Presented by:Karen Reddick

VP Business Development

Panelist:Cary Geil

Director of Collections

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Ask Your Legal Counsel

Always consult with your own legal counsel

to ensure you are following not only federal, but also state and local laws.

Legal Advise is tailored to the specific circumstances of each case.

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Critical TopicsCFPB/ UDAP

Collection Fees

Telephone Consumer Protection Act

Bankruptcy

Credit Bureau Reporting

Time Barred Debt

Choice of Law/Venue Selection

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Regulations to Comply With

Consumer Financial Protection Bureau FDCPA

Collection Cost Time Barred Debt Leaving Messages

Red Flag Rules

SCRA

FCRA

GLBA

TILA

Telephone Consumer Protection Act

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Consumer Financial Protection Bureau

Created by Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Independent bureau within Federal Reserve System, run by Director who is Presidential Appointee, confirmed by Senate.

Authority to issue rules for all financial institutions, including rules under Truth in Lending Act, Fair Debt Collection Practices Act, Equal Credit Opportunity and Real Estate Settlement Procedures Act.

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Consumer Financial Protection Bureau

Bureau has huge authority Rulemaking – Perhaps the most significant authority of the Bureau

Supervisory

Enforcement*

Student Loans are a top priority

CFPB has access to consumer complaints within the FTC Consumer Sentinel database (In the past only accessible through law enforcement agencies.)

Funded by the US Treasury-No Appropriations

No oversight

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Schools: In or Out?

Schools are “financial institutions” under federal law (Gramm Leach Bliley)

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The CFPB and YouConsumer Financial Protection Bureau is

very important to schools, servicersRegulates institutional loans, other private

loans, collection practices, contacts with students – and has great powers of enforcement

Director-Richard CordrayOmbudsman – Rohit Chopra – coordinating

with Dept of EducationCOHEAO is working closely with CFPB has

new regulations are being written

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CFPB Focus on Higher EdUDAPService ProvidersCollections and Collection Agencies

Complaint ProcessUpdating FDCPAFinancial Literacy

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UDAAP and the CFPBIt is unlawful to engage in any Unfair,

Deceptive, or Abusive Act or PracticesFDCPA makes it illegal for debt collectors to

engage in this activityConsumer Financial Protection Bureau

Has authority to protect consumers against UDAAP violations

Original creditor and debt collectors

Abusive Acts or PracticesAbusive Acts or Practices

Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

Take reasonable advantage of Lack of understanding of material risks, costs or

conditions Inability to protect his/her interests; or Reasonable reliance on a covered person to act in

his/her interests

Service ProvidersSupervision of Service Providers

Financial institutions under Bureau supervision may be held responsible for their contractors.

Bureau’s expects that supervised financial institutions have an effective process for managing the risks of service provider relationships.   

A service provider is defined in the Dodd-Frank Act as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.”

Institutions must ensure that business arrangements with service providers do not present unwarranted risks to consumers.”

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Collection Agency Focus By CFPBDodd-Frank Act requires supervision of

certain non-bank covered persons:All providers of private student loans‘‘larger participant[s] of a market for other

consumer financial products or services, as the Bureau defines by rule.”

Complaint database also launched for public complaints – both on student loans and collections in generalDefault problem is SL category

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Complaint Portals Bank account or service Credit card Credit reporting Debt collection  Money transfer Mortgage Student loan Vehicle or

consumer loan

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Complaint Portal Process1. Complaint submitted2. Review and route3. Company response4. Consumer review5.  Review and investigate6.  Analyze and report

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Complaint Process

The CFPB received nearly 2,900 private student loan complaints in the first year.

This is a relatively small number given that there are more than $150 billion in outstanding private student loans.

The vast majority of the complaints were related to loan servicing and loan modification issues.

Active duty service members and their families reported that they sometimes experience difficulty exercising their rights under the Service Members’ Civil Relief Act.

SolutionHave a written policy to resolve complaintsMonitor and request your Service Providers written policyDon’t let complaints escalate to the Attorney General or CFPBSign up to receive Debt Collection Complaints registered with

CFPB at http://www.consumerfinance.gov/complaint/

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Service Members Civil Relieve Act (SCRA)SCRA does not excuse the member from any legal

obligation, it simply delays itThe protection is not automatic, member must apply

for itProtection will only apply if the obligation was

entered into prior to active dutyProtection extends from first day of active duty

through 30-90 days after dischargeInterest rate may be reduced to flat rate of 6%The burden is on creditor to seek relief by proving

service member is not materially affected by service

Who Does SCRA Apply ToAll active members of the U.S. armed services All officers of the Public Health Service

detailed for duty with either the Army or NavyMembers in basic training or boot camp Members of the Reserves and National Guard

who are called to active duty for one of the following reasons:mobilized for federal serviceannual trainingmilitary schoolNational emergency for 30+ days

