On November 1, 2017, a judge from the North District of Illinois ruled that adding collection costs to the balance of a debt did not violate the Federal Debt Collection Practices Act, 15 USC 1692 et seq. (FDCPA), if such costs were permitted as part of the underlying contract. The certified putative class action case is Bernal v. NRA Group, LLC (1:16-cv-01904, U.S.D.C., Northern District of Illinois). 

You can find a copy of the decision here.

Background 

Plaintiff Joseph Bernal entered into a monthly membership agreement with Six Flags Entertainment Corporation (Six Flags). Plaintiff became delinquent on this agreement and Six Flags placed the debt with AR Assist, LLC (AR Assist), who then contracted NRA Group, LLC (NRA) to collect on the debt. In their attempts to collect the debt, NRA Group, LLC added a percentage-based charge, labeled “costs” to the principal balance. Plaintiff filed a class action lawsuit against NRA alleging FDCPA violations due to his assertions that NRA had no right to collect such “costs.” 

The “costs” at issue were for collection costs. The parties agreed that the main issue in the case turned on whether Bernal’s contract with Six Flags, which provided in relevant part that if his account was not paid he would “be billed for any amounts that are due and owing plus any costs (including reasonable attorney’s fees) incurred by [Six Flags] in attempting to collect amounts due or otherwise enforcing this agreement.” 

The plaintiff argued that the above provision allowed him to be charged only when it actually cost a debt collector to collect the amount owed. On the other hand, the defendant argued that the contract allowed the consumer to be charged what Six Flags paid a debt collector to collect the debt, even if that charge was a fixed percentage of the principal amount alleged to be owed. 

After denying both parties’ motions for summary judgment, the case went to bench trial where the judge ruled on the issues. 

Editor’s note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial.

The Court’s Decision 

The main issue in the case was the conflicting interpretations of the underlying membership agreement, specifically what constitutes a cost and if the cost was authorized by the agreement. 

The cost at issue was a percentage-based charge added to the principal balance. The court adopted NRA’s interpretation of the Six Flags provision, stating that the contract allows for collection of costs incurred to collect a debt, regardless of how the cost is calculated. The provision did not prohibit Six Flags from retaining an outside debt collector to collect the debt, and the fees owed by Six Flags to a debt collector for any successful collection are “costs” incurred by Six Flags. 

Importantly, the court refused to adopt a decision from the Eighth Circuit and Eleventh Circuit that held a debt collector’s percentage-based fee is not a cost related to collection because it has no direct correlation to the actual costs of a debt collector’s collection effort. In distinguishing this line of cases, the court stated those decisions are based on the faulty premise that costs of collection were only out-of-pocket costs incurred by the collecting party, and not the creditor’s costs of collection.

Moreover, the court dismissed the notion that a collection fee could not be recovered from a consumer because it had not yet been incurred, i.e., a debt collector’s contingent fee is not recoverable at the time of collection. To quote the court: 

That cannot be right . . . Aside from being trivial or ridiculous, that distinction certainly makes no difference to a debtor. How could it possibly harm or mislead the debtor for a debt collector to set forth both amounts (the principal amount due and the collection fee) in a single letter, as opposed to first collecting the original debt and only then revealing and seeking payment of the collection fee? 

Per the contract, plaintiff could be “billed for any amounts that are due and owing plus any costs (including reasonable attorney’s fees) incurred by [Six Flags] in attempting to collect amounts due or otherwise enforcing this agreement.” The court found that the cost charged in this case by the debt collector was less than the amount a debt collector could have charged and as such there was no FDCPA violation. 

The class certification remains. 

insideARM Perspective

This is an important and timely decision from the Northern District, for more than the obvious reason.

For those collecting collection fees that are contingency-based, this is a good, common-sense decision but proceed with caution. There is a lot of conflicting case law on this issue. Be sure to consult with your attorney regarding how you are charging any fee other than the actual amount of the debt. 

The decision also underscores the importance of the contract underlying the debt. For creditors in any market vertical, it is absolutely critical that consumer agreements clearly articulate the costs to a consumer should their account be sent to collections, including their responsibility for any collection costs as well as transaction costs. 

Lastly, we know the CFPB is looking at the provision in the FDCPA underlying this matter. The FDCPA prohibits “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. § 1692f(1). Our understanding is that the CFPB is interpreting this provision very narrowly, and it is possible, if not likely, that the Bureau may apply its narrow interpretation in its notice of proposed rulemaking (whenever that may be released).

JACKSONVILLE, Fla.– Diversified Consultants, Inc. (DCI) is proud to announce the promotion of Marisela Barcenas to Chief Financial Officer (CFO).  Mrs. Barcenas previously held the position of Chief Accounting Officer.  The enhanced role will allow Mrs. Barcenas to concentrate fully on DCI’s financial vision and afford her the ability to strengthen current relationships, while taking DCI to new heights.

