News & Views 14

Regulatory changes already adopted and a multitude of additional regulations which are currently pending will forever change the way the Collection Industry operates. Could many of these new consumer protection provisions have been avoided, had the industry taken some responsibility sooner, for maintaining uniform standards and effectively policing itself? It is certainly hard to say. But, while it is far too late to reverse the tide and rewrite this legislation, we still have a brief opportunity to influence, how some of the details are actually resolved in the final language of the laws. We also may have been given a late wake-up call, to get proactive in the development and adoption of or own rules, for how we will operate in the future.

This flurry of consumer protection measures in almost all cases stems from the cries of the consumer who has claimed harassment or worse from the collectors, or disputes the amounts being collected or even owed. While in hindsight many of these complaints likely could have been avoided with better documentation and collector level accountability, we need to now acknowledge that it's a new age in the ARM Industry and begin to take a leadership role in our own future. In this article we will briefly review the current legislation that is approved or pending, and offer a list of suggestions that the Collection Industry Representatives consider, as a framework, to strengthen the Industry as we move forward.

Report to Congress

The FTC report addressed to Congress, "Protecting Consumers in Debt Collection Litigation and Arbitration - July, 2010", calls for sweeping reforms of the entire legal collection and arbitration process. The FTC recommendations focus on getting the consumer to participate more actively in debt collection litigation, discuss changes to service of process, discusses the costs of defending debt collection litigation, recommending new evidence requirements for initiating a lawsuit, seeking a revision of the Statute of Limitations and defining exempt funds from garnishment. Additional testimony is also provided relating to changes of the arbitration proceedings in the 2010 FTC report. Numerous other new laws are also being introduced on the State level which will also significantly impact the Collections Industry.

Other Federal Legislation

The Bureau of Consumer Financial Protection was established in July 2010, which creates a new Federal agency to regulate most consumer financial products. This new agency has been given exclusive rulemaking authority over the FDCPA and will assume most of the consumer protection authority previously held by the FTC.

The House passed a bill (H.R. 1258) that would prohibit manipulation of caller identification information and the bill has been referred to the Senate. Multiple legislative proposals have emerged, to address privacy requirements, on the collection, use and disposal of online consumer information.

Numerous other bills have also been introduced relating to debt settlement, payday loans, identity theft, identity verification and debt discharge in addition to banking and credit card reform.

State Legislation

Colorado- HB 1222; requires licensed debt collectors to maintain an office in Colorado, accept payments physically, keep a record of funds collected, and provide the address and telephone number of the in-state office in each written communication. (passed - effective July 1, 2010)

Florida- SB 2086; increases application fees and the requirements for applicants, and grants the office of financial regulations more authority to fine and investigate debt collectors. (passed - effective Oct. 1, 2010)

Massachusetts- SB 1712, S2557; increases exemptions on cars to $7,500 ($15,000 for elderly and disabled), funds in consumer bank accounts are protected up to $2,500. (passed senate, moving to house)

Minnesota- SF 2689; is a parallel Bill to the North Carolina law adopted last year shortening the Statute of Limitations. Also requires receipts for payments and cuts off the right to collect past the Statute of Limitations among other requirements. (not passed)

New Jersey- A1700 and S250; requires a copy of the FDCPA to be attached to each collection letter, contains provisions relating to identity theft. (passed assembly)

New York- The state has several different pieces of legislation in process.

- 7558-A. S.4398-A; entitled, "The Consumer Credit Fairness Act" would reduce the Statute of Limitations on consumer credit actions from 6 years to 3 years. The Bill also requires an additional mailing from the Supreme Court Clerk, to the debtor prior to a default judgment being entered; based upon an affidavit from the original creditor. Verification that the Statute of Limitations had not expired, and establishing the exact chain of title for the debt are also included in the Bill. Creditors will be required to meet additional pleading requirements, including the itemization of the debt to show principal, finance charges, fees, and other penalties. (passed the assembly)

- A.IHI0, S.7265; Bill would require third party process servers to obtain a license from the state. (Bill is in committee in both houses)

