Debt Purchasing

Former Debt Buyer Sentenced to Six Years in Prison for Fraud

2009-11-17T07:51:34-07:00

A man who ran a debt buying company in Florida was sentenced Thursday to six years in federal prison for crimes connected with the sale of debt portfolios he did not own.

Steven Goldberg, of Goldberg & Associates in Boca Raton, was sentenced by U.S. District Judge Kenneth A. Marra to 71 months in federal prison, to be followed by three years of supervised release. In August, Goldberg pled guilty to eight counts of wire fraud and one count of mail fraud.

Goldberg sold debt portfolios he did not own, according to authorities. He would provide falsified evaluation files and sale files as well as falsified evidence that he owned the files. Goldberg would also send buyers “bogus wire transaction numbers and other bogus financial information,” according to a statement from the court.

Debt buyers lost more than $3.3 million due to his fraud. An investigation showed that Goldberg had defrauded many well-respected accounts receivable management companies over the past few years.

The investigation involved the U.S. Secret Service, the U.S. Postal Inspection Service and the Boca Raton Police Department. A Dallas debt buyer, NorAm Capital Holdings, Inc., initially alerted authorities to Goldberg’s tactics.

Dan Cofall, Co-Chairman of NorAm, told insideARM that two years ago, Goldberg sold his company a portfolio that Goldberg did not have a title to. The fraud was discovered after NorAm paid for the portfolio.

Goldberg refused to refund the money to NorAm. At that time, the company decided to conclude the purchase with the actual owner of the portfolio. NorAm also chose to aggressively pursue Goldberg, both civilly and criminally.



"We immediately contacted the proper authorities to get the ball rolling." said Cofall. "Our team included a former Secret Service agent and we were able to work directly with both the Boca Raton White Collar Crime Unit and the Secret Service. We were fortunate to work with the right law enforcement agencies that took this case very seriously.”

“It happened very quickly,” said Cofall. “We went from theft to sentence in less than two years.”

Although the federal criminal charges against Goldberg have been satisfied, there are still numerous civil cases pending against him. Cofall said that his firm is vigorously pursuing their claims against Goldberg, his company and other parties associated with these transactions. "There are others involved. We know who they are and we are relentless." said Cofall.

Cofall said that this is the type of case that should wake up the debt buying industry. The investigation uncovered many other debt buyers that had been defrauded by Goldberg, Cofall said he was surprised that they did not pursue Goldberg as aggressively as NorAM.

“There was only one other company represented at the sentencing hearing and our appearance made the difference between a short sentence and a much longer federal vacation,” he noted.

“Our industry does not do a good job of policing itself,” he said. “Our trade organizations should be significantly more vigilant when they screen both new and existing members for criminal backgrounds. Goldberg had prior convictions, including felonies.”

Cofall said that there are many things the industry can do to better protect itself from rogue elements, like publishing a list of any litigation that one member files against another member of the debt buying community and requiring background checks, including criminal, for people applying for new association membership as well as for renewals. Each member should complete a background questionnaire and that questionnaire should be vetted.

“Why are known, convicted felons allowed to be members in good standing in our industry?" asked Cofall.

Had Goldberg’s victims been aware of pending civil litigation against him by other debt purchasers, many of the losses could have been avoided, according to Cofall.

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NCO Group Narrows Net Loss to $24 million in Third Quarter

2009-11-16T08:19:33-07:00

Accounts receivable management and contact center giant NCO Group said Friday that it recorded a significant net loss in the third quarter of 2009, but it marked an improvement from the same quarter a year ago.

In a filing with the Securities and Exchange Commission (SEC), Horsham, Pa.-based NCO reported a net loss attributable to the company of $24.6 million, down from the $26.5 million loss a year ago.

But the company significantly reduced its net loss from operations to $1.8 million in the third quarter of 2009 from $19.6 million in Q3 2008. In the third quarter of 2008, the firm recorded a significant tax benefit in contrast with the tax liability in the third quarter of this year. NCO also reported income from operations of $31.9 million for the first nine months of 2009 compared to a loss from operations of $13.6 million in the same period in 2008.

Revenue in the quarter was down 1.9 percent to $373.6 million. Total revenue for the first nine months of 2009 was up 0.3 percent to $1.154 billion.