“It’s a tremendous honor to accept the role as CFO for DCI,” Barcenas said.

Mrs. Barcenas is a Certified Public Accountant, Certified fraud Examiner and Chartered Global Management Accountant.  She attended Nova Southeastern University where she earned a Master of Accounting.  Her expertise includes tax, audit, budgeting, valuation, fraud and forensic accounting.   This wealth of experience enables her to provide vital information on many aspects of the operations, such as; corporate strategy, capital projections, cash flows, financial reporting and tax strategies. 

DCI is also proud to announce that Raf Leszczynski has been promoted to SVP of Finance.  Raf has a Bachelor’s degree in Finance and previously held the position SVP of Strategy & Analytics.  Raf will be transitioning into his new role with experience running revenue projections and various cost benefit analyses.

“I’m absolutely ecstatic to get this opportunity, and am looking forward to work with Mari to help take DCI’s finance and accounting department to new heights,” Leszczynski said. Raf has been employed with DCI well over a decade. He started his career as a collection agent and is a great example of how DCI’s culture is to promote from within.

About DCI

Diversified Consultants, Inc. (DCI) is a business comprised of full service call centers specializing in Accounts Receivable Management functions with over 25 years’ experience in providing multi-channel support solutions spanning the entire customer lifecycle.  DCI’s solutions include first party, early stage, third party, and commercial collections as well as business process outsourcing and an array of self-service solutions. By continuously investing in the latest industry technology DCI to surpass competitors with air tight compliance and seamless consumer interaction.  DCI is relentless in their mission to maintain top performance to ensure a long-term, mutually beneficial relationships between client, consumer, and vendor. It is, and always will be DCI’s business model to never let margins drive strategy, and as a leader in the telecom collection industry, DCI has raised the bar for competitors and continues to expand across all collection verticals.

 

PHOENIX, Ariz. – Empereon-Constar, a leading provider of end-to-end customer engagement and customer management solutions, announced today the Company was the recipient of three ACE awards at the Phoenix Business Journal’s 23rd Annual Arizona Corporate Excellence (ACE) awards ceremony on November 2^nd in Scottsdale.

(Pictured: Steve Hayes, CFO and Travis Bowley, CEO, Empereon-Constar)

Each year, the Phoenix Business Journal recognizes Arizona’s largest and fastest growing privately held companies. Empereon-Constar was honored as one of the Top 25 Fastest Growing Private Companies – ranking 2^nd – and also recognized as one of the Top 50 Largest Private Companies – ranking 31^st on this year’s list. In addition, Travis Bowley, Empereon-Constar’s founder and CEO, was recognized with the Rookie of the Year specialty award. This award recognizes a company which has moved up in the rankings or is on the list for the first time this year.

Founded in 1997, under the leadership of Travis, Empereon-Constar has grown into a leading business process outsourcing organization with 10 strategic locations and 3,500 professional, performance driven team members.

“If you want to grow a sustainable long-term business, you have to treat people with respect,” Travis said. “Our handshake is our bond; this means that as individuals and as a company, we are ethical and trustworthy. We strive to be responsive to client needs and actively contribute to the well-being of communities where we live and work.” 

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Building on values he learned growing up on his family’s Glendale dairy farm, Bowley’s visionary leadership and strong work ethic has facilitated the Company’s expansion and growth. As a farmer’s son, he learned early the value of family, hard work, loyalty, nominal debt, and the value of the handshake as a bond. He embodies and honors these same core values in business and expects the same from his team, all of which as has contributed greatly to Empereon-Constar’s continued success. 

Jim Patterson, President and CEO of UMB Bank Arizona, a sponsor of the ACE Awards, stated, “We want to congratulate Empereon-Constar on your well-deserved recognition! The rest of Arizona now knows what we already do…given the success and growth of Empereon-Constar, it is one of the best run companies in the State!”  

About Empereon-Constar

Empereon-Constar is a leading business process outsourcing company providing end-to-end customer engagement and customer management solutions for New Sales Account Generation, Customer Care, Risk and Fraud Operations, Collections Operations, QA Agent Call Monitoring, Back Office Administration Support, and Tech Support across the entire customer account lifecycle. Our customized solutions, real-time analytics, and global footprint help our clients achieve their business goals. 

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

Empereon-Constar portfolio of companies: Empereon Marketing, LLC, Constar Financial Services, LLC, Empereon International, Constar International, and HQC International. 

About UMB

UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.  

