AUGUSTA, Ga. — Contract Callers, Inc. (CCI) announced today that Bob Burnside has joined the company as Director of Call Center Operations. Bob is very well known within the ARM industry.

“We are excited to add Bob to our team because of his strong industry experience and because his leadership skills are synchronized with our corporate culture of high integrity and continual process improvement,” said CCI’s President, Tim Wertz. “He will be instrumental in our growth as we continue to build momentum and solidify our capabilities.”

Having worked in the industry for over 25 years, Bob brings an excellent record of professional achievements, decisive leadership, and technical expertise to the Company. He began his career on the collection floor and worked his way through multiple functions of operations, ultimately maintaining executive leadership positions at several organizations. Having worked the majority of his career in IT, Bob provides valuable insight to both operational and client needs.

“I came to CCI because of its commitment to being a leader-of-class company in an ever-changing environment. CCI has the depth and level of experience at all levels that allows it to meet the challenges presented in this viral environment. This has allowed CCI to grow into the strong, industry-leading company it is today. I am excited to be part of the CCI organization and to be a part of its continued success.”

CCI’s Vice President of Call Center Operations, Doffie Howard, is also looking forward to working with Bob, stating, “I have worked with Bob for a number of years both as client and within the same organization. He brings a wealth of knowledge to all aspects of the call center.”

About Contract Callers

Established in 1926, CCI provides a variety of accounts receivable management and outsourcing solutions, as well as utility field services, to clients throughout the U.S. Currently, the Company employs approximately 700 employees operating out of more than a dozen offices nationwide. CCI is positioned to continue its growth in the near and long term solidifying its position as a leader in the industry.

On Tuesday, November 29^th, a group of 21 current and former federal lawmakers filed an amicus brief asking the U.S. Court of Appeals for the District of Columbia Circuit to review its decision en banc in the PHH Corp. v. Consumer Financial Protection Bureau case (United States Court of Appeals, D.C. Cir., Case No. 15-cv-01177).

In that case, on October 11, 2016, a Court of Appeals panel ruled that the CFPB’s single director structure was unconstitutional. On Friday, November 18, 2016 the CFPB had filed a Petition with the Court of Appeals for the District of Columbia Circuit asking the court for a rehearing “en banc.” See the insideARM November 21, 2016 story.

The Amicus Brief supporting the CFPB Petition filed by the group focuses its attention on the part of the original decision that called the Consumer Financial Protection Bureau (CFPB) “unconstitutionally structured.”

The group includes Sen. Elizabeth Warren, Rep. Nancy Pelosi (the U.S. House Minority Leader), Sen. Sherrod Brown, (ranking member of the Senate Banking Committee), Sen. Harry Reid, (outgoing Senate Minority Leader) and former Rep. Barney Frank. All would be considered among the strongest supporters of the CFPB.

Per the brief:

“Amici are current and former members of Congress who are familiar with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), Pub. L. No. 111-203, 124 Stat. 1376. Indeed, amici were sponsors of Dodd-Frank, participated in drafting it, serve or served on committees with jurisdiction over the federal financial regulatory agencies and the banking industry, or served in the leadership when Dodd-Frank was passed. They are thus familiar with the critical role that the Consumer Financial Protection Bureau (CFPB) plays in the legislative plan that Congress put in place when it enacted Dodd-Frank to prevent future financial crises like the Great Recession of 2008, and they understand how critical the CFPB Director’s for-cause removal provision is to the CFPB’s ability to play its intended role effectively. Amici thus have a strong interest in the D.C. Circuit rehearing this case en banc and making clear that the CFPB’s structure is consistent with the Constitution’s text and history.

By concluding that the CFPB’s leadership structure is unconstitutional and severing the provision that made its Director removable only for cause, the panel decision fundamentally altered the CFPB and hampered its ability to function as Congress intended. It also called into question the constitutionality of other regulatory agencies with similar structural features. For those reasons alone, this case involves a question of “exceptional importance” that merits reconsideration by the en banc court. Moreover, the panel’s decision is at odds not only with the text and history of the Constitution, but also with long-standing Supreme Court precedent — yet another reason why this case presents a question of “exceptional importance.”

In a related development on this case, On November 23, 2016 the D.C. Circuit entered an Order directing PHH Corporation to file a response to the CFPB’s November 18^th petition for rehearing en banc The order requires PHH to file its response within 15 days.  But, the Order also invites the Solicitor General to file a response to the petition for rehearing en banc, expressing the views of the United States. But, the Order does not set a date by which the Solicitor General must file any response. 

insideARM Perspective

The filing by the group of politicians is interesting. Clearly they are concerned about potentially dramatic changes to the CFPB under the Trump administration.

The Court’s November 23^rd Order is also interesting. It is possible that the Solicitor General may file its response quickly, before the January inauguration of Mr. Trump. The lack of a deadline also leaves open the possibility of a response from the Solicitor General after the change in administration.

insideARM will continue to monitor this very important case.