NCO said that its collection unit, called ARM, accounted for revenue of $306.9 million, down slightly from the year ago period. Revenue in the company’s Customer Relationship Management (CRM) unit was down 7.1 percent to $85.1 million. NCO’s debt buying arm – Portfolio Management – brought in $2.3 million. Portfolio Management recorded a $13.9 million impairment charge on purchased accounts in the third quarter of 2009.

The company said in the filing that “the decrease in ARM’s revenue was primarily attributable to a $6.7 million decrease in fees from collection services performed for Portfolio Management, and lower than expected overall collections, partially offset by increased volume from new and existing clients in both first-party (early stage) and contingent collections.”

NCO said that in the third quarter of 2009 it spent $15 million on debt portfolio purchases totaling $573 million in face value accounts, down from the $33.9 million it spent in the third quarter of 2008.

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Settlements, Payment Arrangements Becoming the Norm in ARM Industry

2009-11-13T08:13:00-07:00

Accounts receivable management companies are shifting their collection strategies to include more settlement offers and payment arrangements as debtors struggle through a recession that shows little sign of letting up on the American consumer.

In insideARM’s most recent Credit & Debt Collection Industry Confidence Survey, more than 72 percent of collection agency respondents said that they have tried “more payment arrangements” in the past six months in an effort to increase revenue. Nearly 68 percent of debt buyers responded in a similar way.

The Confidence Survey has been asking ARM companies how likely they are to modify collection strategy in the face of declining recoveries. And in the third quarter of 2009, collection agencies seemed very eager to try new approaches; more than 85 percent said that they were somewhat or very likely to modify collection strategies.

But for the first time, the Confidence Survey for Fall 2009 asked which specific strategies companies are employing.

“More Payment Arragements” was the most popular response by far to the question. But other strategies are also proving to be popular. Exactly 54 percent of collection agencies and 44.1 percent of debt buyers said that “More Settlement-in-Full Offers” were being extended to debtors. An additional 41.2 percent of debt buyers and 39.4 percent of collection agencies said that they were also trying lower SIF thresholds.

Interestingly, in a comment field attached to the question, one survey participant noted that their firm was “Allowing payment arrangements on Settlements.”

ARM firms also indicated that they were leaning on technology more in the downturn. When asked “Which of the following technologies are you considering to improve collection performance?” only 34 percent of collection agencies said that they were not adding technology.

The most popular technological enhancements among collection agencies were Business Analytics Solutions (38.8 percent) and Collection software system upgrades (37.3 percent); for debt buyers is was also Business Analytics Solutions (50 percent) and Collection software system upgrades (35.3 percent). Only 26.5 percent of debt buyers indicated they would not bring in new technology to help their collections.

For the complete results of the Fall 2009 Credit & Debt Collection Industry Confidence Survey, please visit http://www.insidearm.com/go/confidence-survey/fall09.

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ARM Firm EOS Group Receives

2009-11-11T08:02:32-07:00

Hamburg – For the fifth time in succession, Euler Hermes Rating GmbH has awarded an ‘A’ rating to EOS consolidated. This means that the agency regards the company’s credit standing as well above the average that prevails in the economy as a whole.

The crucial factors in this appraisal were the very high and sustainable earnings power, its strong market position in Germany and the high quality and efficiency of its transaction handling in normal business operations. The rating agency was also convinced by the company’s high internal refinancing potential and its very high level of financial flexibility. The rating report emphasized the long experience in debt purchasing using efficient analytical methods, the effective risk estimates and monitoring activities, and the successful debt collection methods used by EOS.

The agency’s auditors assessed the strategic orientation of EOS consolidated in the receivables management field as convincing and expect its rating to show a stable trend over the next twelve months. ‘This rating certifies that we are capable of meeting the current challenges of the market and that we are a reliable business partner even in a difficult global economic environment,’ says Justus Hecking-Veltman, Board Member and Chief Financial Officer at the EOS Group. ‘The rating also reflects our chances of growing both in Germany and abroad, and confirms that EOS’s strategy is on the right track,’ adds Mr Hecking-Veltman.

About the EOS Group
With over 4000 employees in more than 20 countries, the EOS Group, a member of the Otto Group, is one of the leading financial services companies in Europe. The over 40 operating companies in the group are active in the receivables management, marketing and risk information as well as payment services segments and look after some 20,000 clients around the world – from banks and insurance companies, the manufacturing industry and mail order segment to public utilities, telecommunications firms and IT companies. For further information see www.eos-solutions.com.

