As planned, on Monday the Department of Education (ED) filed a motion to dismiss the case of FMS Investment Corp. (FMS) et. al., v. The United States and Performant Recovery, Inc. et al. because its decision to cancel the solicitation for unrestricted debt collection contractors made the case moot. The court gave all parties until this Friday to indicate whether they plan to oppose that motion.

As of today, four firms have notified the court of their intention to oppose: FMS, Account Control Technology, Continental Service Group, and GC Services LP. This begins a sort of Chapter Three in the matter of this highly valuable and hotly contested contract for private debt collection services.

Chapter One began in 2014 when the five-year 2009 contract ended, and new large-firm awards were delayed. Eventually, contracts were awarded in 2016 to seven large companies, down from 17 on the previous contract. This led to dozens of protests by firms that believed the process was flawed and unfair. So began Chapter Two of the matter, with a “re-do” of the solicitation, which resulted in awards to just two large companies. This led to more protests, and finally… nothing. No large company awards at all, as ED cancelled the whole solicitation last week, and rescinded the contract awards from the two companies.

insideARM Perspective

Something I found interesting that kind of faded away was that on March 6, 2018, Judge Wheeler said he was “convinced that Plaintiffs are likely to succeed on the merits of their bid protests.” Although the continued expense of fighting for this contract has got to be onerous, I suspect the potential contractors feel the facts are on their side, and maybe the judge is too.

This may never end.

A Cleveland publication has reported that the jury in the case of CFPB v. Weltman, Weinberg & Reis (WWR) has reached a mixed verdict, but that the judge has decided to issue his own decision.

As insideARM recently reported, just about a year ago the CFPB filed suit against WWR, alleging that the firm deceived consumers with misleading calls and letters. A fundamental issue in the case is the fact that there is no formal definition of “meaningful review” of lawsuit documentation – 30 seconds? 5 minutes? 2 hours? The issue went to trial on April 30 and concluded last Friday.

The jury decided that the initial demand letters sent by WWR did contain “false, deceptive or misleading representations or means.” However, the jury also said the CFPB had not proved the firm’s attorneys were not meaningfully involved in the debt collection process. (emphasis added)

U.S. District Court Judge Donald Nugent said he would take the verdict under advisement and write his own decision. He gave the CFPB until June 15 to submit arguments to the court, and then two additional weeks for WWR to have the last word.

insideARM Perspective

The WWR case is the third filed by the CFPB under former Director Richard Cordray against debt collection law firms.

In June of 2014 the CFPB filed suit against the Georgia law firm of Frederick J. Hanna & Associates. That case was ultimately settled with a consent order announced in December of 2015. insideARM subsequently published an article by Joann Needleman that discussed the significance of the Hanna order and predicted continued oversight by the CFPB over the practice of law in the collection arena.

On April 26, 2016 the CFPB announced it had filed a consent order with the New Jersey debt collection law firm, Pressler & Pressler LLP. Pressler & Pressler issued its own press release about the order.

Both Pressler & Pressler and WWR have insisted they have not violated any laws, and that they have been truthful with consumers.

The WWR case proceeds against the backdrop of the advancing Practice of Law Technical Clarification Act of 2018 (formerly of 2017). H.R. 5082 amends the Fair Debt Collection Practices Act to exclude law firms and licensed attorneys who are engaged in activities related to legal proceedings from the definition of debt collector. Last month the House Financial Services Committee completed markup of the bill and approved it to move on. insideARM wrote about this Act on March 19, 2018, just before it moved out of Committee.

This article previously appeared on Maurice Wutscher’s Consumer Financial Services Blog and is republished here with permission.

The U.S. Court of Appeals for the Eighth Circuit recently joined with the Third, Fourth, Sixth, Seventh, and Ninth Circuits in applying a materiality standard to section 1692e of the federal Fair Debt Collection Practices Act (FDCPA).

In doing so, the Eighth Circuit affirmed the trial court’s order granting judgment in favor of a debt collector and against a borrower.

A copy of the opinion in Hill v. Accounts Receivable Services, LLC is available at:  Link to Opinion.