Earlier today insideARM published this story about the Consumer Financial Protection Bureau filing a formal complaint against Freedom Debt Relief. This afternoon, the company today issued the following statement to its family of clients, employees, and communities it serves.

Freedom Family –

Yesterday the Consumer Financial Protection Bureau (CFPB) filed a complaint against Freedom Debt Relief (FDR), alleging, among other things, that FDR deceived consumers, first, by not informing them that there are certain “difficult creditors” who will not negotiate and, second, by forcing consumers to negotiate their own settlements with such creditors (so-called “coached settlements”). We firmly believe that the CFPB fundamentally misunderstands how debt settlement works and has acted without proper regard for the consumers it is charged with protecting. We want to set the record straight and share our perspective. 

Freedom Debt Relief helps financially challenged consumers achieve financial security by securing for them settlements of their outstanding debts, often at a substantial discount to what they owed. In October 2017, for example, FDR settled $175 million of debts for 43,000 consumers at an average settlement of less than 50 cents on the dollar. That’s over $88 million of savings in the month for American families in financial hardship. To date, we’ve achieved over $7 billion in debt settlements for over 450,000 clients. Throughout our 15-year history, we’ve stayed centered on our clients and worked hard to earn our reputation as a business that serves our customers effectively, efficiently and ethically. It’s no accident that we’ve become the nation’s largest debt settlement provider. 

It’s surprising, and very unfortunate, that the CFPB chose to act without taking the time to focus either on the facts or the utility and purpose of “coached settlements,” both of which were thoroughly and completely disclosed to consumers at various points in their debt settlement programs. The overarching assertion that we cannot and do not settle client accounts with key creditors is simply not true. In fact, since 2010, Freedom Debt Relief has settled $1.2 billion in debt (nearly 200,000 accounts) for clients who came to us with accounts from the credit card issuers mentioned in the complaint. Sadly, the CFPB paid no attention to the enormous benefits our clients realized from our active assistance in their settlement process.  

Perhaps most important, we are not aware of any complaints to the CFPB from our customers over this (or any other) issue – zero complaints. Freedom Debt Relief’s business practices are legally compliant, highly ethical and serve the needs of our customers, saving them millions of dollars over what they would otherwise be required to pay. 

We’d like to share a few facts that the CFPB hasn’t mentioned:

• Along with the CFPB, we share the conviction that consumers’ best interests should be protected. In fact, in 2010 we actively participated in drafting the Federal Trade Commission rules that defined the consumer protection regulations that govern our industry. We have also worked with many states and legislatures to define the rules and protect consumers who need it the most, demonstrating our proactive commitment to working with regulators in order to protect consumers over our 15 year existence.
• Our customers love us. Several measures of customer satisfaction reflect this: Our FDR Net Promoter Score (NPS)—a measure of whether customers would recommend a product or service to others—stands at an all-time high. Clients who received our coaching services gave us an NPS score of 76 (on a scale from -100 to +100), among the highest consumer satisfaction scores of any company in any industry. Additionally, when our clients call our service center, customers rate the interactions very highly (96% satisfied).
• We employ a variety of resolution strategies to get the maximum benefit for our clients, always with the client agreeing and approving each and every single settlement and fee we charge. If they don’t approve the settlement terms, we don’t do the settlement or charge one cent. That is the case for the successful resolutions being questioned by the CFPB as well.
• Our culture of doing what is right for our customers is also reflected in the pride our team takes in the work they do. In its most recent survey, we were ranked #1 in the Phoenix Business Journal’s Best Places to work program, we’ve hired over 900 new employees just this year, and have created a value based culture that we are all tremendously proud of.
• Finally, we’ve asked to sit down on a number of occasions with the CFPB, to no avail, so we are disappointed that they’ve rushed to judgment, seemingly putting the interests of a few of the largest creditors ahead of the interests of consumers who need help and support. 

We’re tremendously proud of the work we do and will continue to work every day to deliver on our commitments to our customers. And we will vigorously contest this complaint. 

Thank you for your continued belief in our mission! 

Andrew Housser and Brad Stroh
Co-Founders and Co-CEOs, Freedom Debt Relief 

About Freedom Debt Relief (www.freedomdebtrelief.com)

Freedom Debt Relief is a subsidiary of Freedom Financial Network, LLC (FFN), a family of companies providing innovative solutions that empower people to live healthier financial lives. For people struggling with debt, Freedom Debt Relief offers a custom program to significantly reduce and resolve what they owe more quickly than they could on their own. For more information about the company and its services, see www.freedomdebtrelief.com/what-we-do.

Headquartered in San Mateo, California, Freedom Debt Relief also operates an office in Tempe, Arizona, and employs roughly 2,000 people. The company has been voted one of the best places to work in both the San Francisco Bay area and the Phoenix area for several years.