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Cavalry Portfolio Services Unveils New Online Payment Center

2009-11-10T08:55:33-07:00

PHOENIX, AZ - Customers are now able to go online to the Cavalry Portfolio Services website to manage their accounts. With a few keystrokes and mouse clicks, customers can easily manage any of the following account services directly:

View account information
Update their profile
Make an offer to resolve their account
Set up a customized payment plan to resolve their account
Make a payment online

Cavalry Portfolio Services buys consumer debt portfolios from banks, credit card companies, consumer finance companies, auto finance companies and other financial institutions.

"At Cavalry, our focus is helping customers to create affordable resolutions," said Andrew Zaro, Chairman of Cavalry Portfolio Services. "We recognize that financial issues affect each person differently, so we built this website to provide our customers with more flexibility in managing their accounts."

Cavalry works with each customer individually to resolve debt issues, Zaro added.

"Most people get into debt because of a major change in their lives, such as a job loss, divorce or illness," he went on to say. "At Cavalry, we understand that. People's situations also change and improve over time. Our goal is to work with you, one-on-one, to find a financial solution."

For more information, visit www.cavalryportfolioservices.com or stay connected with us online at Flickr, Twitter, LinkedIn and Facebook. Customers with questions about their accounts can also call Cavalry at 866-434-2996.

About Cavalry Portfolio Services LLC:
Cavalry Portfolio Services collects distressed consumer debt portfolios from banks, credit card finance companies and consumer finance companies, as well as other industries including automotive, utilities and telecom. The firm has offices in Hawthorne, New York; Phoenix, Arizona; Tulsa, Okla.; St. Paul, Minn,; and Buffalo, New York. Its affiliate companies include Cavalry Investments, Cavalry SPV I and Cavalry SPV II.

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Debt Collection Agencies More Optimistic About Future

2009-11-10T08:55:33-07:00

U.S. collection agencies reported an improved outlook for performance in the next six to 12 months and the majority are planning to hire, according to the latest results from insideARM’s quarterly Credit & Debt Collection Industry Confidence Survey.

The Fall 2009 survey, conducted October 13 – 23, showed the highest reading ever for anticipated performance 12 months out. When asked to rate their company’s expected performance in 12 months on a scale of 1 to 5 – with 5 being the best score – more than 34 percent of collection agency respondents answered with a rating of 5, the highest level ever recorded in the survey. The average of responses on the question, 4.05, was also an all-time high.

View all data from collection agency respondents

Other accounts receivable management companies shared the collection agencies’ enthusiasm. The average expected performance rating for collection law firms was higher than agencies at 4.06, while debt buyers were not far behind at 3.94.

ARM companies also indicated that they were ready to expand payrolls en masse. More than 55 percent of collection agency respondents expect their staffs to be larger six months from now, an all-time high. Only 11 percent of agencies anticipate laying off workers in the near term, an all-time low.

The positive outlook drove the new ARM Confidence Index reading to 63.1, the second-highest level recorded.

The ARM Confidence Index, launched for the Fall 2009 survey, uses responses from the quarterly Confidence Survey to create a snapshot of how ARM firms see financial performance in the next six months, based on current conditions. The Index provides a measure of industry confidence on a scale of 0 to 100 and is calculated using data from select questions in the survry, including prior quarter performance rating, current performance rating, future performance expectations, and anticipated staffing moves.

The Fall 2009 Index reading of 63.1 was second only to the Fall 2008 reading of 65.5.

Although the readings in the Fall of 2008 and 2009 were similar, they were reached in very different ways. The 2008 survey was conducted as the financial crisis was sending Wall Street into a tailspin and Congress was passing the bank bailout. Confidence was very low. But unemployment had not yet snowballed, so ARM collection performance was average to above average, keeping the reading inflated.

In contrast, ARM company confidence was at an all-time high in the Fall 2009 survey. Performance, however, was a drag on the Index reading, as unemployment reached decades-long highs. To underscore the challenges facing ARM firms in the current environment, more than 72 percent of collection agency respondents reported using more payment arrangements to increase collection performance in the third quarter of 2009.

To view the full results of the Fall 2009 Credit & Debt Collection Industry Confidence Survey, including responses from creditors and vendors to the ARM industry, please visit http://www.insidearm.com/go/confidence-survey/fall09.

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ACA Defends Self-Regulatory Proposal for Debt Collection Industry

2009-11-09T08:27:54-07:00

Association leaders at ACA International’s Fall Forum last week used the final day of the meeting to further explain their idea to propose a self-regulatory structure for the accounts receivable management industry.