On Oct. 30, 2015, a debt collector filed suit in Minnesota state court against a borrower for unpaid medical bills and statutory interest under Minnesota Statutes § 334.01. As a defense, the borrower challenged the assignment of the debt to the debt collector.

The trial court found in the borrower’s favor and issued a judgment on its standard form.  The judgment contained a checked box finding that “Plaintiff has not demonstrated an entitlement to relief and recovers zero.” The judgment had no other factual or legal findings.

The borrower then filed an action against the debt collector alleging the debt collector’s conduct in the underlying suit violated the FDCPA.

Specifically, the borrower alleged that the debt collector violated 15 U.S.C. § 1692e by using “false, deceptive, or misleading representation or means in connection with the collection of any debt.” Further, the borrower alleged that the debt collector threatened “to take any action that cannot legally be taken or that is not intended to be taken” in violation of 15 U.S.C. § 1692e(5). Finally, the borrower claimed that the debt collector violated 15 U.S.C. § 1692f, by using “unfair or unconscionable means to collect or attempt to collect any debt.”

The trial court found the debt collector’s alleged conduct to be immaterial and entered a judgment on the pleadings in favor of the debt collector. This appeal followed.

The Eighth Circuit observed that the Seventh Circuit previously addressed “whether a materiality standard applies to § 1692e.”  Specifically, in Hahn v. Triumph Partnerships LLC, 557 F.3d 755 (7th Cir. 2009), the Seventh Circuit found that the FDCPA  “is designed to provide information that helps consumers to choose intelligently, . . . immaterial information neither contributes to that objective (if the statement is correct) nor undermines it (if the statement is incorrect).” Id. at 757-58 (citations omitted). Further, because “[a] statement cannot mislead unless it is material, a false but non-material statement is not actionable.” Id. at 758.

The Eighth Circuit found the Seventh Circuit’s reasoning persuasive and joined the circuits that “applied a materiality standard to § 1692e.” Id. at 757-58; Elyazidi v. SunTrust Bank, 780 F.3d 227, 234 (4th Cir. 2015); Jensen v. Pressler & Pressler, 791 F.3d 413, 421 (3d Cir. 2015); Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596 (6th Cir. 2009); Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1033 (9th Cir. 2010).

The borrower also argued that the debt collector made materially false representations by representing that the documents it submitted to the state trial court were authentic. The borrower did not deny that his family received the healthcare services at issue or that his healthcare provider assigned the debt to the debt collector.  Instead, the borrower maintained that the documents the debt collector submitted did not establish the assignment and contained other false statements.

The Eighth Circuit rejected the borrower’s argument as “a debt collector’s loss of a collection action — standing alone — does not establish a violation” of the FDCPA. Hemmingsen v. Messerli & Kramer, P.A., 2 674 F.3d 814, 820 (8th Cir. 2012).

Further, just because “a lawsuit turns out ultimately to be unsuccessful” does not mean that filing the suit constitutes pursuing “an action that cannot legally be taken.” Id. (quoting Heintz v. Jenkins, 514 U.S. 291, 295-96 (1995)).

Here, the Eighth Circuit found that the debt collector’s failure to prove the assignment “did not constitute a materially false representation, and the other alleged inaccuracies in the exhibits are not material.”

The borrower also argued that the debt collector violated 15 U.S.C. § 1692f(1) by attempting to collect interest under Minnesota Statutes § 549.09 because the law does not permit the debt collector to collect interest.  The Eighth Circuit rejected this argument for several reasons.

First, the debt collector’s complaint only sought interest pursuant to Minnesota Statutes § 334.01.  Further, this is a Minnesota law question and the Minnesota Supreme Court has not decided the issue.  Finally, “the text of § 334.01 does not prohibit [the debt collector] from recovering such interest.”  Thus, although the borrower may have a defense that the statute does not apply, this does not mean that the debt collector “attempted to collect interest that is not permitted by law.”

The Eighth Circuit, therefore, affirmed the trial court’s decision.

The Department of Education (ED) just notified the Court of Federal Claims that it has completed its review of the contested solicitation for private debt collection services. They have cancelled the whole thing.