Lawsuits, regulatory penalties and imminent regulation: collections agencies are in crisis. Since the Consumer Financial Protection Bureau (CFPB) was created in 2010, collection practices have faced intense scrutiny. Enforcement actions at the Bureau have grown rapidly, from just eight in 2012 to 55 last year according to a recent review. [1] There has been almost $500 million in penalties and disgorgements, and over $11.2 billion in consumer relief over that period.

Debt collection has been an issue in about a quarter of these cases, the most often featured sub sector after mortgages. And the consumer relief involved is much higher: $6.7 billion. The CFPB’s own data, meanwhile, shows that debt collection remains by far the most common cause of consumer complaints. Since 2013, it’s attracted an average of 6,820 complaints a month. [2] However, what they don’t say is that most of these complaints are resolved within a very short time by the agency, and many are not complaints at all, but rather requests for additional information on the account.

And it’s not just the CFPB: Debt collectors are also the most likely to see complaints to the Federal Trade Commission (FTC), with which the CFPB has a memorandum of understanding to coordinate law enforcement and rulemaking efforts. Last November the FTC announced a national campaign to tackle poor collection practice, code named “Operation Collection Protection.”

“We’ll continue our aggressive law enforcement against abuse. We’ll also continue to educate consumers about illegal collection practices, and we’ll continue to work with our law enforcement partners, and the debt collection industry to combat unlawful behaviour,” FTC Chairwoman Edith Ramirez warned.

The FTC would build “a national coalition”, she added, including federal and state partners, and local authorities. Following the warning, shares of the two largest US debt collectors fell more than 10%.

The battle is even being fought in light entertainment: Late-night TV host John Oliver recently set up his own debt buying agency to buy (and forgive, on air) $15 million of medical bad debt. The industry needed tighter regulation, he argued.

Regulation coming

Against this unpromising backdrop, Oliver will eventually get his wish. The CFPB released its proposed collection rules on July 28^th, but with the Small Business Regulatory Enforcement Fairness Act (SBREFA) process and additional comment periods, the final rules will probably not go into effect until sometime in 2018. 

New regulation will undoubtedly present challenges, as will the CFPB and FTC enforcement efforts. However, it’s not the end of the world. With the right approach, it could even be an opportunity for growth. By showing your commitment prior to the posting of the final rules and having good, strong policies and procedures in place, you’ll be one step ahead of your competitors who are not doing the same.

For a start, we’ve been here before. In 1977 the Fair Debt Collection Practices Act was greeted with despair from the industry, and some, it’s true, could not meet the expected standards. But many others survived – and thrived. The same is likely to happen again: The poorest performing collection businesses will be forced to up their game, or be weeded out. Others will take their market share. In addition, the crooks who call themselves collectors will continue to be eliminated on a regular basis.

Time to Act

Firms shouldn’t wait for new rules to ensure their staff and vendors are protecting data, treating consumers with respect and acting within the law. Indeed, they’d be advised not to given that past enforcement actions already give a strong steer as to what regulators look for and expect.

Instead businesses should act now to put strong compliance frameworks in place using the guides available from ACA International, the CFPB and others. This will address many of the causes for complaint. It should, for example, include cleaning data to avoid the “no brainers” that cause regulatory headaches: bankrupt and deceased accounts, and active military personnel, for example.  

Have a compliance management complete with compliance tracking, employee training, vendor management and reporting in place.  Additionally, make this information easily accessible by the CFPB if a Civil Investigative Demand (CID) is issued. 

It should also deal with contact: ensuring correct ownership of cell phones and putting in place a process to secure (and withdraw) permission to call. Even then, it is worth giving consumers as many alternatives as possible to communicate directly – whether by phone, email, text, online or web-chats. Given a choice of channel, many will be more willing to talk. If they do go to the CFPB consumer portal, companies should look to respond quickly: Many complaints on the portal are just requests for information. 

Finally, don’t ignore the CFPB or the FTC. If you get a CID, respond immediately. If you can demonstrate a good system of compliance, it will stand you in good stead even then.

Of course, there’s little doubt these are challenging times for collections. For those that put in place a strong system of compliance, however, there’s every reason for optimism. It’s often said that in Chinese script, “crisis” includes the symbols for both “danger” and “opportunity.” It’s not actually true in Chinese. For collection agencies, though, it might be.

About the Author

Linda Straub Jones is the Director of Market Planning for Compliance Products with LexisNexis Risk Solutions.  She has over 30 years of experience in the credit/collections industry and has worked as a collector, skip tracer and paralegal with a collections law firm.  In her current position Linda is the subject matter expert on the collection industry rules and regulations, and helps to strategize in how to help customers solve for those regulations using data. She can be reached at linda.straub@lexisnexis.com

[1] “Consumer Financial Protection Bureau Law Enforcement: An Empirical Review,” Christopher Lewis Peterson, University of Utah, May 17, 2016 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2780791

[2] “Monthly Complaint Report”, CFPB, June 2016

http://files.consumerfinance.gov/f/documents/Monthly_Complaint_Report_-_June_2016.pdf

This article previously appeared on Manatt, Phelps & Phillips’ Health Update and is republished here with permission. It was co-authored by Harvey Rochman, Partner, Litigation and Steve Chiu, Associate, Manatt Health.