Much of ACA’s membership was wondering why the group had pulled back a draft proposal to give the industry the power to self-police (“ACA International Board Halts Plans for Self Regulation in Collection Industry,” Nov. 5).

Rozanne Anderson, executive vice president and general counsel for ACA International, said Friday that the proposal, which was expected to be submitted but never formally was, had been pulled back largely to thoroughly vet it across the organization. Also, the proposal itself wouldn’t be heard until full markup of legislation to create the Consumer Financial Protection Agency (CFPA), a proposal that is expected to be introduced before the Thanksgiving break by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.

ACA International had hoped that it could convince lawmakers that the debt collection industry needed to be “carved out” of many of the requirements of CFPA, like auto companies and several others types of consumer credit organizations. The organization wanted to propose self-regulation as an alternative to government rules under the CFPA.

But at the close of a meeting between Frank and ACA International in early October, he indicated there would be no carve out for the collection and asset purchasing industry and he would consider introducing proposed language creating a self-regulatory structure for the collection and asset purchasing industry as a floor amendment.

According to a letter from ACA president Karolyn Rubin to membership, the draft amendments are presently under review by the group’s legislative council and therefore a final draft had not been submitted to Frank’s attention.

The plan would have included industry-operated state licensing and registration for agencies and collectors, and called for an industry education program run by ACA International.

“Self regulation is by definition a voluntary initiative or program created by a trade group or private industry to control its members or itself. It is NOT a regulatory scheme driven by, run, mandated or operated by a governmental entity,” Rubin explained in her letter. “The two motions passed by the board in July specifically contemplated self regulation initiated, created, designed and funded by the association or the industry at large and did not address regulation or legislation passed into law by either the federal government or state governmental bodies.”

In July, ACA board members gave its executive committee the power to study and, if feasible, draw up a plan for a self-regulatory structure, complete with a nationwide debt collector registry and dispute resolution program. The idea itself came about after ACA board members learned of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the SAFE Act), which requires all mortgage loan originators, regardless of the type of entity they are employed by, to be either state-licensed or federally-registered. All mortgage loan originators must be licensed or registered through the expanded Nationwide Mortgage Licensing System and Registry. Under the SAFE Act, all states must implement a mortgage loan originator licensing process that meets certain minimum standards and must license loan originators through the Nationwide Mortgage Licensing System (NMLS). NMLS is owned and operated by the State Regulatory Registry LLC (SRR), a wholly owned subsidiary of the Conference of State Bank Supervisors.

The idea was to pattern something somewhat after SAFE with the idea that it would hold off the government from imposing its own rules, with the philosophy that self-regulation would be better than government regulation.

The most recent draft of ACA’s proposal, for Secure and Fair Enforcement for Debt Collection of 2009, says:

“In order to increase uniformity, reduce regulatory burden, enhance consumer protection, and improve the debt collection industry, the sates, through the North American Collection Agency Regulatory Association and the Conference of State Bank Supervisors, are hereby encouraged to establish a Nationwide Debt Collector Licensing
System and Registry for the debt collection industry.”

According to ACA International, the proposal, as currently drafted, is designed to:

Provide uniform license applications and reporting requirements for companies operating as State-licensed debt collectors.
Provide uniform registration applications and reporting requirements for individual State-registered debt collectors.
Provide a comprehensive licensing, registration and supervisory database.
Aggregate and improve the flow of information to and between regulators.
Provide increased accountability and tracking of debt collectors.
Streamline the licensing and registration process and reduces the regulatory burden.
Enhance consumer protections and supports improvement of the debt collection industry.
Provide consumers with easily accessible information, offered at no charge, utilizing electronic media, including the Internet, regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, debt collectors.
Facilitate responsible behavior in the debt collection industry and provide comprehensive training and examination requirements related to debt collection.
Facilitate the collection, disbursement and resolution of consumer complaints on behalf of state and federal debt collection regulators through a uniform, nationwide system of adjudication

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Greenfish Fund Purchases Another Large Medical Debt Portfolio

2009-11-06T08:26:40-07:00

PHILADELPHIA—Greenfish Fund II, LP, a leading buyer of healthcare receivables, announced today that it successfully completed the acquisition of another portfolio of accounts receivable from a large non-profit hospital system. The cumulative face value of accounts purchased since the inception of the first Greenfish fund in early 2008 now exceeds $950 million. Greenfish expects to surpass the important $1 billion milestone by the end of 2009.