The Federal Trade Commission (FTC) announced yesterday that it has charged a Georgia-based debt collection business with tricking people into paying money for debts they did not owe. 

According to the complaint, the business is “founded on false claims that consumers have committed a crime and face dire consequences – including a lawsuit, garnishment, and even imprisonment – if a purported debt is not paid.”

The FTC says that since January 2015, the defendants have used these tactics to collect more than $3.4 million from consumer victims. They have also made false or unsubstantiated claims that people owe money, illegally contacted consumers’ friends, non-spouse relatives, and employers, and failed to provide statutorily-required written notices and disclaimers.

The defendants are Lamar Snow, Jahaan McDuffie and Glentis “Glen” Wallace; Advanced Mediation Group LLC; North Center Collections Inc.; Capital Security Investments LLC; Diverse Financial Enterprises Inc.; American Credit Adjusters LLC; Apex National Services LLC; and Global Processing Solutions LLC and Intrinsic Solutions LLC, formerly known as Global Processing Solutions Inc. and Intrinsic Solutions Inc. They are charged with violating the FTC Act and the Fair Debt Collection Practices Act.

The Commission’s announcement notes that it files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

insideARM Perspective

insideARM applauds actions taken against those whose practices are clearly designed to deceive consumers. If it proves to be true that these defendants regularly claimed consumers had committed a crime and levied threats of imprisonment, they should be shut down and fined.

One of the biggest issues facing debt collectors is the fact that consumers are not educated to recognize the difference between a fraudster and a legitimate collector. The Consumer Relations Consortium (CRC), a progressive group of larger market participants and creditors, has partnered with Consumer Action, a consumer advocacy and education non-profit, to illustrate the difference.

Editor’s note: The CRC is managed by the iA Institute, parent of insideARM.

Yesterday the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Freedom Debt Relief, the nation’s largest debt-settlement services provider, and its co-CEO Andrew Housser for deceiving consumers. The CFPB alleges that Freedom charges consumers without settling their debts as promised, makes customers negotiate their own settlements, misleads them about its fees and the reach of its services, and fails to inform them of their rights to funds they deposited with the company. 

The CFPB announced,

Freedom Debt Relief, part of Freedom Financial Network and based in San Mateo, California, is the largest debt-settlement services provider in the United States. Andrew Housser is the company’s co-CEO and co-founder. Freedom claims that it has successfully negotiated and settled more than $7 billion in debts for more than 300,000 consumers. Through telemarketing contacts with prospective customers, Freedom learns who their creditors are, the amounts owed to each, and the nature of the debts. Freedom requires customers enrolled in its debt-settlement program to deposit money into dedicated accounts with an FDIC-insured bank. Freedom tells consumers that when the accounts have sufficient funds to make settlement offers, Freedom will negotiate with consumers’ creditors to persuade them to accept less than the actual amounts owed. When a debt is settled, Freedom charges consumers fees that range between 18 percent and 25 percent of the amount of debt the consumer owed on the day they signed up for the program.

According to the CFPB’s complaint, Freedom:

• Misleads consumers about creditors’ willingness to negotiate: Freedom markets its “negotiating power,” but Freedom knows that certain major creditors have policies against negotiating with debt-settlement companies. Freedom does not make clear to consumers that they may need to handle the negotiations with those creditors themselves.
• Deceives consumers about the extent of its services: Freedom leads consumers to believe that the company’s experienced negotiators will deal directly with their creditors. But after they enroll with Freedom and deposit funds into an account, some consumers learn that Freedom offers only guidance or “coaching” on how to negotiate settlements on their own.
• Deceives consumers about its fees: Freedom falsely claims that it charges consumers only when it negotiates a settlement of a debt and consumers make a payment under the terms of the settlement. In fact, Freedom charges consumers its full fee even when creditors simply stop collection efforts in the absence of a negotiated settlement and consumer payment and when it takes no action on a consumer’s account.
• Fails to disclose consumers’ rights to funds: Freedom does not clearly and conspicuously inform consumers that they are entitled to get back the funds in their accounts if they leave the debt-settlement program.

Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions and individuals violating consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts or practices. The complaint against Freedom Debt Relief and Andrew Housser seeks monetary relief, injunctive relief, and civil money penalties.

Company representatives did not respond to requests for comment from a number of other media outlets.

The Bureau’s announcement notes that the complaint is not a finding or ruling that the company or individual has actually violated the law.

The complaint is available here.

insideARM Perspective

This is the latest in a string of actions against allegedly fraudulent debt relief scams.