The Internal Revenue Service (IRS) has moved aggressively to ensure that tax-exempt hospitals are complying with financial assistance, billing and collection requirements under the Affordable Care Act (ACA). The IRS reported earlier this year that it had trained auditors, commenced compliance reviews of thousands of tax-exempt hospitals and initiated field examinations where it found evidence of noncompliance. Accordingly, tax-exempt hospitals should take stock of their efforts to comply with Section 501(r) with an emphasis on the sufficiency of their practices and procedures to ensure compliance. These practices and procedures are the key to avoiding, and reducing the significance of, violations which will inevitably occur in complex revenue cycle operations.

What Is Section 501(r) of the Internal Revenue Code (IRC)?

Enacted as part of the ACA, Section 501(r) of the Internal Revenue Code (IRC) establishes a national scheme governing the financial assistance, billing and collection practices of hospitals exempt from taxation under IRC § 501(c)(3), including government hospitals with dual tax-exempt status. Although Section 501(r) contains only a few broad and apparently simple provisions, the associated regulations first proposed by the IRS in 2012 and finalized on December 31, 2014, establish a detailed and far-reaching legal framework requiring new policies and procedures, many changes to common revenue cycle practices and substantial new compliance obligations.

The significance of the obligations imposed by Section 501(r) has been underestimated. For example, the final regulations not only require new policies and procedures, but also require hospital organizations to identify, correct and in many cases publicly disclose errors implementing the law and hospital policies. This includes the errors of revenue cycle vendors and subvendors for which the hospital is responsible. Failure to comply may result in audits, investigation, required corrections, public disclosure of violations and potentially loss of a hospital’s tax-exempt status. Moreover, in order to receive credit for correcting and disclosing a violation, which can reduce the seriousness of the violation, the violation must be identified and the correction and disclosure process started before the IRS itself discovers the violation.

These federal laws do not displace other federal laws, such as the Fair Debt Collection Practices Act, or preempt existing state laws, such as California’s Hospital Fair Pricing Policies and New York’s Patient’s Financial Aid Law. Rather, tax-exempt hospitals must develop policies and procedures that mesh federal and state laws, and they must comply with the strictest applicable legal requirements.

The IRS Continues to Prioritize ACA Oversight and Compliance with Section 501(r).

While some have hoped that the IRS would retract or reduce the impact of the litany of specific requirements laid out by the regulations or further delay compliance deadlines, that has not happened.¹ To the contrary, in 2016:

• The IRS has failed to extend compliance deadlines associated with its Section 501(r) regulations—which have now passed for virtually all tax-exempt hospitals.
• In February, even before many of the compliance deadlines mentioned above, the IRS announced that it had assembled a list of hospitals that appear to be out of compliance, based on reviews of hospital policies (which must be posted on hospital websites) and hospital tax filings on Schedule H to IRS Form 990. It also announced that it was beginning to train roughly 30 agents to conduct in-depth hospital field examinations and would soon begin these examinations.
• In June, the IRS reported to Senator Grassley that it had completed 2,482 compliance reviews for 2014-2016 and had referred 163 hospital organizations for field examinations, some of which were under way at that time.
• In September, the IRS Tax Exempt and Government Entities Division issued its fiscal year 2017 Work Plan which continued to emphasize that ACA oversight and compliance with Section 501(r) would be a significant priority.

Notably, a hospital review also may be instigated by a consumer complaint through the IRS’s established process for submission of complaints about tax-exempt organizations. In February, the IRS noted that it would take into consideration any complaints it receives in connection with its decision to refer hospitals for field examinations.

Hospitals Must Ensure They Have Robust Compliance Programs.

Given the extensive regulatory framework, the significant ramp-up in enforcement activity, and the significant work required to establish a legally sufficient compliance program, tax-exempt hospitals should now confirm that they are in compliance with the key provisions of 501(r),² but even more importantly, they must ensure that they have a robust compliance program including procedures that (i) are reasonably designed to promote and facilitate compliance with Section 501(r) and (ii) will allow hospitals to identify, correct and disclose violations of Section 501(r) and the hospital policies adopted to comply with Section 501(r).