- A.8840-B, 8.6036; Bill would amend the NYS Fair Debt Collection Law to more closely follow the FDCPA, including private right of action, limits on hours of contact, and notification of the sale of the debt. (pending)

- A.3532-A, S. 2458-A; Bill creates a private right of action for improper debt collection procedures under the New York State Fair Debt Collection Law. (passed assembly, in committee in senate)

- A.271-B, S. 7303-A; Bill requires debt collectors to send consumers a written notice of their rights under state law in the initial correspondence with the debtor. (pending)

- A.3926-D, S. 7071-A; proposal requires debt Collection Agencies, Attorneys and Buyers to be licensed by the state. In addition to business information, applicants must disclose methods used to verify debts, policies regarding the sale of debt, a summary of record-keeping policies, and processes for handling disputes. (passed the assembly, pending in senate)

- A. 7889-B, S.7205, S.5046-A; the first Bill is a prohibition on collection for a debt which the creditor knows to be deceased; the second is a disclosure of the rights and liabilities of the family of the deceased. A collector must notify any person it contacts, regarding the debt of a deceased person, that they are not liable for the debts of the deceased. (in committee)

- A.7268, S. 7317; requires entities that offer to serve as an intermediary between an individual and one or more creditors (debt management services) for the purpose of obtaining concessions, to register with the Banking Department. (dead in the senate, active in the assembly)

Fair Debt Collection Practices Act (FDCPA) Case Law

U.S.Supreme Court - "No bona fide error - Mistake of Law". The Court ruled that the bona fide error defense does not apply to a mistake of legal judgment by way of a mistaken interpretation of the FDCPA. (Apr. 21, 2010)

Minnesota - Joint Checking Garnishment; The Minnesota Supreme Court held that the creditor could presume that all funds in a joint account belonged to the consumer unless they are informed otherwise. (Apr. 22, 2010)

Pennsylvania - Attorney Letterhead; The Middle District court held that attorney debt collectors must advise consumers whether they are acting in the capacity of a debt collector or as an attorney. Correspondence on attorney letterhead was held to imply they were acting as an attorney and that implies a threat of litigation.

More Legislation Coming

As policy makers continue to jump onto the consumer protection bandwagon, and since our political leadership needs to deliver something to their constituents prior to elections, which is popular and doesn't cost the government much, we will probably continue to be inundated with new consumer "feel good" initiatives. But the message that is being sent is so one sided, that many consumers may be left believing there is a way, to legally walk away from all of their debt obligations.

Especially troubling in this array of new legislation is the New York "Consumer Credit Fairness Act", which if adopted will decrease the statute of limitations for debt collection to 3 years from the current 6 years which would be identical to Arizona, Arkansas, Delaware, Kansas, Louisiana and Maryland. The legislation would also eliminate any right to collect after that time expires, as in Wisconsin and Mississippi as we understand.

Getting Proactive

What Can We Do To Stem the Tide of Additional Regulations?

To be proactive, we need to be informed, organized, have a plan, and most importantly, we need to take action. There are some very fine organizations that represent the credit and collections industry and all employ lobbyists, have meetings and paid memberships. Yet, in all honesty, they have been sadly ineffective in promoting a good public image for the industry. Perhaps it is time to examine the need for a central voice in the ARM industry to assertively promote the positive side and to set uniform standards, policies, procedures and enforcement within our own ranks.

There are numerous ideas that come to mind that the industry could do to promote a positive image, and while some of these suggetions are not new, in light of the recent activity, it is important to brush off the dust and put them on the table again, along with a fresh look at how the industry is changing and what we can do to help mold what emerges.

Public Relations

Emphasize the benefits of the ARM industry in resolution of debt, reducing the cost of lending, credit repair and the other aspects which are positive for the economy. Provide debt counseling, financial education, and develop an outreach program for the youth. Develop a charitable foundation where old debt can be donated and enjoy a small tax deduction. Assume the leadership for credit repair programs in conjunction with the original issuers where consumers can eliminate settled accounts from their credit reports.

