ED’s Decision on Debt Collection Contract Terminations is Hasty and Will Have Dire Consequences

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Mike Ginsberg

Mike Ginsberg

As if the U.S. Department of Education’s private collection agency (PCA) contract procurement process hasn’t been outrageous enough already, Friday’s afterhours announcement that it has terminated its relationship with five of its most prominent debt collection agencies puts it completely over the top.

Online reports from the Huffington Post and other outlets say that certain PCAs were providing inaccurate information and misleading distressed borrowers at “unacceptably high rates.”  The reports went on that ED would transfer accounts from the implicated agencies to other contracted agencies, and it would officially terminate its relationship with the cited agencies once all accounts have been moved over.  If the procurement process is any indication, this transfer will not unfold quickly.

However, the damage is already done in the marketplace for these agencies before they have any chance to appeal the allegations levied against them.  This is appalling.  I believe that ED is hastily taking action because of intense scrutiny by other federal agencies and consumer advocacy groups with little regard for the collection companies it is severely impacting.

It comes as no surprise that the ED contract is under pressure when you consider escalating student-borrowing levels – with amounts exceeding $1.1 trillion – and the number of borrowers in default now exceeding 7 million and rapidly increasing. Additionally, nearly 90 percent of student loans are covered by ED.

KGC-blog-3-2-15-student-loan-market

The economic consequences of ED’s actions will be considerable.  Republican Congressman Chris Collins from Western NY already went on the offensive to save hundreds of jobs that could be potentially lost in his jurisdiction as a result of these events, saying in a news release on Friday, ‘‘The lack of transparency by the Department of Education embodies what we have come to expect from the Obama Administration and demonstrates a lack of concern for hardworking western New Yorkers.’’

Let the political mudslinging begin.

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Posted in ARM in Focus, Department of Education Collections, Opinion, Student Loan Collections .

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  • avatar Joann Needleman says:

    Well put Mike. There are no statistics on the amount of complaints or whether these companies did anything wrong other than ask for payment on legitimately owed debts. I am sure the promissory notes on these loans called for an increase in the interest rate upon default.

    I wonder is the CFPB going to investigate the ED? Should the ED expect a CID? Shouldn’t the ED be on the hook for its service providers like every other originator? Isn’t the government’s failure to supervise a UDAAP?

    The hypocrisy is overwhelming.

  • avatar Raymond says:

    Could not agree more with Mike’s opinion. Pulling the termination trigger without any investigation on the merits of the case is wrong. Collection agencies that try to do things right are leveled by the press and consumer groups who do not take any time to reach out to the agency management and discuss. Pulling accounts and redistributing will effect the receiving agencies and the borrowers while the agencies effected, including their employees, will suffer the brunt. Bad all around. No trial, no jury, no chance of rebuttal or findings of fact. What ever happened to trust, whatever has happened to honor, whatever has happened to best effort……GONE!

  • avatar Connie Hartmann says:

    InsideArm’s industry cheerleading is what’s gotten us here in the first place. Lying to our kids about their right to reinstate and rehabilitate their student loans is not only dishonest, but it hurts all of us who want our kids to get an education without being hijacked by student loan collectors who want to profit from it. It’s Un-American. I seriously doubt that ED took this action “hastily” or without serious consideration. This has been brewing for years. We all need to point the finger of blame directly at the agencies punished and not at the government who is trying to enforce the law as written. There will be more business for all of us who choose to follow the law, to avoid the FDCPA-lawyers who prey on every little mistake we might make, and to do the right thing.

    What has happened to our industry when we blame the government for simply following the law? Our industry should stand united against any collectors who brazenly misrepresent a borrower’s right in order to profit for themselves. What kind of people are we as debt collectors if we criticize our government for doing the right thing in protecting debtors who have been repeatedly lied to by our competitors?

    Here’s a quote from the ED.GOV press release: “In its review, the Department found that agents of the companies made materially inaccurate representations to borrowers about the loan rehabilitation program, which is an option that can create benefits to defaulted borrowers after they have made nine on-time payments in a period of 10 months. The five private collection agencies … were found to have given inaccurate information at unacceptably high rates about these benefits. In particular, these agencies gave borrowers misleading information about the benefits to the borrowers’ credit report and about the waiver of certain collection fees.” Have we forgotten what were all about? Leveling the playing field for those who would otherwise be competitively disadvantaged by those unscrupulous collectors who won’t play by the rules: “It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.”