The 501(r) regulations make clear that, in addition to helping prevent violations, strong compliance practices and procedures are essential to reducing the legal impact of violations that will inevitably occur in complex revenue cycle operations. Under the 501(r) framework, there are three types of violations: (1) minor omissions or errors requiring correction, but not disclosure; (2) excusable failures that must be corrected and disclosed to the IRS; and (3) inexcusable failures that must be corrected and disclosed but also threaten a hospital organization’s tax-exempt status. The regulations make it clear that procedures designed to ensure compliance and a compliance program that allows for the identification, correction and disclosure of errors before the IRS discovers any issues are critical to establishing that any errors are minor or excusable and thus central to avoiding the serious consequences of inexcusable failures.

The Distinction Between Minor and Serious Violations Depends Largely on Compliance Practices.

The relatively few examples provided by the IRS in the final regulations and related revenue procedures establish that the category of “minor” violations is fairly limited (e.g., a required posting falling off a hospital wall and being rehung) and that many violations will fall into the more serious categories which require both correction and disclosure. More importantly, in the absence of intentionally wrongful conduct, the crucial distinction between these violation types depends largely on the organization’s compliance practices and procedures.

For example, the IRS regulations state that the existence of meaningful procedures reasonably designed to promote and facilitate compliance with Section 501(r) is a key factor in determining that a violation constitutes a “minor omission or error” that must be corrected but need not be disclosed. Additionally, the IRS decision to classify a failure as “excusable” versus “inexcusable” is also based significantly on whether a facility has established 501(r) compliance practices and procedures and whether those practices and procedures were routinely followed. In fact, of the nine factors that the IRS has stated that it will consider when deciding whether a failure to meet 501(r) requirements justifies revocation of a hospital organization’s tax exemption, eight either expressly require a hospital organization to maintain an established compliance program or involve examination of the functions of such program (e.g., early detection and correction of violations, measures to prevent recurrence of compliance errors).

The legal consequences of noncompliance can be severe. For inexcusable failures, the IRS may revoke a hospital or hospital organization’s tax-exempt status. Even for excusable failures (i.e., those failures that are not willful or egregious), a hospital organization will be required to correct and publicly disclose such failure to the IRS, which may review, conduct intensive field examinations (during which the IRS may investigate any compliance errors, even if unrelated to the 501(r) failure at issue), and require further corrective actions. Additionally, the scrutiny on a hospital that arises from disclosure may lead to media inquiries, government investigations and, potentially, litigation from consumer attorneys.

Conclusion

Given the IRS’s current actions and the complex obligations established by Section 501(r), hospitals should ensure that they have a robust compliance program in place which will allow the hospital to limit violations, identify them when they occur, and provide the hospital with the resources to appropriately correct and disclose the violations. Hospitals must also ensure that their contracts with billing and collection vendors include essential terms prescribed by the 501(r) regulations and provide the hospitals with the rights and resources necessary to comply with Section 501(r).

_{¹Unlike other provisions of the ACA that drew strident objections from Republican lawmakers, the ACA provisions enacting Section 501(r) were coauthored by Republican Senator Charles Grassley and did not appear in the most recent Republican attempt to repeal portions of the ACA (H.R. 3762—114th Congress (2015-2016)).}

_{²These include provisions related to Community Health Needs Assessments and associated implementation strategies, the establishment of financial assistance and emergency medical care policies, numerous publication and notice requirements related to such policies, calculation methodologies limiting maximum charges to those eligible for financial assistance, billing and collection timelines, reasonable efforts to determine whether a patient is eligible for financial assistance, and restrictions on extraordinary collection actions taken by hospitals to collect patient debt.}

Yesterday the Consumer Financial Protection Bureau published a new Request for Comment in the Federal Register, regarding a proposed Consumer Response Customer Response Survey. 

According to the posting,

The purpose of this information collection is to incorporate a short survey into the complaint closing process. Consumers will have the option to provide feedback on the company’s response to and handling of their complaint via all channels including online, phone, fax, and mail. The results of this feedback will be shared with the company that responded to the complaint to inform its complaint handling. The feedback will also be used to inform the Bureau’s work to supervise companies, enforce federal consumer financial laws, write better rules and regulations, and monitor the market for consumer financial products and services.

Consistent with the Bureau’s policy statement on Disclosure of Consumer Complaint Data, the Bureau will evaluate the data collected from consumer feedback before publication on the Consumer Complaint Database. The Bureau anticipates publication of consumer feedback to highlight positive company behavior, provide the public with timely and understandable information about consumer financial products and services, and improve the functioning, transparency, and efficiency of markets for such products and services. Only those feedback narratives for which opt-in consumer consent is obtained, and to which robust personal information scrubbing standard and methodology is applied, will be eligible for publication.

This information collection reflects comments received in response to the March 24, 2015 (80 FR 15583) Notice and Request for Information (RFI), seeking input from the public on the potential collection and sharing of information about consumers’ positive interactions with financial service providers including providing more information about a company’s complaint handling such as highlighting the quality of responses to consumers by replacing the consumer ‘‘dispute’’ function with a two-part consumer feedback process as well as comments received during the 60-day comment period and user testing conducting concurrent with the 60-day comment period. The consumer will have the ability to answer three questions about the company’s response to and handling of his or her complaint, to rate the company’s overall response using one to-five stars and provide a narrative description in support of the rating.