Standards

Develop uniform reporting, tracking, documentation and chain of title for every single account from every single issuer that is sold and collected. Set up a national debt registry, where all of the documentation from; applications, statements, contracts and chain of title is assembled and available to the debtor and the owner of the debt. Report collection payments to the database monthly, and when an account is settled, report the 1099 and move the account from the pending to the paid database.

Policies

Develop a National standard of care for customer accounts, privacy protection and data protection. Provide uniform training on customer contact by mail, telephone, cell phone, fax, e-mail, text message and the use of social media sites. Update the training annually and as new technology is available.

Procedures and Enforcement

Develop a National licensing program and certification program for collectors, collection agencies, collection attorneys, debt buyers, brokers, data vendors and anyone who has access to private customer information. Require those who have direct contact with the consumer in collection of a debt to post a bond and maintain a valid license. Develop a zero tolerance program for the collection of the debt and enforce penalties at the individual collection level for violations.

Legislative Efforts

Develop standards for contacting debtors with all forms of communication including e-mail, cell phone, text messages and other new technologies. Discourage the frivolous lawsuits, and establish penalties for consumer abuses of legitimate efforts to collect a debt. Lengthen the statute of limitations on the debt owed to give the consumer more time to satisfy the obligation and take pressure off the courts.

Call to Action

Certainly it should be clear that this is a critical time in our history and this is the time to engage in discussions and ideas about how to improve the image of the Industry. Yet, absolutely nothing will happen to implement change unless we have the vision and the will to take action. Other ideas are emerging as well from all quarters. Collectively we must put aside the "someone else should do it" mentality and take action to protect ourselves, because if we allow consumer advocacy groups and our elected officials to dictate the course of our future, we will find ourselves buried under even more regulation designed by " feel good" policy making, not by good judgment.

Future discussions might also consider introduction of novel legislation based on a concept that encourages consumer accountability. A "Consumer Responsibility Act" or "Consumer Code of Conduct" could establish regulations and guidelines for the consumer in dealing with the privilege of credit and on settling one's obligations. This might include an educational component on the moral, legal and ethical issues of borrowing money and provide a framework for the restitution and repayment of one's debts and for paving the way toward true credit repair and a constructive, stable financial future.

Promoting the Positive Side

By Jill Benshoof

The Collection Industry certainly has gotten a whiplashing lately and it is about to pay a heavy price for doing nothing to police itself and for not being smarter about protecting itself. The story is nauseatingly familiar, and pretty much one-sided with a litany of charges of consumer abuse. With an avalanche of condemnation ringing loudly from all quarters, it's been a pitiful sight to see new legislation throw the entire industry under the bus. Where is the voice for the Collection Industry?

Part of the problem is that our house is divided. We have separate interest groups and agencies representing us, each with different agendas. The ACA, the largest of the groups, devotes much of its resources to informing its members of regulatory issues and compliance training at both the Federal and State levels. There is also the DBA, CCAA, NARCA, and CLLA not to mention many long standing State associations like the CAC. All have educational components to their missions in the way of workshops, seminars, webinars and DVDs, so "proper" standards of business conduct are abundantly promoted, and Federal Agencies have frequently partnered in these efforts. All have consumer hotlines, debt management information or similar links on their websites, grievance committees or complaint departments, and, most have paid lobbyists to represent their interests in Washington. There is simply no shortage of Consumer Protection venues and the concept is far from on the back of our minds. So where have we gone wrong? Or, are we just a convenient whipping boy for the venting of frustrations of people taxed to the limit over a wide variety abuses of the public trust? Last month representatives of the 4 largest ARM associations met to discuss what InsideARM called a "new level of cooperation between the groups". Well halleluiah! While it is unclear that anything more than rhetoric seems to have come of it, let's hope this is the beginning of a more proactive, unified approach to influence our future.