Here’s what the notice says,

“The solicitation will be cancelled due to a substantial change in the requirements to perform collection and administrative resolution activities on defaulted Federal student loan debts. In the future, ED plans to significantly enhance its engagement at the 90-day delinquency mark in an effort to help borrowers more effectively manage their Federal student loan debt. ED expects these enhanced outreach efforts to reduce the volume of borrowers that default, improve customer service to delinquent borrowers, and lower overall delinquency levels. The current private collection agencies (PCA) under contract with ED have sufficient capacity to absorb the number of accounts expected to need debt collection services while the process for transitioning to the new approach is developed and implemented. Therefore, additional PCA contract work is not currently needed.

ED will cancel the solicitation and terminate for convenience the awards to
Performant Recovery, Inc. and Windham Professionals, Inc. on or after May 7, 2018. Following those actions, we will move to dismiss this consolidated action as moot.”

insideARM Perspective

So, what began in 2009 as a 5-year contract for 17 large and 5 small debt collection companies, became a contract in 2014 for 11 small companies and a delay for the large firm awards, eventually resulting in a 2016 award to seven large companies, launching dozens of protests, a re-do, a whittling down to just 2 large companies, then more protests, and now… nothing. No large company awards at all.

This was not entirely unexpected. Several weeks ago ED submitted a notice to the Court of Federal Claims which said, “It appears likely that a course of action other than continued litigation of the pending protests will be pursued. ED has not completed the analysis yet and has not made a final decision as to a course of action. All options remain on the table.” (emphasis added)

As we reported earlier this week, sources familiar with what’s happening in this space alerted insideARM that ED recently signaled its intent to hold another procurement for Private Collection Agency (PCA) services in the months ahead – one set aside for small businesses. 

Randy Kamm, a consultant in the space, posted this comment on that last article:

“While true that ED’s procurement forecast lists a recompetition of the small restricted contracts for this quarter (in lieu of exercising the second five-year option period in September 2019), my sources indicate that the forecast is simply part of a broader contingency plan/placeholder given all of the unknowns related to ED’s servicing and default collections environment. ED isn’t really planning a small business reprocurement in the short term. If ED does decide to rebid the small biz contracts, the proverbial ‘tea leaves’ indicate the reprocurement process probably would not occur until mid to late 2019 — when (hopefully) ED has a better line of sight on (1) the actual capacity of the restricted contractors (and their subcontractor networks) to handle the volume, (2) the outcome of the unrestricted protests (still unresolved) and (3) the status of its “Next Generation” servicing solution. My view is that ED is attempting to sync-up all of the ‘moving parts’ related to its ability to fully manage and service, in its entirety, the $1.4-trillion in outstanding loans and $140-billion in defaulted loans.”

Of course, we now know what happened vis a vis his #2. I suspect it will be quite some time before we know the true status of #3, the “Next Generation” solution, if only because it’s an enormous project and will likely take multiple years to implement.

That leaves #1 – the actual capacity of the restricted contractors (and their subcontractor networks) to handle the volume. And also, the somewhat new information announced today that “In the future, ED plans to significantly enhance its engagement at the 90-day delinquency mark…” ED doesn’t say when “the future” is.

We will continue to report on the situation as it unfolds. Meanwhile, I suspect a lot of upheaval and uncertainty will be experienced by a number of companies and hundreds – if not thousands – of individuals in the coming days, weeks and months.

Despite being deeply embedded in collections and strategies for many years, it wasn’t until I heard Rebekah Johnson, CEO of Numeracle, at last November’s insideARM Innovation Council meeting that I started to realize what a major impact call blocking and labeling will have on our industry. Fast forward six months. I’m not an alarmist, but I’m more concerned than ever.

Here’s the quick rundown:

• Scam calls are skyrocketing (fake IRS, Jessica from Card Services, Windows warranty support…and on and on).
• Regulators are recognizing the harm and are pushing telecom companies to proactively filter the scammers/robocalls from legitimate business calls.
• Telecom companies are hiring software (or “analytics”) firms to analyze phone calls and systemically differentiate the “good” from the “bad” — or as some put it, the “wanted” from the “unwanted.”
• Consumers are downloading apps on their phones to help them filter incoming phone calls.
• Eventually, “suspected” spam calls with be blocked and/or labeled on the users behalf (think spam email folder).