In October 2017 insideARM reported that the Federal Trade Commission (FTC), along with 11 states and the District of Columbia, announced “Operation Game of Loans,” the first coordinated federal-state law enforcement initiative targeting deceptive student loan debt relief scams. This nationwide crackdown encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.

On that same day in October 2017, insideARM also reported that the CFPB filed suit in federal court against two companies operating under the name “FDAA,” a service provider, and their owners for falsely presenting FDAA as being affiliated with the federal government. The CFPB also alleges that the FDAA’s so-called “debt validation” programs violated the law by falsely promising to eliminate consumers’ debts and improve their credit scores in exchange for thousands of dollars in advance fees. The CFPB’s lawsuit seeks to end these deceptive practices, obtain redress for harmed consumers, and impose civil money penalties. 

In May 2017 insideARM reported that the FTC announced, together with the State of Florida, that it requested a federal court temporarily halt a massive phony debt relief operation that bilked tens of millions of dollars from financially strapped consumers, including the elderly and disabled.

In June 2016 insideARM reported that the CFPB reached a proposed $107 million settlement on Tuesday with several individuals affiliated with the World Law Group. According to the Bureau, defendants Derin Scott, David Klein, and Shannon Scott “received, directly or indirectly, funds or other assets” from World Law Group customers, after the debt settlement company collected millions in up-front fees from consumers for “legal services” and then did little to help those consumers.

insideARM applauds the efforts of regulators to halt the actions of fraudulent credit repair organizations. They create clear harm to consumers, and they consume the resources of legitimate companies.

Numerous creditors and collection agencies have shared with insideARM that the influx of mass disputes or debt validation requests from credit repair organizations has become a material problem over the last year. These can often take the form of dozens or hundreds of form letters, all exactly the same except for the consumer’s name and basic information. insideARM learned recently that the law firm of Ballard Spahr hosted a very informative webinar on strategies for dealing with debt settlement companies.

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UPDATE: Since the time of publication, Freedom Debt Relief has issued this statement in response to the CFPB’s formal complaint.

Compliance with consumer financial laws has become part of the receivables management industry’s DNA. Compliance drives how we do business. It dictates how we treat consumers, patients, and citizens. It creates the foundation for the ethical standards our organizations espouse. Most importantly, it is a basic tenet of our culture.

To recognize Corporate Compliance & Ethics Week we’ve created a quiz for our team here at Ontario Systems. Feel free to use it with your team as you see fit (answers are at the bottom).

Remember, compliance is not a state or a thing: It is a type of continuous improvement process. Use compliance processes to help you define, detect, investigate, and remediate issues that cause consumer harm or may lead to consumer harm.  

Compliance Week Trivia Questions for Staff

1. The full name of the collection agency against which the consumer files the complaint is visible on the CFPB website? (True or False)

2. Most collection agencies expect their agents to explain the impact payment or nonpayment of a debt will have on their credit score or credit worthiness. (True or False)

3. One way for a third-party collector to avoid liability under the Fair Debt Collection Practices Act is to operate invisibly as a first party collector. (True or False)

4. The consumer protection law that controls how to obtain consent to email a legally required disclosure to a consumer is
1. Regulation E
2. Electronic Signatures in Global and National Commerce
3. E Validity
4. E Payment Act

5. Prerecorded voice mail messages present compliance risks for third party debt collectors who leave messages on cell phones in connection with the collection of a debt
1. if they do not have the consent of the cell subscriber or customary user
2. if the voice mail message does not comply with the meaningful disclosure requirements of the Fair Debt Collection Practices Act
3. if the voice mail message reveals the existence of a debt to a third party [i.e. someone other than the consumer]
4. all of the above

6. You may search the Member Directory on the ACA International website [https://www.acainternational.org/search#memberdirectory] to identify the ethics contact for the company. (True or False)

7. Larger Market Participant is a term which is used to describe collection agencies, debt buyers and collection law firms that generate more than $10 M per year in fee revenue
1. from the collection of charged off consumer debt including fees from the collection of healthcare debt
2. from the collection of charged off consumer debt excluding fees from the collection of healthcare debt
3. from the collection of pre-charged off consumer debt including fees from the collection of healthcare debt
4. from the collection of pre-and post-charged off consumer debt excluding fees from the collection of healthcare debt

8. Go to CFPB.gov. Click Policy and Compliance. Next click Compliance and Guidance. Now scroll until you find Implementation and Guidance. Scroll down the page until you see the official guidance on Phone Pay Fee Compliance Bulletin 2017-01. Click on the bulletin. The first paragraph of this bulletin makes clear this guidance bulletin applies to:
1. Covered persons but not debt collectors
2. Service providers
3. Covered persons including debt collectors and service providers
4. 1 and 2

9. Everyone in this company should sign up for insideARM. See insideARM.com. Have you registered to receive information from insideARM? (Yes or No)