Positive feedback about the company’s handling of the consumer’s complaint would be reflected by both high satisfaction scores and by the narrative in support of the score. Negative feedback about the company’s handling of the consumer’s complaint would be better supported and more useful to companies than the current ‘‘dispute’’ function. The Consumer Complaint Company Response Survey will replace the ‘‘dispute’’ option and allow consumers to offer both positive and negative feedback on their complaint experience.

insideARM wrote about this initial proposal back in August when the sample survey was released and the Bureau issued a 60-day Federal Register notice (on August 1, 2016, with comments due by September 30, 2016). The CFPB said then that this survey built on a public inquiry issued last year seeking public input on ways to highlight consumers’ positive experiences with financial service providers. Positive feedback about the company’s handling of the consumer’s complaint would be reflected by both high satisfaction scores and by the narrative in support of the score. Negative feedback about the company’s handling of the consumer’s complaint would offer new context and be more useful to companies.

The Bureau says that comments were solicited and continue to be invited on:

• Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information will have practical utility;
• The accuracy of the Bureau’s estimate of the burden of the collection of information, including the validity of the methods and the assumptions used;
• Ways to enhance the quality, utility, and clarity of the information to be collected; and
• Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. 

Written comments on this latest request must be received on or before December 29, 2016 to be assured of consideration. 

This week the Consumer Financial Protection Bureau (CFPB) issued a Compliance Bulletin entitled “Detecting and Preventing Consumer Harm from Production Incentives.”  While not mentioning Wells Fargo Bank, N.A. (Wells Fargo) by name, the Bulletin is clearly written in response to the CFPB action against Wells Fargo Bank where the CFPB, the Office of the Controller of Currency (OCC), and the city of Los Angeles levied a $185 million penalty against the bank. insideARM wrote about the action on September 9, 2016. 

Fallout from the Wells Fargo scandal has been ongoing in the nearly 3 months since the announcement.

This new Bulletin applies not only to banks and financial services companies, but also all entities supervised by the CFPB.  Per the Bulletin:

“Financial services companies, including entities supervised by the Consumer Financial Protection Bureau (CFPB or Bureau), may accomplish business objectives through programs that tie outcomes to certain benchmarks, both required and optional. Companies may apply these production incentives, including sales and other incentives, (“incentives”) to employees or service providers or both. The risks these incentives may pose to consumers are significant and both the intended and unintended effects of incentives can be complex, which makes this subject worthy of more careful attention by institutional leadership, compliance officers, and regulators alike. We thus will continue to invite further dialogue and discussion around the issues addressed in this Bulletin.

This Bulletin compiles guidance the CFPB has already given in other contexts and highlights examples from the CFPB’s supervisory and enforcement experience in which incentives contributed to substantial consumer harm. It also describes compliance management steps that supervised entities should take to mitigate risks posed by incentives.”

The Bulletin discusses the potential risks to consumers when supervised entities utilize incentive programs when dealing with consumers:

“Despite their potential benefits, incentive programs can pose risks to consumers, especially when they create an unrealistic culture of high-pressure targets. When such programs are not carefully and properly implemented and monitored, they may create incentives for employees or service providers to pursue overly aggressive marketing, sales, servicing, or collections tactics. (Emphasis added.)

Depending on the facts and circumstances, such incentives may lead to outright violations of Federal consumer financial law1 and other risks to the institution, such as public enforcement, supervisory actions, private litigation, reputational harm, and potential alienation of existing and future customers.”

The Bulletin also outlines the CFPB expectations for supervised entities:

“The CFPB expects supervised entities that choose to utilize incentives to institute effective controls for the risks these programs may pose to consumers, including oversight of both employees and service providers involved in these programs. As the CFPB has emphasized repeatedly, a robust compliance management system (CMS) is necessary to detect and prevent violations of Federal consumer financial law.

An entity’s CMS should reflect the risk, nature, and significance of the incentive programs to which they apply. Accordingly, the strictest controls will be necessary where incentives concern products or services less likely to benefit consumers or that have a higher potential to lead to consumer harm, reward outcomes that do not necessarily align with consumer interests, or implicate a significant proportion of employee compensation. While the CFPB does not mandate any particular CMS structure and recognizes that CMS structures may appropriately vary based on the size and complexity of an organization, the Bureau’s supervisory experience has found that an effective CMS commonly has the following components:

• Board of directors and management oversight;
• Compliance program, which includes:
• Policies and procedures;
• Training; and
• Monitoring and corrective action;
• Consumer complaint management program; and
• Independent compliance audit.