Why does this matter to you?

• If you contact customers via the telephone, you will be impacted (the impact may have already started).
• If your calls are inappropriately flagged as spam calls, they may be blocked by carriers or by mobile phone apps.
• If your calls aren’t blocked, but are mislabeled (the analytics companies will decide how legitimate calls are labeled) on the caller ID, you may not get through to your customers.
• If you take no action, there’s a high probability you will see a sharp decline in RPC rates and your customers will be in the dark.

What’s being done?

• Industry groups are coming together to advocate for legitimate callers – get a seat at the table.

  The

  Consumer Relations Consortium (CRC) and its Innovation Council are embedded in this advocacy activity. Stephanie Eidelman, CEO of the iA Institute and Executive Director of the CRC, will be on a panel tomorrow at the Robocall Scoring and Analytics Workshop hosted by USTelecom (the carrier association), regarding how to design a feedback loop that inform callers about how their calls are being scored and labeled. Andy Balthaser, VP of Compliance for Alorica, also on the CRC Steering Committee (as well as the board of PACE), is on a panel that will discuss stakeholder industry practices.  

• Technology Solutions are being developed by companies like Numeracle and Neustar that you’ll want to evaluate soon.  

Given the criticality of this issue to our industry, we’ve asked Rebekah Johnson, CEO of Numerical, to share the latest insights and impacts at our First Party Summit, June 4-6th in Dallas, TX.  We’ll see you there.

MUNCIE, Ind.  — Ontario Systems, a leading provider of enterprise revenue cycle management software to the healthcare, accounts receivable management, and government markets, announced today that it has acquired Justice Systems, Inc., a leading provider of court case management software, and electronic payments solutions to government clients including state and municipal court systems.

Ontario Systems and Justice Systems are leading players in the growing government software sector, both with over 35-year histories of providing trusted solutions to their clients. The acquisition reflects Ontario’s continuing commitment to accelerating its strong growth trajectory in the attractive government marketplace.

“This alignment is about growth and seizing a strong market opportunity where we feel we can offer an enhanced solution,” says Ron Fauquher, Ontario Systems CEO. “Combining our people, products, and market strategies provides tremendous benefits to the markets we jointly and uniquely serve.”

The merger marries JSI’s court case management and electronic payments capabilities with the receivables workflow and payment follow-up automation of Ontario Systems, creating a closed loop payment and enterprise workflow solution for state and local court systems, including prosecutors and public defender offices.

“Our product and market strategies are complementary in important ways,” says Jay Moorman, Ontario Systems Vice President and General Manager of the SLG business unit. “By blending products that focus on different parts of the court case workflow and payment processing spectrum, we are providing a collaborative solution where this market currently has a gap.”

Moorman says the merger is expected to provide the market a more effective solution. “The acquisition creates a more complete solution to government entities challenged by budgets and complexity. Improved workflow and integrated tools facilitate service to constituents while helping to manage costs,” he said.

“This partnership represents an exciting opportunity, not only for our customers in the state and local government market, but for the OS and JSI organizations,” says Ernie Sego, Co-founder and CEO/President of Justice Systems. “Joining forces with a company who shares our philosophy where people and customers come first was my top priority and we found that with Ontario Systems. By combining products, talent, innovation and strategy, we take steps forward as an organization that presents new opportunities to our teams and our industry.” 

About Ontario Systems

Ontario Systems is a leading provider of enterprise revenue cycle management software to the healthcare, accounts receivable management, and government markets. Established in 1980 and headquartered in Muncie, Ind., Ontario Systems offers a full portfolio of leading software platforms, including Artiva RM™, Artiva HCx™, Contact Savvy^®, and RevQ^®. Ontario Systems’ industry-leading customers include 5 of the 15 largest hospital networks who actively manage over $40 billion in receivables collectively, as well as 8 of the 10 largest ARM companies and more than a hundred federal, state and municipal government clients in the U.S.