10. The insideARM home page includes a list of “Other Stories.” One of the stories published on November 1, 2017 suggests collecting judgment debt may not always establish the permissible purpose required as a condition of pulling consumer credit reports. The takeaway from this story is that collection agencies should not pull consumer credit reports unless they have a permissible purpose to do so. (True or False)

11. Technology solutions serve a critical role in our clients ability to comply with state and federal law. (True or False)

12. The staff members within any collection agency, debt buyer, collection law firm or service provider organization to the collection industry who are expected to escalate any perceived or actual compliance issues that may result in consumer harm or cause consumer harm include:
1. all staff
2. collection floor staff
3. compliance and quality assurance staff
4. IT staff

13. Consumer portals, payment portals and debt collection web sites in general should:
1. Include an authentication process before information about a debt is disclosed
2. Include an audio feature which states, “The information provided is a communication from a debt collector in connection with the collection of a debt.”
3. Ideally include a communication preference section to allow the consumer to consent to email, cell and text communications with the debt collector
4. 1 and 3

14. Debt collectors cannot display the name of their agency on a consumer’s caller ID if the name suggests they are in the business of debt collection. (True or False)

 

Answers:

1-T, 2-F, 3-T, 4-2, 5-4, 6-T, 7-2, 8-3, 9-Y, 10-T, 11-T, 12-1, 13-4, 14-T

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

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Oregon’s new licensing and documentation requirements for debt buyers went into effect on October 6, 2017. insideARM reported on this back in July of this year.

These new requirements are specifically for debt buyers, and for debt collectors collecting on behalf of debt buyers.

Documentation Requirements for Legal Action

1. Original creditor’s name

• Specifically, the name under which the consumer/debtor initially interacted with that creditor.

The name, address, and telephone number of the person/entity currently owning the debt.

A statement as to whether or not that person/entity is, or is not, a debt buyer.

The last four (4) digits of the original creditor’s account number for the debt.

• This is assuming the account number is had more than four (4) digits.

A detailed and itemized statement:

• The amount the debtor last paid on the debt — if the debtor made a last payment — before charge-off.
• The amount the debtor last paid on the debt — if the debtor made a last payment — after charge-off.
• The balance due on the debt on the date the debt was charged off.
• Interest, fees, and additional charges added by the original creditor.
• Interest, fees, and additional charges added by the debt buyer/debt collector.
• Any attorney fees the debt buyer/debt collector is seeking.

NOTE: To collect attorney fees: You have to have prevailed in the legal action, and the original contract the consumer signed has to have a provision for attorney fees.

• Any additional fees the debt buyer/debt collector seeks to collect.
• The date the debt was purchased.

You cannot successfully sue to collect if your agency does not have all of this information. Even if a court grants a judgment, the consumer can petition the court for relief based on non-compliance. 

Unlawful Practices under Oregon Law

1. Using — or threatening to use — force or violence to cause physical harm.
2. Threatens arrest or criminal prosecution.
3. Threatens to seize, attach, or sell a consumer/debtor’s property if a court order would be necessary to do so, AND also if the debt buyer/debt collector doesn’t disclose the necessity of the court proceeding.
4. Uses profane, obscene, or abusive language in communicating with a consumer/debtor.
• Editor’s Note: While profane and obscene are easily recognizable, note that “abusive” is a nebulous term
1. Repeated, continual, inconvenient communications with the consumer/debtor, or with the consumer/debtor’s family.
• Editor’s Note: Again, these are less measurable terms.
2. Communicating with a consumer/debtor’s employer about the debt.
3. Communicating with the consumer/debtor at their place of employment if that place of employment is not also the consumer/debtor’s home.
• Some exceptions:
• You can write to the place of employment if you do not have a home address at all AND as long as the envelope doesn’t disclose that the communication is from a debt collector.
• You can telephone the place of employment to talk only to the consumer AND not reveal to anyone at the place of employment the nature of your communication.
• However:
• A good faith effort must be shown that an attempt was made at the consumer/debtor’s home.
• Evening hours are 6.00 p.m. – 9.00 p.m. in the time zone where the consumer resides.
4. Not clearly identifying, in written communications:
• The name of the debt collector
• The name of the company on whose behalf the debt is being collected
• The debt collector’s business address
• NOTE: In subsequent written communications, involving multiple accounts, the debt collector can eliminate the name of the company on whose behalf the debt is being collected by substituting the word “various.”
5. Not disclosing, on a phone call, within 30 seconds:
• The name of the debt collector calling
• The true purpose of the communication
• NOTE: This does not preclude verifying that you have the correct person on the phone.
6. Concealing the true purpose of the communication — i.e., spoofing a number that causes the consumer to incur charges for answering.
7. Threatening actions that the debt buyer/debt collector has no intention or ability to follow through on
8. Attempting to disguise written communications as coming from a law firm or court.
9. Misrepresenting fees, interest, attorney fees if there is no legal basis for those fees
10. Attempting to collect more than the balance due in the form of interest and fees if that was not made explicit in the original contract with the creditor
11. Attempting to collect on debt past its statute of limitations 