    Let’s get it together and stop making excuses for the bad actors in our industry. Their conduct is a betrayal of the trust our government has placed in all of us who collect student loans. It makes all of us look bad when we are not. Stop defending the bad conduct. Condemn it for what it is. Redistribute these lucrative student loan portfolios to those of us who will follow the law and will collect the debt that’s owed our country. That’s the American Way and the patriotic thing to do. Enough of the drama and excusemaking for those bad apples who hurt all of us.

  • avatar Julia Rose says:

    I have worked at 2 different agencies on the Ed Contract for 15 years. Neither of them are any of the fired agencies.
    The Department of Ed has stepped up the monitoring of our calls greatly. The agencies that were fired thought that they were bullet proof because of the revenue they generated regularly. Ed has moved way way over into almost a customer service based collections and have made it much easier for the defaulted borrowers to rehabilitate their loans. The only reason those agencies felt the need to mislead the borrowers was so they could stay on top which got them better placements. I’m glad they were caught. I hope they catch any of them. I sucks to play by the rules and watch cheaters prosper.

  • avatar Shannon says:

    The problem here is not the increased scrutiny, which pales in comparison to what is now commonplace operating in the bank world. The problem here is that this is a politically motivated decision that was made in the dark of night, so to speak. Audits provided to at least one of these agencies by one part of the DOE revealed no indication of problems and performance was highly rated. The review by the FSA wasn’t even made available for appeal before the decision was made. And, the issues cited are easily corrected by increased guidance and rigorous training.

  • To say that any of these 5 companies are bad actors is a stretch without the facts, which at this time I would guess these 5 agencies do not even have that information let alone any posting over reaching comments. Given the size and importance of this contract do you really think that any company would put it in jeopardy? Do you think that if they were notified of any non-conformities or issues that these companies would not have jumped on a corrective action and ensured the Department was comfortable with the change of course. It would be great to know if the Department reviewed X number of their calls and what exactly is a “high rate.” These companies probably have hundreds of thousands of consumer calls and communications with consumers and it would be great to know if the Department even reviewed a 100 calls in a given month let alone reviewed 50% of their consumer communications. Before anyone passes judgment, I would get the facts before making assumptions or quoting an ambiguous comment from a politician. I served my country for 8 years in the armed forces and always have had great pride for this nation but on Friday that announcement only reduced my faith in our “system” and was a sad for this country and for its citizens

  • avatar SCOTT says:

    Those that have actively participated in the transformation of our industry over these last 3-5 years clearly understand that at the end of the day the obligation of compliance ultimately falls on each individual company. Some clients have tolerated the fact that their vendors need specific guidance and time to catch up, but most have not. There are countless examples of agencies losing longstanding private contracts for compliance concerns/infractions, and this decision by ED is no different. It really boils down to the fact that you either make the substantial investment to self-regulate your business in a proactive manner to create “internal scrutiny” or you depend on outside forces to play this role. When you depend on clients to have leniency and compassion when specific infractions are uncovered, it’s just a matter time before your terminated, fined or forced out of business. It should be clear to all of us how important proactive self-regulation is given the unprecedented regulatory and legal scrutiny that we have all been thrust into. ED appears to be catching up with private industry; this train has been coming down the tracks for some time. The positive message that this sends to the general public, politicians, regulators and the CFPB is that ED is taking measurable steps to play by the rules, and for those that don’t, there are severe consequences.

  • avatar LOUELLA JONES says:

    I’ve worked for one of the companies and there were alot of fraudulent going on. People (collectors) faxing in there own letters and the Operation manager tried to get another manager to fill out the rehab letters so the company can get credit. They gave us the script and we read it. Stating that we had to read it word by word and if we don’t we would be term or written up. Some collectors be telling the debtors that it will be removed off your credit, given them the fee amount that will be waived, the loan will be reinstated so they can go back to school, telling them they would need to put a certain amount down etc…..so don’t try to defend what is wrong !!! Go to the source which are upper management that are given the collectors the scripts.

  • avatar Kacee Grigsby says:

    I agree with Connie, what is this world coming to? Are these collection agencies in it for the money, giving themselves bonuses that they think they so richly deserve? They’ve taken the notion of supposedly helping defaulted student loan borrowers to a whole new level. They operate, in my opinion, just above the law, being careful not to make any mistakes just to make themselves look good on paper. Here’s something that’s puzzling, where does it say you have to make a so called “good faith payment(s)”? And, why is it necessary to pay the “Sheriff’s Department” a fee out of your salary?

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