To learn more about Ontario Systems, visit OntarioSystems.com, or email mailto:info@ontariosystems.com. 

About Justice Systems

Justice Systems, Inc. (JSI) is a leading provider of court case management, prosecutor and public defender case management, and electronic payments software to state and municipal court systems. JSI’s key products include Full Court Enterprise®, Full Case®, and CitePayUSA.  Founded in 1982 as National Equipment Corporation by brothers Bill and Ernie Sego, JSI today serves 500+ unique courts and judiciary offices. Headquartered in Albuquerque, New Mexico, JSI’s associates have deep domain-expertise in nearly all specialties of court case management and judiciary operations.

To learn more about JSI’s full product offerings, please visit www.justicesystems.com/justice-systems-products.php.

JACKSONVILLE, Fla. — The relationship between Divinity Software Group (DSG) and Premiere Credit of North America (PCNA) began in 2016 when PCNA partnered with DSG to launch the Propensio Electronic Document Delivery Module (E-docs) and the Agent Module to streamline and automate processes for PCNA.

Rafal Werbanowski, the Director of IT Applications at PCNA, said “DSG has developed and deployed true cutting-edge solutions and technologies for our business. Propensio enables our associates to collaborate with borrowers to deliver documents electronically, assist with any questions and retrieve the completed documents through the application — all while still engaged with the borrower on the initial phone contact.” 

Werbanowski continued, “We have experienced increased performance and consumer satisfaction along with significant cost reductions by using the Propensio Electronic Document Delivery Module. We are now looking to expand further with the addition of the Propensio Client Module and Payment Module.” 

Ryan Mack, a managing member of Divinity Software Group, stated, “We are excited to be partnered with PCNA and continue to stay focused on deploying cutting-edge technologies and solutions to meet their growth well into future.” 

To find out more about Divinity Software Group and its offerings contact Ryder.Thompson@DivinitySoftware.com or visit www.DivinitySoftware.com.

PHOENIX, Ariz. — BillingTree®, the leading payment technology provider, today released the key findings of its sixth annual ARM ‘Operations and Technology’ Survey. The results, collected from over 150 agencies of all sizes, found PCI compliance was the top ranked security concern among respondents. Agencies cited innovative technologies to expand payment channels and enhance collection effectiveness as top factors for growth.

For the first-time in the six-year history of the survey, concerns over CFPB regulations ranked lower than all other compliance issues, including PCI, NACHA and REG-E/ESign. This overall trend is consistent with prior survey predictions after the emergence of the PCI 3.0 compliance rule changes in 2015. However, with CFPB plans to release a proposed rule concerning FDCPA collectors’ communications practices and consumer disclosures, there is a chance this area will experience further disruption.

The growing consumer demand for mobile payments is driving change, with text payments cited by respondents as the most desired payment option. However, rather than mobile text to pay being held back by technology limitations, it is the perceived compliance risks putting the brakes on adoption. This technology out-ranked agent-assisted payment authorization and notification as the payment option carrying the greatest compliance risk. One respondent stated, “these technologies are available, but with no safe harbor.” 

When asked about future technology plans, mobile device presentment and payment ranked second at 29%, just behind online portals at 31%. Alternative forms of payment including PayPal, e-cash and Bitcoin ranked high, with 24% of respondents considering adoption, which suggests ARM organizations are ready to embrace consumer technology trends and expand payment channels. Consistent with prior years, Interactive Voice Response (IVR) adoption continues to grow, with 36% relying on IVR compared to 28% in 2017. 

The latest study shows a growing acceptance of HSA/FSA payments, with more than half or 53% doing so today, compared to 47% one year ago and one-third in 2016. An additional 27% indicated interest in adopting HSA/FSA payments in the future. 

BillingTree will be presenting the survey findings during a webinar on May 24, 1pm ET – register here. 

To request a complimentary copy of the 2018 ARM Industry Operations, Technology & Payments report, click here.