Good News, Bad News

We are all consumers, so "Consumer Protection" is an issue that carries universal appeal and, thus, is a popular and safe legislative topic for politicians. Before the recent "Wall Street Reform and Consumer Protection Act" legislation (H.R.4173), there were over 50 government agencies involved in consumer protection oversight in some way,8 (including the FTC)[1] having enforcement obligations, so it is hardly a case of consumer underrepresentation. While we all know that the first wave of Collection Industry regulations (FDCPA in 1978) were a direct result of past abuses by tough, heavy handed collectors, in recent years the story is not as clear cut. It is apparent that despite all of the laws and guidelines dictating "proper" standards of practice, there are still some widely publicized abuses, which hasn't helped the public image of the Industry. It is truly unfortunate that the Industry has not found a logical way to enforce a "no tolerance" policy. It is interesting, however, to put these abuses into perspective.

The FTC received more complaints about the Collection Industry than any other Industry, about 500,000 over a 5 year period. Yet, according to the National Consumer Law Center March 2010 Report, out of those 500,000 complaints, the FTC only saw fit to take action on 8. Eight! These numbers would certainly indicate that the Industry has greatly improved in the way it deals with customers and the actual percentage figures for 2009 confirm that. In fact, the statistics of what the 500,000 infractions were, are very revealing as well, the greatest number of complaints, according to the FTC 2010 Annual Report being for legal technicalities not actual consumer abuses. (One might conclude from this that the laws spawned more lawsuits. What a surprise!) As we point out in our article "FDCPA Complaints in Perspective" (Vol 11 website link) the industry "complaint resolution" rate is actually very high. And, when you stop to consider it, FTC complaints are higher in the Collection Industry precisely because there is no other industry that deals with the negative aftermath of financial-problems-gone-wrong in such massive volume. Taken in context, complaints per case of consumer contact are minuscule. Without a doubt, there is certainly no other industry that provides a necessary service that is so little appreciated.

There has disturbingly, however, emerged on a parallel track another dynamic...one that is over protective of the Debtor. Most articles published in the Mainstream Media demonize collectors and perpetuate the notion that collectors are law breakers that prey on the "unfortunate" and are a "menace" to society. They are characterized as "ruthless" villains exploiting the innocent to collect on "illegitimate" debt. And, "bottom feeding" Debt Buyers are even "scarier" according to a July 13th article published in Business Insider. There is a dangerous and inaccurate assumption made by industry outsiders that has been adopted as a general rule of thumb by hyper-vigilant, consumer protection groups, and that is the "consumer equals victim/collector equals villain" rule. It is presented routinely as fact, with very little balancing mainstream press coverage. But, as Michelle Dunn points out in her article "Confessions of former debt collectors" on CNN Money.com, this is certainly not the case. Consumers frequently harass collectors, in extremely provocative ways. She writes, "People would call me every 5 minutes and hang up just to harass me, since I was harassing them. Others have called me and said "I will f***ing burn your house down, you better f***ing stop calling me." One man faxed me pages of profanities every few minutes until I ran out of ink. I often had to be escorted out of my office by police officers after debtors showed up threatening to hurt me." If you google "consumer rights", it is apparent that a whole industry has emerged that seeks to entrap collectors in FDCPA violations and encourages people to dodge their debts.

This warped, one-sided perception has become so prevalent that Federal regulations are now being stepped up and, without a concerted effort by the Industry to protect itself, who knows what the end result will be? In addition we see individual States putting up numerous obstacles and outright blockades for collectors, such as reducing the Statute of Limitations to absurd levels (3 years) and making Collectors send a complete copy of the FDCPA Guidelines with every collection letter. As long as our society perpetuates the notion that a person's "rights" outweigh their "responsibilities" there will forever be an exhausting battle for the industry.

The Ethical Issues

Lost in the discussion of "Consumer Protection" as it relates to the Collcetion Industry is what the original deed was, and who the offender is. The Consumers in this case are not innocent victims injured by a defective or harmful product, or damaged by a scam. These are the offenders - some habitual, many who were victims of unfortunate events, but all who entered willingly into a legally binding, contractual arrangement that they did not honor. While we are well past the time in history where debtors are put in chains and thrown into prison, the transgression has throughout history been considered a crime of sorts, so by any fair standards, this "consumer" distinction should be not only relevant, it should be an important part of any discussion of "Consumer Protection" relative to our Industry.