The Compliance Bulletin is a non-binding general statement of policy articulating considerations relevant to the Bureau’s exercise of its supervisory and enforcement authority. The Bureau has determined that this Compliance Bulletin does not impose any new or revise any existing recordkeeping, reporting, or disclosure requirements on covered entities or members of the public that would be collections of information requiring OMB approval under the Paperwork Reduction Act. 

insideARM Perspective

In our September 9, 2016 story on the Wells Fargo matter insideARM suggested that ARM companies review their collector compensation incentive programs to consider whether they had the potential to lead to collector behavior that could harm consumers. 

In light of this new Compliance Bulletin, insideARM again strongly suggests that industry organizations review those programs.  Additionally, all ARM companies should review their CMS to determine whether their policies and procedures are robust enough to identify any potential problems with incentive compensation plans.

According to a report in TulsaWorld, debt buying and collection industry veteran Bill Bartmann has died following heart bypass surgery.

insideARM has written extensively about Bartmann and his career over the past 10 years.  In the mid-1980’s he founded Commercial Financial Services (CFS) with his wife and Jay L. Jones. The company purchased credit card debt from banks and worked to collect on it in-house, and used money from bond issues to buy more accounts. At its peak, CFS employed 3,900 workers in Oklahoma City and Tulsa.  

In the late 1990’s an anonymous letter sent to rating agencies revealed a scheme of using a shell company called Dimat Inc. to buy accounts the company couldn’t collect, in order to meet goals needed to pay off bondholders.  CFS’ credit rating fell and it filed for bankruptcy. Prosecuters indicted Bartmann and others. His partner, Jones, struck a deal, agreeing to serve as the government’s key witness linking Bartmann to the shell company. Jones served a 5-year sentence after pleading guilty to conspiracy and fraud.

Bartmann’s defense claimed he was just buying Jones’ CFS shares, and Jones was making the Dimat purchases behind Bartmann’s back so he could form a rival collection agency. In 2006, after hearing eight weeks of testimony from 53 prosecution witnesses, jurors deliberated for more than four days before acquitting Bartmann of 57 counts of conspiracy, fraud and money laundering. 

In the midst of the financial crisis in 2008 Bartmann developed a series of training programs to teach individuals to buy and collect on portfolios of defaulted credit-card debt and, in 2009, he published a book called “Bailout Riches,” which describes the opportunity he says the bank-bailout and recession of 2008-2010 has created. The book made the bestseller list on Amazon, the Wall Street Journal, USA Today and BusinessWeek.

He then formed the aptly-named CFS II, followed by a public relations tour challenging the rest of the debt collection industry to stop abusing consumers. His efforts included recommending the “Bartmann Bill for Ethical Debt Collection” in Oklahoma (which passed the state senate but was later put on hold for further research), and, in a 2013 article on Huffington Post, reiterating a “plan” he initially floated in the Christian Science Monitor, freezing debt collector lawsuits until the national unemployment rate drops below 6 percent.

He said, “My industry is overrun with scum bag collectors across America who repeatedly abuse consumers who don’t know their rights. Fortunately, we can stop this abuse. And I know just how to do it.”

In 2014 Bartmann argued that nonprofit organizations could accept donations of consumer debt accounts and use the collections on those accounts to fund their operations. He says the move would help consumers, nonprofits, and banks while hurting the “traditional” collection industry and the attorneys it employs.

His latest venture, Financial Samaritan provides services for debt-negotiation, job search, social services and financial literacy — for free. Their theory is that consumers will buy stuff from them later (“After you’re finished paying off your debt, you may need to purchase the products and services we recommend”).

One thing Bill Bartmann accomplished that was indeed quite unique within the ARM community was to gather positive national press, including many accolades, and this feature on the CBS Evening News.

Within the ARM community, Bartmann did not receive such a warm response. Many felt that his public statements were disingenuous and unfairly bashed the industry. In 2013, one collection agency posted an open challenge to him on its website,

“Congratulations Mr. Bartmann,” the company writes, “The Affiliated Group — along with ACA International and its nearly 5,000 member organizations which represent approximately 300,000 men and women who dutifully work with consumers to resolve debt issues — have those goals too. We just don’t repeatedly pat ourselves on the back for articulating the obvious.

…Let’s see it, Bill. Let’s see your commitment to ‘reforming the debt collection industry.’ Throw this lazy narrative in the trash and engage in some real dialogue with other agencies with proven track records in terms of compliance and best practices. Prove that a cleaner collections industry and consumer advocacy truly lie at the top of your priority list, well ahead of your public profile or your next TV appearance.”

It is unlikely the debt collection industry will see another personality like Bill Bartmann.

SHERMAN, Texas — The mission of Grand Central Station – The Dining Car is to operate as a local outreach mission sponsored by a group of Grayson County Texas churches and individuals that share a commitment to help reduce the effects of resource limitations by helping those in need. They do this by: 1) Providing nutritious meals to alleviate hunger; 2) Education, training, and social services to empower lives; 3) Seeking out opportunities for community service as needed.