Commenting on the purchase, Greenfish Fund II 's Managing Director, Eric Raymond, said, “Hospitals are facing severe margin contraction as a result of declining reimbursement levels and increasing self-pay and insurance-related bad debt. Recently enacted Medicare and Medicaid audits create enormous administrative cost and threaten even to rescind past reimbursement. In purchasing old receivables, which have typically already been written-off, Greenfish provides hospitals with much-needed immediate cash for an otherwise dormant asset. A meaningful trend we are seeing is that hospitals are now willing to sell accounts receivable much earlier in the cycle than in the past.”

About Greenfish Fund II, LP
Greenfish and its predecessors have been active buyers of healthcare-related receivables since 2006. Capital deployed to purchase accounts has grown by double digits every year and is expected to increase again—by 100% or more—in 2010.

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Debt Purchasing Takes Center Stage at ACA International Fall Forum

2009-11-06T08:13:41-07:00

The debt buying and selling industry has undergone significant changes in the last year as a result of the economy, credit crunch and the regulatory landscape, all of which were touched upon Thursday at ACA International’s Fall Forum in Chicago.

Today’s asset purchase and recovery management business is quite different than it was when we entered it, noted Steve Leckerman, executive vice president and chief operating officer of NCO Financial Systems, Inc.

Only 20 years ago, the average primary fees were in the low 30 percent range; the secondary fees consistently were 50 percent. Recovery percentages were in the mid-to upper 30 percent range and the secondary recoveries averaged about 6 percent, according to Leckerman.

“Average balances at placement were around $400 and insurance recovery could make up more than 60 percent of the dollars collected for clients in primary collections,” Leckerman said.

The industry itself had less focus on compliance; more volume, higher commissions and higher liquidations. More clients were selling and more agencies were in the network receiving business. Money was available for the consumer to borrow.

Debt buying was a robust segment of the business with willing buyers and willing sellers. Both large and small debt buyers did well.

Between 2005 and 2007, the collection industry was flat even though consumer debt and delinquencies had grown to unprecedented levels.

“There’s a perfect storm going on right now,” Leckerman said, pointing to the debt, delinquencies, recession, reduced credit availability, low consumer confidence and the complex regulatory environment.

“If you do business with large banks, utility companies or other large firms, they are looking to cut costs; health care is fearful of rules changing,” Leckerman said. “You’re working with more middle-class debtors. They’re more sophisticated consumers, so they will file more complaints. We have attorney creditors who are like regular customers.”

Competition is fierce in this type of environment, Leckerman said. “In today’s environment, an agency needs to deliver consistent best performance. Second is not good enough. You have to be able to adapt to clients’ ever increasing demand for data. They want performance metrics down to metrics for the employees.”

Leckerman also encouraged the audience to protect their clients’ brands and to seek to be an industry leader.

To succeed in the industry today, Leckerman said, a firm needs to have a winning attitude; accountability at every level; the right strategy; flawless execution, even on “the small stuff;” face time with regulations and have a self-regulation initiative.



Valuation and Divesting

Among the common threads of many of the deals so far this year, according to Brian Greenberg, managing director of Greenberg Advisors, LLC, is that more distressed companies are seeking liquidity and debt buyers are seeking debt/equity funding partners.

Greenberg added that investors are seeking portfolios offering growth of at least 15 percent annually and similar performance in terms of profit margins. But the investors won’t take the buyers word for past performance, investors want substantive proof.

Investors are also interested in business partners that offer a niche focus or some type of differentiation from other potential acquisitions. An excellent, tenured management team, efficient technology, good analytics and “sticky” clients are other attributes investors are seeking.

“Due diligence is more intensive today,” added Robert Castle, managing director, investment banking, for Northland Securities, Inc. “Check with your advisors [before a transaction]. There is no such thing as being over-prepared.”

As compliance and regulation continue to become bigger factors and consume more of a firm’s resources, it will become increasingly difficult for small and mid-sized companies to compete, Greenberg and Castle added. One factor that could affect the timing of some deals in the next five quarters is the change in capital gains taxes, which they expect will take effect after 2010.

Debt Buyer Licensing

Companies making acquisitions should closely examine state laws, particularly if a transaction brings them into new locations, advised Valerie Hayes, ACA International vice president for legal compliance and government affairs.