Licensing

1. Debt buyers cannot collect on Oregon debt without an Oregon license.
2. Applications must be submitted to the Director of the Department of Consumer and Business Services:
• List the applicant’s or licensee’s name/address and all assumed business names
• List the name and address of the applicant’s or licensee’s registered agent in this state or another person that serves as the applicant’s or licensee’s agent for accepting service of process in this state
• List the names and addresses of the applicant’s or licensee’s directors, members, officers, managers, partners and controllers
• Provide a history of all enforcement actions or administrative, civil or criminal proceedings that involved a failure by the applicant or licensee or a director, member, officer, manager, partner or controller of the applicant or licensee to comply with federal or state law, regulations or rules
• List all instances in which the applicant or licensee had a license, registration or other equivalent authorization to engage in debt buying denied, suspended, conditioned or revoked, unless the revocation was later rescinded, in this or another state
• Disclose for the applicant or licensee and each of the applicant’s or licensee’s directors, members, officers, managers, partners and controllers all violations and arrests and all no contest pleas, guilty pleas and convictions, other than convictions that were later pardoned, in a federal, state, military or foreign court that involved a felony or a misdemeanor, if an element of the misdemeanor was a false statement or dishonesty

The full text of Oregon HB2356 can be found here.

insideARM Perspective

There are no surprises, really, in Oregon’s new licensing and documentation law — but even those agencies not doing business in Oregon should take note of the documentation requirements for chain-of-title with purchased debt. States can be collaborative, and, with consumer protection at the forefront with regards to debt collection, we’re likely to see state consolidation into robust documentation needs over bare minimums.

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In a surprise addition to last Thursday’s Consumer Financial Protection Bureau (CFPB) Consumer Advisory Board (CAB) agenda (which announced only a “Trends and themes discussion”), two members made presentations about debt collection topics. 

First, Josh Zinner spoke. He is the Chief Executive Officer of the Interfaith Center on Corporate Responsibility, a coalition of progressive shareholders pressing for corporate accountability and economic, social and environmental justice. He was previously the Co-Director of New Economy Project, an advocacy organization that works with community groups to promote racial and economic justice in New York City neighborhoods.

Mr. Zinner presented the work of the New Economy Project which looked at the effect of lawsuits brought by debt buyers on New York communities of color. He explained that debt collectors buy debts – represented only in spreadsheets — for pennies on the dollar, and they file lawsuits without substantiation.

He lobbied for a federal rule that would require the same elements of substantiation that have been put into place in New York; in order to file a debt collection lawsuit, the suit must be filed together with a contract (or equivalent) that established the debt, an account statement from the time of charge-off, and evidence of full chain of title. Zinner said that collection lawsuits of this type have been substantially reduced in New York because of these rules.

Judith Fox, another CAB member (a Clinical Professor of Law at Notre Dame, and director of the Economic Justice Project, a low income clinic specializing in foreclosure and debt collection defense), commented on the need for rulemaking to focus on the sellers of debt, as they are the ones who hold the documentation. She also added that a rule needs to clarify that servicers can’t add fees and costs after charge-off. In a moment of levity, Ms. Fox requested debt collection rules for Christmas.

Next, Ohad Samet spoke. Mr. Samet, CEO of TrueAccord, is a new addition to the CAB and this was his first meeting. He stepped in at the last minute for another CAB member who fell ill and could not attend.  Here are some highlights from his remarks:

• Consumers prefer to engage on their own time. More than 25% of traffic on TrueAccord’s website is initated by consumers outside of hours when communication can be initiated by collectors.
• Consumers have gotten used to online, mobile experiences. 70% of collections related traffic on TrueAccord’s website is from mobile devices and tablets.
• Many of today’s practices limit consumer choice and create compliance concerns that stem from heavy reliance on phone-based collections.
• The maturation of machine learning, digital communication methods, and marketing techniques presents an opportunity to rethink debt collection as a consumer-focused, financial health-oriented activity.
• New technology based solutions improve collection rates by 50-500% in statistically significant tests.
• Emails and other digital communications are pre-written and pre-approved, reducing the opportunity for violations.
• Analytics for the right time and tone to use in interactions reduces contact frequency. TrueAccord attempts to contact consumers, on average, 3 times per week.
• A selection of contact channels puts consumers in control, and opt-out is simpler via email and text. Consumers react: 60% open an email, 25% click a link, 6% click a link in a text message.
• Code driven compliance is easier to adapt to changes in regulations and case law. No human re-training is necessary.
• eDisputes provide quick feedback to consumers and simplify the process, reduce reliance on letters, and improve data retention going forward.
• The shift to consumer-focused experience creates trust, enabling solutions beyond collections, like education and assistance.

