Second in a Three Part Series on First Party Outsourcing

Approximately two weeks ago I wrote about the 986 words that have guided the First Party Outsourcing Industry for the past 15 years. In that article I referenced a May 1, 2000 FTC opinion letter to Richard deMayo, then the President and Chief Executive Officer of TSYS Total Debt Management, Inc.

Shortly after I published that article I had the opportunity to speak with Mr. deMayo. Always the gentleman, Richard politely reminded me that there was a second, longer opinion letter to him from the Federal Trade Commision (FTC). That second letter was dated May 23, 2002.

Two years after the initial opinion letter the FTC indicated that “after discussion with members of the collection industry and further consideration” they decided that the earlier opinion should be “withdrawn” and “replaced” by the second letter.

That second opinion letter consists of 1,517 words. So I stand corrected with respect to the title – and some of the content – of my original post in this series.

The revised letter significantly altered two sections of the May 2000 letter:

  1. The discussion concerning when an account goes into default
  2. The discussion concerning when a collection agency’s employees become the creditor’s de facto employees

For both of these two issues the FTC went into much more detail on their thought process in the second letter than in the original. Key elements from both letters are consistent, but the second letter provides additional color, analysis, and examples.

For example, in the discussion on when an account goes into “default,” the FTC states:

“We believe that, in the absence of a contractual definition or conclusive state or federal law, a creditor’s reasonable, written guidelines may be used to determine when an account is “in default.” But, the opinion letter warns: “We would not consider a set of guidelines reasonable if, under those guidelines, the same account were deemed in default for one purpose, such as determining whether the creditor may accelerate the loan, but not in default for purposes of determining whether a third-party collector is a “debt collector” under the FDCPA.

In the discussion on de facto employees the second letter goes much deeper than the first in defining when a collection agency employee would be considered a de facto employee of the creditor:

“…….collection agency employees who are treated essentially the same as creditor employees. The more that agency employees are treated like creditor employees, the more likely it is that we would deem them de facto employees. Whether agency employees — working on the creditor’s premises or on the agency’s premises — are treated enough like creditor employees to become de facto employees of the creditor will depend on the degree of control and supervision exercised by the creditor over the agency employees’ collection activity, and how similar that control and supervision is to that exercised by the creditor over its own employees. Relevant facts will include, for example, whether the creditor directly supervises and monitors the collection activities of the agency employees and, if so, how that supervision and monitoring is carried out; whether the creditor trains the agency employees; and whether the agency employees are subject to the same rules, procedures, and disciplinary actions that govern the collection activities of creditor employees.”

These two opinion letters remain the only guidance from a regulatory body on HOW a collection agency may work in a first party capacity. 986 words or 1517 words; the guidance is minimal.

The question for the future is whether the CFPB will provide guidance on first party outsourcing in their upcoming rulemaking.


Editor’s Note: insideARM is scheduled to have an in person meeting with Mr. deMayo later this month.  Portions of Q&A from that meeting will be published shortly thereafter in our 3rd Installment of “Focus on First Party Outsourcing”.

Also of note is that insideARM is hosting a first-ever conference dedicated entirely to the topic of First Party Outsourcing on October 13-14, just outside Minneapolis, MN. The early registration deadline is August 14.

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