Fair Debt Collection Practices Act (FDCPA)

Established in 1977Legal protection from abusive debt

collection practicesTo promote fair debt collection Ensure an avenue for disputing and

obtaining validation of debt ensure the accuracy

Guidelines for debt collectorsWorks in junction with FCRA

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FDCPARequires debt collectors to treat debtors fairlyProhibits certain methods of debt collectionAddresses issue of proper and appropriate debt

collection practices and techniquesDoes not erase any legitimate consumer debt

owedConsumer protection actStrict liability statuteAllegations of improper and inappropriate

methods of collection may lead to filing of a lawsuit

Verification of DebtsIf debtor requests verification of debt,

collector must cease all collection activities until requested verification is mailed by debt collector to consumer

Dispute Process

Statement of Account (Showing Amount Due)Copy of Registration (Time/Date) and E-

signatureFinancial Disclosure Form (Agree to Terms)Copy of Invoice/BillNotes (Appeals, reason for loss of Financial

Aid)Proof of Grades receivedCopy of Withdrawal PolicyProm Note

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If debtor notifies in writing refusal to pay debt or wishes debt collector to cease further communication, debt collector shall not communicate further except:To advise that although the debt collector's further

efforts are being terminated, the debt still existsTo notify that debt collector or creditor may or will

invoke specified remedies that are ordinarily invoked by them

If debtor notifies or debt collector is aware that debtor is represented by an attorney, direct contact is prohibited unless the attorney specifies otherwise

Ceasing Communication

FDCPA-Collection CostsThe Fair Debt Collection Practices Act states that it is

a violation to collect any amount that is not “expressly authorized by the agreement creating the debt or permitted by law.” See 15 U.S.C. 1692f.

Further, state consumer protection statutes and unfair trade practices statutes may implicate creditors (schools) that are not compliant with state requirements regarding the addition of student paid fees.

Agencies and Schools demand compliance in the contracts that govern the relationship.

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Collection CostsCollection Costs – the mutually agreed upon

contract amount that the institution pays the collection agency for collecting accounts on the school’s behalf.

Institutionally Assessed Fees – The amount charged to a student subject to an agreement between the student and the school or the amount permitted by law (i.e. the Higher Education Act and Perkins Regulations)

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Perkins LoanFederal regulation supersedes state laws

restricting the assessment and collection of collection costs

Federal regulation allows reasonable collection costs 30% for first placement 40% for second placement and litigation placement

Despite federal regulation, state courts may still attempt to limit the amount of collection costs assessed to an account May request proof of costs and reasonableness

Collection Costs/Fees and Perkins

Federal & State Statutes

Federal:The Fair Debt Collection Practices Act states that it is a violation to collect any amount that is not “expressly authorized by the agreement creating the debt or permitted by law.” See 15 U.S.C. 1692f.

State: Follow which law is more restrictive

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Bradley v Franklin Collection Service, Inc. (2014)Eleventh Circuit rulingMedical debt where 30% collection cost/fee was addedAgreement said “I agree to pay all costs of collection

. . . and reasonable collection agency fees”Kojetin v CU Recovery, Inc. (2000) – Eighth Circuit

ruling Violation of FDCPA to add collection cost/fee based on

percentage of the principal balance Only entitled to actual cost of collection

Seeger v AFNI, Inc. (2008) – Seventh Circuit ruling Percentage based fee can be appropriate if the parties agree

to it in the contract

Collection Costs-Recent Case Law

Collection Costs/Fees – Recent Case law

Seeger continued Contractual language stated the following

“You agree to reimburse us the fees of any collection agency, which may be based on a percentage at a maximum of 33% of the debt, and all costs and expenses, including reasonable attorneys’ fees, we incur in such collection efforts.”

Bradley’s contract did not specify the collection agency fee to be charged FDCPA violated when added 30% fee

Future?

True or FalseCollection costs = the amount the student pays the agency

The federal regulations allow for collection costs on Perkins loans so it is okay to set up institutional debt the same way

Agreements have to be promissory notes

Notifying the student in collection letters that a fee will be added if the account is sent to an agency is sufficient

There is a “right” to be “made whole” on institutional debt

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More True or False

A handbook is sufficient for disclosing information

An electronic signatures counts and can be used as validation?

Notification via collection letters that a fee will be added if the account is sent to an agency is sufficient?

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TCPAThe Telephone Consumer Protection Act, 47 U.S.C.

§ 227, et seq.