Each state has its own rules for the licensure of debt purchasers (there are a couple without specific rules), Hayes said. Among these rules is the actual definition of a debt purchaser.

“Some states differentiate between active and passive debt purchasers,” Hayes added. “You need to be aware of the guidance provided by state regulators in interpreting licensing statutes.”

For example, in Connecticut, state law prohibits “consumer collection agencies from purchasing or receiving assignments of claims for the purpose of collection or to institute suit.”

Loss Prevention Techniques

One of the biggest factors in avoiding unexpected losses in debt purchase transactions is to use carefully drafted contracts, said Hayes and Janis St. Martin, administrative vice president for the Collector’s Insurance Agency, Inc., a subsidiary of ACA International.

In reviewing these contracts, firms should seek legal assistance and conduct thorough due diligence, Hayes and St. Martin advised, recommending that thorough due diligence firms review contracts executed by others.

They also recommended that debt buyers and sellers pay particular attention to the hold-harmless clause and the liability assumed or transferred in the contract. Debt owners are routinely named in lawsuits against collection agencies.

Collectors Insurance Agency offers liability insurance for contractual liability. Errors and omissions insurance can also mitigate some of the risk in debt transactions.

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Lowell Group Tops Charts in OC&C Credit Management and Debt Collection Index

2009-11-06T08:13:41-07:00

Leeds-based debt buyer Lowell Group has come top of the charts for the second year running in the OC&C Credit Management and Debt Collection Index.

Lowell scored 63 points in the 2009 index, three less than last year, just beating hybrid Capquest, which rose from eighth to second with 62 points. The annual index, compiled by strategy consultancy OC&C and published exclusively in Credit Today, uses quantitative and qualitative measures to rank credit management and debt collection companies in the UK and Europe.

This year the index reflected a turbulent year in the industry, with dramatic alterations in many of the scores compared with 2008. However, one of the report’s author’s – OC&C managing partner David Hosein – said the credit crunch was no excuse for poor performance. “The writing was on the wall for people who had not improved their businesses before,” he said.

Last year OC&C predicted that Lowell’s clear strategy of focusing on low balance UK debts would be an advantage in a downturn and it has enjoyed “stellar growth and financial performance” since. The low balance focus means it has been less susceptible to declines in settlements and its arrangements are also holding up. This year it has also acquired trace business J2, allowing it to hold onto another strategic advantage.

Capquest, meanwhile, is the index’s rising star. Operationally excellent, it has mastered onshore and offshore capabilities with a South African call centre, and has a strong management team. It covers all elements of the loan lifecycle and has entered the mortgage collections market as well as being an early adopter of compliance and security standards. Its challenge is now to manage its diversity, said OC&C.

The Lewis Group, another debt buyer, came third in the index from thirteenth last year – praised for its range of techniques and size as well as top line growth. Parent company Cattles may have struggled but this means it is less likely to be dependent on the parent, said OC&C.

Following Cattles, Lindorff scored 49 points and moved up the index one place to fourth. The European giant’s strategy “goes beyond hybrid” said OC&C, with scale, size and a good management team. Operationally successful in many countries, it is a rarity in the purchase market. In fifth place is Cabot Financial, dropping from 61 points and fourth place to 49 points in 2009. OC&C said the size and scale of the debt purchaser has kept it in the top five but believes it to be on a downward trajectory and facing numerous challenges.

Also praised by the index authors as “rock steady ships” are debt collection agency BCW Group, bailiffs Equita and debt solutions provider Invocas. However, debt buyers 1st Credit and Aktiv Kapital suffered, plummeting from joint second positions last year. For the full index visit http://www.credittoday.co.uk/filestore/homePDF/CT_Oct09_occ2.pdf

The index is not intended to be used as an investment guide or as a way of identifying businesses that will fail.

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ACA International Board Halts Plans for Self Regulation in Collection Industry

2009-11-05T03:00:57-07:00

ACA International’s Board of Directors moved quickly Wednesday to halt proposed legislation that sought to create a self-regulation structure for the debt collection and purchasing industry after complaints from some of the board members.

The plan would have included federal mandates for state licensing and registration for agencies and collectors, and called for an industry education program run by ACA International.

Some board members told insideARM that ACA’s executive committee submitted the proposal in late September to Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, as an amendment to legislation that would create the Consumer Financial Protection Agency (CFPA). Sources said Frank could have introduced the proposal within two weeks.

