valley v. FCC, 852 F.3d 1078 (D.C. Cir. 2017).  Bais Yaakov presented a challenge to certain FCC rules implementing the Junk Fax Prevention Act of 2005, an amendment to the TCPA that amended the TCPA’s rules governing faxes, including requiring opt-out notices in those limited instances in which unsolicited fax advertisements are permitted. The petitioners challenged a 2006 FCC regulation that required “solicited fax advertisements” – those faxes sent with the permission of the recipient – to include an opt-out notice on the fax, arguing that this requirement was not included in the text of the statute adopted by Congress and, therefore, was a decision that exceeded the FCC’s authority.  

In his opinion for the court, Judge Kavanaugh took notice of the fact that the TCPA “supplies a private right of action” and provides for “stiff penalt[ies] for violating the FCC’s regulations” of “at least $500 for each violation,” which can “add up quickly.” In striking down the FCC’s regulation, Judge Kavanugh rejected the assertion that the FCC has full authority to act in the area of telecommunications unless Congress has expressly prohibited the action in question. According to Judge Kavanaugh, “[t]hat theory has it backwards as a matter of basic separation of powers and administrative law. The FCC may only take action that Congress has authorized.” Thus, because Congress had not authorized the FCC to require opt-out language on solicited faxes, Judge Kavanaugh concluded that the regulation exceeded the scope of the FCC’s authority.

Judge Kavanaugh’s Approach to Regulatory Authority in Bais Yaakov Demonstrates His Philosophy of Limited Agency Power

Judge Kavanaugh’s decision in Bais Yaakov was, by no means, a foregone conclusion. Many courts have upheld FCC action upon the belief that Congress has given the agency broad powers within the realm of telecommunications law and that the agency does not, necessarily, need an express mandate to implement rules that seek to protect consumers. Thus, the Bais Yaakov decision provides some insight into Judge Kavanaugh’s views regarding the breadth of power and authority that federal regulatory agencies should have to make and interpret public policy. Other writings and speeches help to complete a sketch of a judge who seems inclined to limit and curtail regulatory agency power.

Indeed, we believe that Kavanaugh’s confirmation to the Supreme Court will likely open the door to the Supreme Court reconsidering, and likely overruling, a tenant of agency law that has been central for nearly seven decades. Known as Seminole Rock or Auer deference, this doctrine of agency law proscribes that, in reviewing a regulatory agency’s interpretation of its own regulations, courts should defer to the agency’s interpretation, provided the interpretation is within a “zone of reasonableness.” In other words, even if the agency’s interpretation of a regulation is not the best or most obvious interpretation, the courts will not second guess the agency on the theory that the agency is the policy expert and that judges lack the same level of specialized knowledge. The Seminole Rock doctrine dates back to 1945, and its continued vitality was reinforced in the Supreme Court’s 1997 Auer decision.

Ironically, this later decision was written by the late Justice Antonin Scalia, the leading conservative voice on the court at the time. Before his passing, however, Justice Scalia began to raise significant concerns regarding the propriety of Auer deference. For example, in Decker v. Northwest Environmental Defense Center (2013), Justice Scalia dissented, arguing that Auer deference places “the power to write a law and the power to interpret it … in the same hands” and, as such, “contravenes one of the great rules of separation of powers: He who writes a law must not adjudge its violation.” In a concurring opinion in that case, Chief Justice Roberts and Justice Alito stated that it “may be appropriate to reconsider that principle in an appropriate case,” but concluded that the case under review did not warrant an examination of the issue.

In Perez v. Mortgage Bankers Association (2015), Justice Scalia filed an opinion concurring in the judgment, but again he called on the Court to abandon the Auer doctrine. Echoing the same worries expressed in his Perez dissent, Justice Scalia asserted that Auer deference allows executive agencies to expand their “domain” by “writ[ing] substantive rules more broadly and vaguely, leaving plenty of gaps to be filled in later, using interpretive rules unchecked by notice and comment [rulemaking].”

More recently, Justice Thomas has championed the fight to reverse Auer and Seminole Rock.  In March of this year he wrote a dissent in Garco Construction v. Speer, objecting to the Court’s decision to decline review of a case that would have squarely presented the question of whether Auer and Seminole Rock should be overturned. In his dissent, Justice Thomas expressly stated that these cases “should be overruled” because the level of deference it gives to federal agencies is “constitutionally suspect,” in that it does not adhere to the principle of separation of powers. As we predicted, Justice Gorsuch – President Trump’s first pick to the Court – joined in calling for the reversal of Auer deference. Thus, four of the currently serving Justices (Alito, Gorsuch, Roberts, and Thomas) have either called directly for the reversal of Auer and Seminole Rock or have indicated a willingness to revisit the doctrine in an appropriate case.  

Based on his judicial philosophy, Judge Kavanaugh would likely provide a fifth vote for revisiting the deference afforded to regulatory agencies for interpretation of their own regulations. For example, it is reported that, in a 2016 speech at George Mason University, Judge Kavanaugh predicted that Justice Scalia’s efforts to overturn Auer deference will ultimately be successful. Indeed, Kavanaugh has often stated that he is a fan of Scalia’s, and we may well see him be the decisive vote in making this prediction come true.  

Kavanaugh may also be willing to reverse or restrict a second type of long-standing deference known as Chevron deference. Under the Chevron doctrine, a reviewing court must defer to an agency’s reasonable interpretation of a congressionally-adopted statute. Thus, if a statute is ambiguous, the agency is given great latitude in deciding how to interpret it, and, so long as that interpretation is reasonable, the courts must accept it, even if the interpretation is not the best or most natural reading of the statute.