Think about cell phones in 1991

Significant penalties

It is important to understand that the TCPA applies to all entities – not just collection agencies.

Need Consent (HELP)

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The use of predictive dialers to call cell phones.  Petition Filed

Clarification of the FCC rules, last updated in 2003, with some other changes in 2008 based on a court decision, regarding the use of auto-dialers to call cell phones.  

The issue is to clarify the FCC rules and guidance on what a restricted-use “audio dialer” is and to hopefully convince them to distinguish predictive dialers tailored and used just for permitted purposes (not telemarketing, e.g.) from auto-dialers that randomly dial numbers or dial from lists where there is no pre-established relationship with the consumer.

 

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TCPA-Telephone Consumer Protection Act

TCPA, FCC and FTCCOHEAO in Meetings with FCC Staff with TCPA groupFCC seeking to harmonize Telephone Consumer

Protection Act (TCPA) regs with FTC Telemarketing Sales RuleGood idea, but proposal affects non-telemarketing calls

Use of auto-dialers, cell phones, and obtaining consent from consumer the key issues here

FCC proposal calls for “express written consent” not only from new consumers (students), but also EXISTING CUSTOMERS for use of pre-recorded calls to cell phones

Definition of “auto-dialer” vs. “predictive-dialer” is concern under review by FCC now – Petitions seek clarification from Commission

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TCPAPresidents Deficit Reduction Plan (aka Job’s Bill)

Plans to amend the Communications Act of 1934 Allow the use of cell phones to contact debtors who owe

money to the governmentThe provision is expected to provide substantial increase in

collections

The Mobile Informational Call Act of 2011 (H.R. 3035)Bipartisan coalition (Rep Terry, R-NE and Rep Town, D-NY)Allows the use of predicative dialers in contact cell phones

were “existing business relationship exists”Modernizes the TCAP by exempting informational calls to

wireless phone from auto-dialer restrictionsClarifies the “prior express consent” requirement

(a) for the initiation of a call on behalf of entity with a person where an established business relationship exists (b) that is provided when person purchases a good or service

States’ Attorney general killed the bill35

TCPAFCC Committee Hearings

Reviewing whether to adopt express written consent for all autodialed or prerecorded calls. 

Commission adopts prior express written consent for autodialed or prerecorded telemarketing calls only.

The final rules do not address informational calls, meaning nothing has changed for the calls made by colleges and their 3rd party companies

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Bankruptcy-Current Law Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005 (BAPCA)

 

Expanded definition of student loans for purposes of section 523(a)(8) exception to discharge. Adds qualified educational loans as defined under section 221 of the Internal Revenue Code to those educational loans currently considered to be non-dischargeable.

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Automatic Stay ProvisionHalts all action by school to collect debtStarts when student/consumer filed

bankruptcyDischarge Injunction

Fresh startEducation Loans generally presumed non-

dischargeablePerkins LoanInstitutional and other education loans

Bankruptcy

Adversary ProceedingProper procedure to determine discharge abilityNeed to establish undue hardship

Proof of claimFile if there are assets in Chapter 7 and monitorFile in Chapter 13

Chapter 13 PlanRepayment plan, generally over five yearsReview and object if plan discharges education

related debts Espinosa Case (2010) – US Supreme Court

Bankruptcy

Tuition ReceivablePresumed non-dischargeable?Presumed non-discharge ability depends on

certain factorsBankruptcy court will need to recognize the

obligation as a loan Is there a written agreement? Is credit extended?

Make the decision easier for a court

Bankruptcy – Tuition Receivable

Withholding TranscriptsLikely viewed as violation of automatic stay provisionServes no purpose other than to compel repaymentOk to withhold after bankruptcy, as long as not

dischargedRegistration

Refusal to allow registration likely viewed as violation of automatic stay

If bankruptcy is pending, cannot force student to pay past-due debt before allowing them to register

However, can make student pay in full for the semester he/she is registering

Bankruptcy – Transcript and Registration

Bankruptcy Law Proposals in Congress

Current law: all education loans as defined by tax law are dischargeable in bankruptcy when there is undue hardship to debtor or dependentsRecent study: very few try to discharge, thinking

it’s impossible, but it’s not!Bills call for dropping undue hardship

requirement for private loans onlyGovernment loans would remain non-

dischargeable including from any “government units”

Make private loans dischargeable 42

Even More True or FalseYou can hold a transcript when a student is in

bankruptcy

You can require a student to pay cash up front if they have filed bankruptcy

Non federal student debt is non dischargeable

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Credit Bureau Reporting

The FACT Act Furnisher Rules were passed in 2010 by the federal banking agencies and the FTC and consist of:  Accuracy and Integrity Rule requires companies that

provide information to credit bureaus to establish written policies regarding the "accuracy and integrity" of information furnished to the credit bureaus.