On November 16, Grand Central Station located in Sherman, Texas, held an awards ceremony where employees of Capio Partners, The Law Offices of Mitchell D. Bluhm & Associates and AssetCare were awarded the “Company of the Year” award.

 Bob Hodges, President and Chief Operating Officer of Capio Partners, had the opportuity to be in attendance.  “As everyone who lives and works in Sherman knows, this is a local soup kitchen but it’s also so much more than that. Our employees spend countless hours each year collecting food for them, toys for the children served by them and many other projects including donating and servicing their computers.”

Hodges extends a warm appreciation, “Thank you Jessica, Onita and Jason, along with every other employee within this great organization that contributes your time and effort! It really does make my heart swell with pride to be associated with such a great team of people!“

Pictured left to right; Capio Partners’ Jessica Walker, Onita Bruce, Jason Vaughn and Leigh Ann Sims, Board Member at Grand Central Station.

On November 21, 2016 a United States District Court Judge ruled that an attorney “on retainer” for a collection agency who sends a letter to a consumer must provide his own validation notice to the consumer and cannot rely on a validation notice provided by the collection agency.  The case is Sanchez v. Jackson and Universal Fidelity (Case No. 16-cv-6144, U.S. District Court, Northern District of Illinois). A copy of the Memorandum Opinion and Order from the Honorable Judge John Robert Blakely can be found here.

Background

Sometime before the spring of 2016, Plaintiff, an Illinois resident, incurred a consumer debt from a Montgomery Ward credit account. Plaintiff did not pay the debt and it went into default. On or about March 22, 2016, Universal Fidelity, LP (Universal) sent a notice to Plaintiff regarding her outstanding debt.

On or about May 9, 2016, John Lee Jackson (Jackson) sent a one-page, two-sided collection letter to Plaintiff. The letter constituted Jackson’s initial communication with Plaintiff. The letterhead provided Jackson’s name and address and identified Jackson as an “ATTORNEY ON RETAINER FOR UNIVERSAL FIDELITY LP.” In the body of the letter, Jackson stated the following:

I am an Attorney and I am on retainer with Universal Fidelity LP. I am not an employee of Universal Fidelity LP and only advise them of corporate law and therefore advise them on legal matters. This letter is being sent to you because I am involved in the collection strategy of the outstanding accounts owed to them. You will not be sued by Universal Fidelity LP or by me, this is just a collection letter to request you pay this account owed to Montgomery Ward.

Their records indicate that you are indebted to them for the amount of $182.94. Universal Fidelity LP offers convenient payment options to help you satisfy this claim. I have received the files from Universal Fidelity LP Electronically [sic] and conducted a cursory review and approved the release of these letters. Do not consider this letter a notification of intent to sue: since I do not have the legal authority to sue and Universal Fidelity LP will not sue you, this is a request for payment only: I have not, nor will I, review the detail of your account status.

The bottom of Jackson’s letter stated, “This is an attempt to collect a debt and any information obtained will be used for that purpose. This communication is from a debt collector.” (emphasis in original). The bottom of the letter also provided a payment slip addressed to Universal.

The reverse side of Jackson’s letter stated, in relevant part (and in all caps), the following:

UNLESS YOU NOTIFY UNIVERSAL FIDELITY LP, WITHIN 30 DAYS AFTER RECEIVING YOUR INITIAL NOTICE THAT YOU DISPUTE THE VALIDITY OF THIS DEBT OR ANY PORTION THEREOF, UNIVERSAL FIDELITY LP WILL ASSUME THIS DEBT IS VALID. IF YOU NOTIFY UNIVERSAL FIDELITY LP IN WRITING WITHIN 30 DAYS FROM RECEIVING YOUR INITIAL NOTICE, UNIVERSAL FIDELITY LP WILL OBTAIN VERIFICATION OF THE DEBT OR OBTAIN A COPY OF A JUDGEMENT [SIC] AND MAIL YOU A COPY OF SUCH JUDGEMENT [SIC] OR VERIFICATION. IF YOU MAKE A REQUEST TO UNIVERSAL FIDELITY LP IN WRITING WITHIN 30 DAYS AFTER RECEIVING YOUR INITIAL NOTICE, UNIVERSAL FIDELITY LP WILL PROVIDE YOU WITH THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR, IF DIFFERENT FROM THE CURRENT CREDITOR.

On June 16, 2016, Plaintiff filed a class action suit. On August 25, 2016, Plaintiff filed her First Amended Complaint.  In the sole count of the Complaint, Plaintiff alleges that Defendants violated § 1692g(a) of the Fair Debt Collection Practices Act (FDCPA). Generally, § 1692g(a) provides that “in either the initial communication with a consumer in connection with the collection of a debt or another written notice sent within five days of the first, a debt collector must provide specific information to the consumer.”