Furthermore, a debt incurred is also a moral issue. By any measure of values, the lending of money or property is a privilege and not a right! This seems to have been forgotten in a society that seems to be hell bent on ever increasing our list of "human rights". Basic standards of honor and integrity should dictate that the Debtor feel some degree of responsibility to honor a commitment made. And while protective shelters like Bankruptcy may relieve a person of their debt legally, in an honest world, morally the debt remains until it is satisfied.

So how is it then that the debt collector has become the permanent bad guy with recent legislation coming down 100% against the Collection Industry, giving the debtor much more than the benefit than the doubt, but the clear advantage, and in many cases the total windfall of dodging their obligations?

Public Relations

It is clear that we haven't been effective enough in communicating what we do, how we do it and how our industry benefits society. By not promoting the positive side of what we do, we silently fall victim to the cacophony of negative noise about the industry that currently dominates our culture, emanating from distressed consumers who may be overwhelmed by circumstances, or from disgruntled debtors who simply don't want to pay their debts. In the aftermath of the economic fiasco, where tax payers and consumers feel unfairly penalized, it's easy to see how the Collection Industry can become an easy target in a major Consumer Protection legislative sweep. Sadly, it is clear that lobbying efforts for the Industry have been weak and ineffectual. In all fairness to those whose task it was, it is unlikely that any voice for our industry would have the slightest impact on bureaucrats whose compassion would instinctively align with the Consumer who, by definition, will always be the "little guy". Industry vs. Little Guy - where would your sympathies lie?

What We Do

At this juncture, it is important for the Collection Industry to recognized that it is time to move beyond our identity crisis and begin the process of defining what we do that is positive for society. Here is a list of the obvious that may begin to articulate our role in good light and help us come to terms with who we are and what we do that is important.

Debt Settlement - We provide an opportunity for debtors to fulfill their moral and legal obligation, often for a fraction of what they owe. Done correctly, this is a tremendous help to people.
Customized Payment Plans - provide different options for discharging the debt, working with the Debtor on a program suits their budget and time frame.
Credit Repair - We can help the process of credit repair by reporting to the credit bureau that the debt 'satisfied', sometimes even by removing a layer of debt from the report. (The issuer will not do this so the original debt will remain.)
Dignity and Respect - the great majority of the collectors treat people with dignity and respect. In the current economy, patience and sympathy have been the prevailing sentiments in dealing with people, many of whom are in financial crisis for the first time in their lives, and respond with relief gratitude that there is a degree of understanding from an unexpected source .
Significant Employer- the Industry currently employs hundreds of thousands of people, reportedly 400,000 in 2009, (not to mention a significant number of attorneys)
Market for the Banks - We provide a market for Bank charge-offs which reduces their liability and helps them recoup some of the cost of loan defaults.
Help Maintain Cost of Services- Many costs, including Healthcare, would certainly increase incrementally relative to the increased risk associated with providing services on credit, without the Collection Industry.
Maintaining the Integrity of the Credit System - Most importantly the industry is an essential part of the credit cycle. Without it, debt would have to ultimately be forgiven, which would increase the risk of lending and therefore the cost of lending, which would be the death knell for our current credit system.

It is time to awaken people to the value of protecting and repairing our precious credit system. It is one of the critical components of healthy economic recovery and growth. While the "Wall Street Reform and Consumer Protection Act" has passed in concept, the details have yet to be forged so there is still time to break through the "you're either with us or against us" agency mindset and influence the process in a positive way. By presenting a unified front that is proactive in correcting misconceptions, in clarifying the larger picture perspective of the tremendous value we bring to country's financial infrastructure, and in helping to forcefully re-introduce the concept of "Consumer Obligation" into our vocabulary, the Collection Industry could still come out on top and establish a new level of credibility in the future.

[1] The other 7 are the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, The Office of Thrift Supervision, the National Credit Unions Administration, the Department of Transportation, and the Department of Agriculture.