Direct Dispute Rule allows consumers to take their disputes directly to the furnishers of credit report information rather than acting solely through a credit bureau.

 These latest rules impose major new duties for lenders,

servicers, collectors and other financial institutions that report, or "furnish," information to credit bureaus.

Statute of Limitations (SOL) What is it?

Are debt collectors bound by the statute of limitations when requesting payment on an outstanding debt?

Is the debt more or less recoverable once the SOL runs?

How can the creditor assist with the collection of moderate and older debts?

Default Dates SOL and Credit bureau reporting

When does SOL calculation begin Date of last payment Date of default Date payment became due

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The New View of SOL States and federal regulators are now using the statute of limitations to

make it increasingly difficult to collect older debt obligations.

This trend is, in my opinion, being driven by the purchase and collection of older debt that is completely unrelated to higher education. Nevertheless, this niche’ of the collection industry will be directly impacted.

These changes will require specific action to prevent a great deal of debt from becoming virtually uncollectable.

New Laws New Mexico North Carolina New York Wisconsin Mississippi California New York City

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Why Comply- Litigation Stats2007

4,372 FDCPA22 TCPA

20086,025 FDCPA16 TCPA

20099,135 FDCPA28 TCPA

201010,914 FDCPA234 TCPA

201110,400 FDCPA450 TCPA

201211,040 FDCPA1,034 TCPA

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201310,320 FDCPA1,332 TCPA

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In the event I default on this agreement and it becomes necessary to place this account for collection, I also agree to pay collection agency fees, which maybe based on a percentage at a maximum of 33%, and all costs and expenses, including reasonable attorney’s fees, that are incurred by the University in such collection efforts.

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As further part of this agreement I also understand, agree and authorize (Name of School) to use my social security number for internal and external credit reporting and collection purposes for all charges incurred against this account for the duration of my enrollment at (Name of School).

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All outstanding tuition account balances are considered qualified educational loans under I.R.C. 221 and are extended with the express understanding that future repayment shall be made to the university. I further understand that my acceptance of these terms represents my acknowledgement and acceptance of my tuition account balance qualifying as a qualified education loan under I.R.C. 221, and as such, its exemption from discharge under the federal bankruptcy code, 11 U.S.C. 523(a) (8).

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•If there is a dispute or problem with this agreement then the University will follow the law of the state of (Name of State)*

*This is irrelevant depending on if the state is Substantive or Procedural-will always honor the shortage one.

Pennsylvania is procedural. So if you have a contract in KY and SOL is 15 years. Debt incurred in KY but Student moves to PA where the SOL is 4 year and there is choice of law provision. The courts would follow the state of PA and SOL would be 4 years.

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I understand and agree that should I leave (Name of School) under any circumstance with a balance due, I hereby authorize (Name of School) and/or its agents, including attorneys and/or collection agencies, to contact me via cellular telephone and/or all forms of electronic technology (to include text messaging and e-mail) to collect such outstanding debt, unless I notify such party in writing to cease such communication.

MPN AUTHORIZATION: - I authorize the School, the Department, and their respective agents and contractors to contact me regarding my loan request or my loan(s), including repayment of my loan(s), at the current or any future number that I provide for my cellular phone or other wireless device using automated telephone dialing equipment or artificial or pre-recorded voice or text messages.

Understand where the industry is headed and better position your institution to maximize bad debt recovery

Review your policy regarding the critical topics:Collection FeesBankruptcy Telephone Consumer Protection ActCredit Bureau ReportingChoice of Law/Venue SelectionOthers?

Ensure student acknowledgments are not passive and clearly documented to avoid gaps

In Conclusion….

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COHEAO Priorities 2014Perkins

Preserve and Improve Perkins in Higher Education Act Reauthorization Campus Based Flex Program

Restore funding for loan cancellations for Perkins TCPA

Work on improvements to Telephone Consumer Protection Act enforcement

CFPBWork with CFPB on campus-related issues

Neg RegWork with ED on cash management

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Grass Roots EffortsWe must work to fund and extend the Perkins Loan

ProgramCOHEAO is working on new ideas to preserve the

programSupport appropriationsSupport Perkins Loan ProgramSee www.coheao.org for detailsBecome a member of COHEAOStay in touch with your congressional

representatives

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Karen Reddickkreddick@ncmstl.com

CFPBwww.consumerfinance.gov

COHEAOwww.coheao.org

ACAhttp://www.acainternational.org

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Contact Information

QUESTIONS?????

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