On September 15, 2016, Defendants filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) (Editor’s Note: A motion to dismiss under Rule 12(b)(6) “challenges the sufficiency of the complaint for failure to state a claim upon which relief may be granted). Judge Blakely’s Memorandum and Order was issued in response to that Motion. He denied Defendants Motion to Dismiss.

Plaintiff alleged that Jackson (and vicariously, Universal) violated this provision by failing to provide an adequate debt validation notice in conjunction with his May 9, 2016 letter. Jackson’s letter included a validation notice referencing Universal. Plaintiff maintains that Jackson cannot rely on a validation notice from another debt collector and instead must include his own disclosure referencing himself. In other words, Plaintiff asserts that § 1692g(a) required Jackson to notify Plaintiff of her right to contact Jackson directly to dispute or verify her debt.

The Court’s Decision

In refusing to dismiss the lawsuit, Judge Blakely agreed with Plaintiff.  First, Judge Blakely determined that Jackson was a “debt collector” and thus subject to the FDCPA. Judge Blakely then determined that Jackson was an “independent” debt collector and was required to provide the Plaintiff with his own validation notice in his initial communication with the consumer.

Judge Blakely wrote:

“Courts in this district are split as to whether § 1692g applies only to the first debt collector to make contact with a debtor, or rather to each successive debt collector in line. The trend, however, has been towards the latter.

This Court finds that § 1692g applies to the initial communication made in connection with the collection of a debt by each successive debt collector. Applied here, this includes Jackson’s May 9, 2016 letter to Plaintiff.

The Court however, cannot rest there, because this case presents the added wrinkle that Jackson’s letter to Plaintiff did include a debt notice—Universal’s. The letter informed Plaintiff to notify Universal in order to dispute or verify her debt, but said nothing of notifying Jackson. Defendants argue that this satisfies § 1692g(a). The Court therefore, must also determine whether an attorney debt collector acting as an agent on behalf of another debt collector must provide his own debt notice in addition to, or in lieu of, that of his client.”

Once again, the Court answers this question in the affirmative.

“Defendants’ interpretation of § 1692g would introduce needless confusion to the debt verification process. Under the plain language of § 1692g(b), a debtor’s dispute or verification notice sent to an independent attorney agent would not suffice to halt collection activities by the collection agency client. Faced, however, with correspondence from a debt-collector attorney containing a notification provision referencing only the debt-collector client, it would not be per se unreasonable for a debtor to mistakenly believe that sending a validation request to the attorney sufficiently invoked the FDCPA’s statutory protections.”

insideARM Perspective

There is much that could be discussed about the facts in this case beyond the crux of the decision – the typos in the letter, the potentially confusing content of the letter, and/or the use of the strategy of sending a letter from an attorney (any attorney) on a $182.94 account. However, in the end, insideARM believes the court made the correct call. It is industry best practice NOT to rely on a validation notice sent by a prior debt collector and for every new (subsequent) debt collector to send a validation notice in an initial communication.

It is interesting that, in his opinion, Judge Blakely noted that Jackson could have easily satisfied his obligations by simply replacing references to Universal in his collection letter’s notification provision with references to himself.  The requisite disclosures were all there – they just referenced Universal, not Jackson.

WASHINGTON, D.C. – ACA International, the association of credit and collection professionals has released a new white paper, “Business Practices and Capabilities within the Debt Collection Industry,” which examines the potential impact of additional Consumer Financial Protection Bureau regulatory measures on member organization and the debt collection industry.

“The Small Business Administration Office of Advocacy defines a small business as either ‘an independent business having fewer than 500 employees,’ or one that generates annual receipts that do not exceed the SBA size standard; for debt collection companies, the size standard is $15 million in average annual receipts,” writes ACA International Director of Research Josh Adams, Ph.D. “Most debt collection companies (78 percent) qualify as small businesses based on both criteria.”

The CFPB reported that modifying data management systems would cost between $1,000 and $2,800 for small collection agencies. In the white paper, ACA International estimates the cost of upgrading the data management systems or modifying the software systems for additional functionality to be $73,339 for a small collection agency.

The estimated cost of including an additional page of disclosures in conjunction with a validation notice in mailed communications for a small collection agency would be an average annual increase of $95,405 in additional mailings.

“When compared to the findings of the CFPB report on the operations of third-party debt collection firms, this analysis suggests that the CFPB substantially underestimates the financial impact of new rules on these businesses,” Adams writes.

ACA International’s latest white paper is part of an ongoing research initiative to collect more original data about the credit and collection industry, and quantify how debt collectors help consumers and the overall economy.

About ACA International

ACA International (ACA), the association of credit and collection professionals, is the largest membership organization in the credit and collection industry. Founded in 1939, ACA brings together third-party collection agencies, law firms, asset buying companies, creditors and vendor affiliates, representing tens of thousands of industry professionals. ACA produces a wide variety of products, services and publications, including educational and compliance-related information; and articulates the value of the credit and collection industry to businesses, policymakers and consumers. www.acainternational.org.