While Chevron deference does not allow agencies to both adopt and interpret their own imprecise regulations, the doctrine has long been understood to give federal agencies a great deal of discretion when implementing a law adopted by Congress. In an article published in the Harvard Law Review in 2016, Judge Kavanaugh stated that certain aspects of the way in which courts approach statutory interpretation are “troubling.” According to Judge Kavanaugh, “substantive principles of interpretation – such as constitutional avoidance, use of legislative history, and Chevron – depend on an initial determination of whether text is clear or ambiguous,” but judges do not have “settled, principled, or evenhanded way[s]” of making this initial determination. As a result, he asserted, many cases are resolved by “selectively picking from a wealth of canons of construction.” In this article, Judge Kavanaugh asserted that “Chevron has been criticized for many years,” “has no basis in the Administrative Procedures Act” and “is nothing more than a judicially orchestrated shift of power from Congress to the Executive Branch.”  

Kavanaugh explained why he believes Chevron produces bad results:

[I]t is important to understand how Chevron affects the Executive Branch. From my more than five years of experience at the White House, I can confidently say that Chevron encourages the Executive Branch (whichever party controls it) to be extremely aggressive in seeking to squeeze its policy goals into ill-fitting statutory authorizations and restraints. My colleague Judge Tatel has lamented that agencies in both Republican and Democratic administrations too often pursue policy at the expense of law. He makes a good point. As I see it, however, that will always happen because Presidents run for office on policy agendas and it is often difficult to get those agendas through Congress. So it is no surprise that Presidents and agencies often will do whatever they can within existing statutes. And with Chevron in the mix, that inherent aggressiveness is amped up significantly. I think some academics fail to fully grasp the reality of how this works. We must recognize how much Chevron invites an extremely aggressive executive branch philosophy of pushing the legal envelope (a philosophy that, I should note, seems present in the administrations of both political parties). After all, an executive branch decisionmaker might theorize, “If we can just convince a court that the statutory provision is ambiguous, then our interpretation of the statute should pass muster as reasonable. And we can achieve an important policy goal if our interpretation of the statute is accepted. And isn’t just about every statute ambiguous in some fashion or another? Let’s go for it.” Executive branch agencies often think they can take a particular action unless it is clearly forbidden.

Stated simply, we should not unduly blame the executive branch agencies for doing what our doctrine has encouraged them to do.

But when the Executive Branch chooses a weak (but defensible) interpretation of a statute, and when the courts defer, we have a situation where every relevant actor may agree that the agency’s legal interpretation is not the best, yet that interpretation carries the force of law. Amazing.

Thus, based on this discussion, it is reasonable to conclude that, if confirmed as an Associate Justice, Kavanaugh will look for opportunities to reduce or eliminate the level of deference courts give to federal regulatory agencies.

Why the Auer and Chevron Doctrines Matter to the TCPA

Judge Kavanaugh’s views on the appropriate role of courts in reviewing agency action suggests that he would likely seek to reexamine the deference courts give to agencies when interpreting their own regulations. A future Justice Kavanaugh may also seek to reduce the level of deference given to agencies when they interpret and apply the laws adopted by Congress. Such an approach may have long term implications for the future of the TCPA.  

Currently, given the level of deference of afforded to them, regulatory agencies are encouraged to keep their regulations vague, providing desired future flexibility in how they interpret and enforce the regulations. This creates an environment in which regulations fail to provide businesses with adequate specificity to determine whether particular conduct will be found to comply with the law. Real life examples of this phenomenon – and its consequences – can be found in the TCPA.

Consider, for example, the definition of “automatic telephone dialing system” or “ATDS”. When Congress adopted the TCPA, it defined ATDS as “equipment which has the capacity— to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” The regulations adopted by the FCC provide no additional clarity, instead simply parroting that the terms “ATDS” and “autodialer” mean “equipment which has the capacity to store or produce telephone numbers to be called using a random or sequential number generator and to dial such numbers.” Thus, by not adopting regulations with any greater specificity, the FCC has left itself unbridled discretion to decide the contours of what constitutes an ATDS now and in the future and to change its mind on this important question whenever it deems a change necessary. And, of course, the continued ambiguity deprives American businesses of certainty and harms consumers by making it more difficult for all companies to make decisions about how to run their business in a manner that appropriately balances using cost-efficient technologies without running the risks of catastrophic TCPA exposure.  

In theory, as courts reduce or eliminate the level of deference given to regulatory agencies to interpret the laws of Congress or their own regulations, both Congress and executive branch agencies will work harder to adopt laws that are clear and reduce ambiguities. In turn, we could see revisions to the TCPA – either the statute or the regulations, or both – that provide businesses with greater clarity. Thus, if Judge Kavanaugh is confirmed and succeeds in reducing the level of deference courts pay to federal agencies, we may see the FCC and Congress revisit the TCPA to update the statute and its implementing regulations to ensure that its reach is clear and to ensure that the FCC has sufficient authority to govern the types of calls Congress wants to regulate.

Whether Judge Kavanaugh will ultimately succeed in his efforts to fill Justice Kennedy’s seat on the Supreme Court and, if so, whether he will be able to effectuate a fundamental change in key tenants of administrative law is yet to be seen. In the meantime, however, we can hope that the current FCC will soon resolve the critical issues that have led to a surge in TCPA litigation and left businesses without much needed guidance on the scope of the TCPA.