About BillingTree 
BillingTree® is the leading provider of integrated payments solutions to the Healthcare, ARM, Property Management, B2B, and Financial Services industry verticals. Through its technology-enabled suite of products and services, BillingTree enables organizations to increase efficiency and decrease the costs of payment processing while adhering to compliance regulations. Leveraging more than a decade of market experience, BillingTree is dedicated to growing payments with technology through an integrated omni-channel offering, suite of proprietary products and value-added services, and a company-wide focus on delivering extraordinary customer service.

In a recent blog post, Conerstone Support uses the metaphor of a stream to explain how risk works within the debt industry. “At the top of the stream is the credit grantor, the entity that originally extended credit to the consumer,” and when it comes time to collect, the credit grantor may go “downstream” to “continue collection efforts.”

The creditor, then, is reponsible for the stream from the moment it leaves their organization until the debt is collected, or until someone else takes full responsibility from the creditor.

In a sense, though, every stopping point along this metaphorical stream is the top of the stream — by which I mean: each stop along the way — creditor, debt buyer, collection agency, collection attorney — is responsible, in a compliance sense, for what happens next.

This is all under the umbrella of “vicarious liability,” which just means you don’t get to wash your hands of responsibility just because you think you’re done.

Cornerstone asks the question, “How do I [that is, you, dear reader] understand the licensing and registration requirements of everyone downstream and develop a process to make sure that they remain compliant?” They’re asking the question in the context of credit grantors and debt buyers, but it’s a sound framework for everyone working in this particular ecosystem.

1. Identify all downstream service providers. Credit grantors and debt buyers need to know who is handling collection accounts downstream, what type of agency they are (collection agency, collection law firm), what services they are providing (sending letters, making calls, suing, etc.), and a list of locations from which they will be communicating with debtors.
2. Develop a standard licensing matrix. Once you understand who your service providers are you can begin the task of identifying what licenses and registrations they are required to maintain to service your accounts. Developing a licensing matrix that becomes the standard by which to measure statutory compliance is critical to managing a review process designed to mitigate exposure.
3. Perform an initial licensing audit. Using the standard licensing matrix as a baseline, now you can identify where a service provider is licensed and, conversely, any gaps that may exist. All licensing information is public and can be obtained directly from the states. In our experience, it is not advisable to rely on copies of licenses or other data provided by your downstream service providers.
4. Remedy any gaps identified. Once you have performed the initial assessment and identified gaps it is important that you not let your downstream service providers continue to work accounts in the jurisdictions where they are not appropriately licensed. Make sure that the license is obtained and you have verified its existence before sending accounts back. It should be noted that the general condition of an organization’s licensing tends to reflect their overall entity compliance and can often be used as a proxy to measure risk associated with that particular organization.
5. Conduct ongoing licensing audits. Independently audit the licensing and registration of all downstream providers on a regular basis. Most license and registrations expire on a regular basis. It is generally sufficient to make sure that a downstream service provider renews each license on a timely basis and only do another full audit in the event something is uncovered during your ongoing reviews that make it prudent to do so.
6. Monitor legislative changes and regulatory opinions. Remember that it is very important that you monitor legislative changes and regulatory opinions that may affect your standard licensing matrix.

insideARM Perspective

Members of insideARM’s Compliance Professionals Forum have access to an online State Law Grid, updated in real-time as information becomes available. Non-members can purchase downloaded copies of the grid that capture information just for that moment.

Additionally, insideARM hosts an interactive state licensing map, powered by our friends at Cornerstone Support. 

As the industry waits for news this Friday from the Department of Education (ED) regarding next steps in the unrestricted private debt collection contract litigation, another story has emerged.

A source familiar with what’s happening in this space reports to insideARM that ED recently signaled its intent to hold another procurement for Private Collection Agency (PCA) services in the months ahead – one set aside for small businesses – that could lead to even more litigation.

The recently-disclosed procurement plans are cited within a spreadsheet available for download on a page of ED’s website about forecasted contract opportunities.  The file is dated January 23, 2018, and indicates a procurement for default collection services is planned to begin during the Federal third quarter.  For those unfamiliar with Federal accounting practices, that’s this quarter.