In conclusion, Samet suggested that in its upcoming debt collection rulemaking the CFPB consider what limitations on contact frequency and timing mean for new contact types, as well as response to consumer triggers. He also suggested that the Bureau consider the definition of “live conversation,” “tear off,” and other paper and phone-based standards, as they may become increasingly irrelevant over time.

insideARM Perspective

As is often the case, Zinner freely interchanged the terms debt collector and debt buyer throughout his presentation. He opened by saying that abusive debt collection is a fundamental racial justice issue. But what he was really talking about was debt collection lawsuits on purchased debt.

It is clear that there is still a great misunderstanding outside of the debt collection industry that most debt collectors actually work directly for creditors who own the debt – both small and large businesses in all industries such as healthcare, telecom, utilities, credit card, retail, and many others. Most debt collectors do not purchase old debt for pennies on the dollar. Unfortunately, nobody stepped in to clarify this.

Samet did make the distinction at the beginning of his presentation that he was a debt collector and not a debt buyer. He was asked by one of the CAB members about that. She said, “If you don’t buy the debt, then how do you get it?” She – like many others — clearly didn’t understand this most basic fact about the industry.

One other highlight I will add that was not mentioned in the presentation: Digital interaction allows for a wider array of solutions for collectors to authenticate a consumer’s identity (in order to prevent disclosure of a debt to a third party, like a friend, roommate, or family member). Currently, this authentication requirement forces a very awkward and adversarial dance at the opening of a phone call between a collector and consumer. In fact, regulators advise consumers not to cooperate with a request for personal information to verify one’s identity over the phone.

In my opinion, Samet did a yeoman’s job on little notice. Whether or not you agree with all of his assumptions or data, he is changing the conversation in a way that often only an outsider or new entrant can. Much of the industry has been pushing for the ability to communicate in the channels most comfortable to consumers. TrueAccord – and other pioneers in this space (see our other article on this today) – are pushing the envelope (pun intended) to do just that.

When an Israeli company called TrueAccord came onto the scene a few years ago promising all (or mostly) digital collections powered by artificial intelligence, many were skeptical. At the time, the founder announced that it was a service for creditors to use, and therefore was not subject to the Fair Debt Collection Practices Act (FDCPA).

Things have changed. The company has since been building its San Francisco-based team, and now primarily offers services as a third party debt collector.

Earlier this fall they hired Tim Collins, a well-known Chief Compliance Officer from the traditional collection industry. And a few months ago, Ohad Samet, TrueAccord’s CEO, was added to the Consumer Advisory Board (CAB) of the Consumer Financial Protection Bureau (CFPB). He made a presentation last week at his first CAB meeting, which we also write about today.

In August, insideARM wrote about another new player. Collectly — a collection service for healthcare providers and medical billing companies — uses aggregated machine intelligence to forecast behavior and adjust each patient’s collections journey to encourage the best outcome. 

Today, a new start-up in Australia called Credit Clear announced that it had stolen a new CEO from its competitor, and is planning to raise $10 million to fund expansion into new markets, including the United States. The announcement states that the company “automates the debt collection process and facilitates customer communication over Facebook Messenger, SMS, or email.”

According to the firm’s website,

“Credit Clear provides a global solution, facilitating payments in any currency whilst automatically translating messages into your customers mobile phones default language.

Our machine learning engine, decides when to send, what to say and on which communication platform (SMS, email and Instant messenger) – sending tailored communication depending on your customers, age, gender and location.”

insideARM Perspective

Many creditors and debt collectors are likely looking at these firms saying something like, “this is fine for some new economy accounts, but most traditional creditors won’t tolerate it.”

Questions remain: Can you send required notices digitally while adhering to the FDCPA and maintaining privacy? What is required to prove consent to communicate through digital channels? These and others are likely to be addressed one way or the other in the coming months and years, because progress and momentum are demanding it.

Collection agencies that operate on older infrastructure, and/or on a people-heavy, call center-based model, will likely have plenty of work for the near future. Many creditors are likely too conservative, or too unprepared to provide the type of electronic data required to scale this type of solution. Indeed, there is also a population of consumers — especially older ones — who are not tech savvy enough to interact digitally regarding a debt.

But I suspect that over time, this will all change.