In July, ACA board members gave its executive committee the power to study and, if feasible, draw up a plan for a self-regulatory structure, complete with a nationwide debt collector registry and dispute resolution program.

But during a special meeting Wednesday of the board at ACA’s annual Fall Forum Conference in Chicago, directors voted to take away that authority. The board also directed the executive committee to withdraw, in writing and within 24 hours of the meeting’s end, its amendment proposal, and confirm to all board members the proposal’s withdrawal to Rep. Frank and other political bodies by Friday.

ACA National Board of Director member Jerry Greenblatt told insideARM he was “very happy” with the outcome of the vote. “What’s happened with the passage of this motion is that the decision making within ACA is slowly being given back to ACA members.” He added that the vote to withdraw the proposal “is a great victory for the members of the association, especially the small and mid-size agencies.”

ACA spokesman John Nemo told insideARM that the association will continue to study the issue while incorporating and addressing the concerns of the membership.

“We are a member driven organization. We listen to our membership,” Nemo said. “There was no intent to try to deceive anyone or do anything behind the scenes. We understand that this is an incredibly sensitive and important issue, perhaps the biggest one since the Fair Debt Collection Practices Act (FDCPA) passed, and we want to make sure we do as good a job as possible of being transparent about the process and making sure our board of directors and our membership at large are informed and able to give their input.”

ACA’s actions regarding a self regulation program raised questions within its membership and in the broader accounts receivable management industry.

Emil Hartleb, executive director of Commercial Collection Agency Association, told insideARM that ACA’s approach to self regulation was “fraught with danger for the industry.”

“Anytime you look at licensing or registration, there are unintended consequences that will come out. We don’t need more licensing. What we need is hard enforcement against rogue agencies who are committing these atrocities,” Hartleb said.

David Goch, legislative counsel for the Commercial Law League of America told inside ARM he was “surprised” to learn about a proposal by ACA to apparently legislatively create a debt collection industry licensing body.

Lloyd Dix, vice president and general counsel of Union Adjustment Co. in Burbank, Calif., said ACA’s amendment proposal has some California Association of Collectors (CAC) members considering renewing its motion to amend its bylaws requiring CAC members to also be ACA members (“California Association of Collectors Votes to Stand Pat on ACA Membership Ties,” Sept. 25). Dix is also the chairman of the Legislative Council for the CAC.

Days before the meeting and vote, Rubin attempted to explain the executive committee’s action in a letter to the ACA Board of Directors.

In her letter, Rubin said ACA submitted the proposal, modeled after the SAFE Act for the mortgage brokerage industry, after a failed attempt to get Rep. Frank to include an exemption of the debt collection and asset purchase industry from CFPA oversight in legislation to create the new regulatory agency.

“He indicated there would be no carve out for the collection and asset purchasing industry and he would consider introducing the SAFE Act amendments for the collection and asset purchasing industry as a floor amendment,” Rubin wrote of ACA’s meeting with Frank.

Critics of the proposal, however, said it would drastically change the debt collection industry and was potentially more damaging than governance by the CFPA because on the surface, the proposal appears to require collectors and asset purchasers to obtain a license in each state they conduct business.

Some key elements of ACA’s proposal included a call for:

All agencies and asset purchases to be licensed and registered by their state or by the CFPA if no state licensing and registration program exists one year of the legislation is passed.
ACA International to be the sole provider of all training materials associated with 20 hours of mandated initial education required to be licensed, under the scheme the amendment proposes and 8 hours of education necessary for annual renewals
Every collection agency must be licensed by the state as a debt collector before engaging in the collection of debt
Every individual debt collector must work for a state-licensed debt collector and must be individually registered by the state as a debt collector within 90-days of employment
The proposal also called for each collector to be subject to criminal background checks, finger printings by the Federal Bureau of Investigations and criminal background checks
Establishment of national licensing for states which do not adopt their own state licensing programs, with no preemption of state laws, thus adding an additional level of bureaucracy.

Greenblatt, who is also President-elect of the CAC, called the proposal “a monumental detriment to small and mid-sized debt collection agencies because of the additional costs and burden, and the monopoly that ACA attempted to mandate through federal legislation on education.”

Dix said the resolution program proposed also did not preempt any state or federal legal actions or bar any judicial remedies. “It was quite a blow when we saw it,” Dix said. “We had no idea it was coming.”