Before anyone assumes the news will usher in a new round of restraining orders filed by jilted contractors, it’s no surprise why a set aside procurement would be in the works at ED, since there are reasons why one would be necessary.  Work has been partially set aside for small businesses since 1997, and contracts let to small businesses by ED are historically not as protest-prone as those let on an unrestricted basis.  Today, PCAs hired as small businesses are doing the lion’s share of all default collection work for ED.

“People should keep in mind, the Federal government has no large business spending requirements,” stated Nick Bernardo, a principal at Fed Cetera, a business development organization serving collection agencies that seek Federal work, continuing, “The Federal government only has small business spending requirements.”

This of course alludes not only to the government-wide mandate for Federal agencies to spend 23% of all contracting dollars with small businesses, but also to ED’s agency-level goal, which stood at 25.5% in Federal fiscal year 2016, the last year for which final performance data is available.  That year, ED missed its mark, achieving 23.35% of spending with small businesses to go with a “C” rating, according to data within a report available on the Small Business Administration (SBA) website. 

The same report’s comment section indicates ED, “remains dedicated and committed to small businesses and is actively engaged in outreach, training, advocacy, and strategic partnering. The Department has strong support and collaboration of our senior leadership, and will continue to strengthen our program, even in the face of programmatic challenges.”

One can infer these comments relate at least partially to the PCA program, since, according to the Federal Small Business Dashboard, unofficial tallies for Federal fiscal year 2017 show small business PCAs accounted for more than 55% of $657 million in direct small business spending at ED last year, and more than 15% of $2.4B in total ED spending during the same period.  And this in a year when the U.S. Court of Federal Claims cut off new work for eight months, beginning with the last five months of that fiscal year.

In that sense, small business PCA utilization is part of ED’s strategy to meet dual needs: to properly service defaulted student loan borrowers on one hand, and to meet its small business utilization goals on the other, which ED would simply not meet without setting some PCA work aside for small business. 

Because more than a handful of large businesses now in litigation with ED over the unrestricted procurement were originally awarded contracts set aside for small businesses when they themselves were small, it could be argued ED could not meet its overall defaulted student loan needs without using set aside contracts as a proving ground for small businesses that ultimately “grow up” and take on much larger volumes of work that needs to be done.

The law of unintended consequences being what it is, the centralization of Federal student loan lending since 2010, plus mandates for ED to use small businesses as prime PCAs and as subcontractors to prime PCAs, has created a large pool of small businesses now qualified to do the work.

But why wouldn’t the current field of eleven small businesses simply keep shouldering the load of servicing borrowers and helping ED meet small business goals, you might ask? Small business contracts awarded in 2014 were awarded as “long term contracts” in Federal parlance, which subjects them to regulations requiring Federal contracting officers to request “that a business concern recertify its small business size status no more than 120 days prior to the end of the fifth year of the contract, and no more than 120 days prior to exercising any option thereafter.” (78 Fed. Reg. 61114 [Oct. 2, 2013])

Industry insiders are speculating that very few, if any, of the current eleven small PCAs may be able to recertify as small businesses when the time comes.  This means ED can’t take credit for small business spending after that unless they do something, like hire more small businesses.

Companies able to compete for new small business awards are just as numerous as those still competing for the unrestricted awards now held up in litigation. The field includes up to a few of the current eleven small PCAs, numerous current small business subcontractors, many former small business subcontractors to unrestricted PCAs that stopped receiving new work since 2015, newly-formed companies with owners who have decades of ED experience, and possibly a few formerly-large PCAs that may have fallen under the size standard for collection agencies because they stopped receiving new work from what had been their largest client in 2015. That’s to say nothing of many other firms that have not done this work in the past yet have lots of higher education experience, and any number of other would-be competitors.

Since ED’s the only game in town, this sets up a potential for a repeat of what has transpired with unrestricted contracts over the past few years.  The sheer number of qualified bidders, plus the fact that the very existence of so many potential bidders rides on doing this work, portends a high likelihood of more protests, and more litigation, unless ED can devise a strategy to avoid it.