E-mail, The New Frontier

by John H. Bedard, Jr. - Bedard Law Group, P.C.

Are you considering an e-mail campaign in your arsenal of collection strategies?  Do you accept inbound e-mail from consumers?  Do you include e-mail addresses on your web site?  If you are a collector and not thinking about these things, you may be missing some opportunities.  You may also be overlooking some risk.  Although reported case law addressing e-mail in the context of consumer collections is scarce, the law is beginning to develop, albeit slowly.  Communicating with consumers via e-mail raises compliance challenges; however, these challenges are not insurmountable.  Here are some cases which discuss e-mail in the collection context:

Pacheco v. Joseph McMahon Corp., 698 F. Supp. 2d 291 (D. Conn. 2010).  In Pachecho, a collector sent an e-mail to a consumer to collect a debt.  Included in the body of the e-mail was the statement, “ . . . Your balance will be in excess of $2,000, before legal fees.  Give me a call. . .”  The e-mail did not include any profanity, was not abusive, and was otherwise courteous. Like most e-mail, the tone was informal and casual.  However, the consumer was located in Connecticut.  Connecticut law puts certain restrictions on the ability to collect attorney fees.  The consumer brought suit accusing the collector making misrepresentations about the debt because of the reference to “attorney fees” in the e-mail.   The court agreed, granting the consumer’s motion for summary judgment.  The court found that the reference to attorney fees was a false representation about “character, amount, or legal status” of the debt because under Connecticut law, attorney fees are restricted.  Stating that the consumer would be liable for attorney fees was false.

Silver v. Law Offices of Howard Lee Schiff, P.C., 2010 U.S. Dist. LEXIS 76072 (D. Conn. July 28, 2010).  In Silver, the consumer hired an attorney after receiving communication from the collector.  Instead of calling the collector or sending a letter advising of attorney representation, the consumer’s attorney sent an e-mail to the collector.  The e-mail advised the collector that the consumer was now represented by counsel.  After the e-mail was sent, the collector called the consumer.  The call occurred at 6:09p.m. on the same day the e-mail was sent.  The collector did not open the e-mail until 6:30p.m., which is when the collector learned of the attorney representation.  The consumer sued the collector for contacting a represented consumer.  The court found no violation, explaining that the statute prohibits communication with the consumer if the collect knows or has knowledge of or can readily ascertain the attorney’s name and address.  Since the collector did not check his e-mail until 6:30p.m., he did not know or have knowledge of the attorney representation; therefore, the phone call did not violate the prohibition on communicating with represented consumers.  

Lakefish v. Certegy Payment Recovery Servs., 2011 U.S. Dist. LEXIS 36475 (D. Or. Apr. 4, 2011).  In Lakefish, the collector sent a consumer the validation notice in writing.  In response, the consumer sent an e-mail to the collector requesting the name and address of the original creditor.  The validation notice requirement specifically includes a requirement to send the consumer “a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.”   The court found that the inbound e-mail from the consumer requesting the name and address of the original creditor was sufficient to trigger the collector’s obligation to respond or stop collecting.  Ultimately, the court found there was no violation of the validation request because the collector properly responded to the e-mail.

E-mail is ubiquitous in today’s economy.  Consumers and collectors alike want to communicate via e-mail.  It’s easy, low-cost, convenient, and to use a trendy buzz-word, it’s “green.”  The anachronistic FDCPA; however, creates compliance challenges which ultimately hurt consumers when collectors are reluctant to step into the 21st century e-mail world. Collectors should not undertake an e-mail campaign lightly.  It requires a thoughtful workflow plan, policies and procedures, and buy-in from the highest levels of the organization.  And of course, get your compliance people involved in the process!

John H. Bedard, Jr.

Bedard Law Group, P.C. 

2810 Peachtree Industrial Blvd., Suite D

Duluth, GA 30097

678-253-1871 ext. 244

jbedard@bedardlawgroup.com

New Registration Requirement in Texas

  

Senate Bill 17, entitled the Residential Mortgage Loan Servicer Registration Act, requires the registration of servicers of Texas residential mortgage loans.

A residential mortgage loan servicer is defined as a person or entity who a) receives scheduled payments from a borrower under the terms of a residential mortgage loan, including amounts for escrow accounts; and b) makes the payments of principal and interest to the owner of the loan or other third party and makes any other payments with respect to the amounts received from the borrower as may be required under the terms of the servicing loan document or servicing contract.

Although 3rd party debt collectors are implicitly included in this bill, there are exemptions from the registration fee and bonding requirement provided the applicant:

 - collects delinquent consumer debts owed on residential mortgage loans;

 - does not own the residential mortgage loans for which the applicant acts as a residential mortgage loan servicer; and

 - is a 3rd party debt collector that has filed a bond in compliance with Chapter 392.  

Should you have any questions or issues concerning this matter or should you wish to engage Cornerstone Support's assistance in obtaining specific state licenses or registrations, contact a Cornerstone Support licensing consultant today at 770-587-4595 or e-mail us at info@cornerstonesupport.com. 

3 Myths About Mergers & Acquisitions Involving ARM Firms

by Brian Greenberg, CEO of Greenberg Advisors

The idea of M&A conjures up a variety of images, sometimes involving private jets, limousines, and Swiss bank accounts. The fact is there are many commonly held, yet false, beliefs regarding M&A transactions, how they happen, and why some succeed while others fail. Having advised buyers and sellers for many years in M&A transactions in ARM and related sectors, we’ve observed a number of recurring misconceptions. In this article, we will address 3 of these “myths”, and explain why they aren’t usually true.

Myth #1: M&A is Bad for Employees.

Substantial anxiety can result when employees and executives learn that their company is considering a sale. This is understandable, as transactions can bring changes and uncertainty. It’s important to realize, however, that new ownership will often bring a host of benefits to a company’s employees. These advantages can include new capital to fund infrastructure investment and growth, in order to better equip employees for success. They can also include new ideas and expertise to aid in running the company more efficiently, which will ultimately provide greater opportunities to all. In addition, certain groups (such as institutional buyers) often put into place incentive programs, such as performance bonuses or stock options that enable employees to share financially in the benefits of the company’s growth and success, which is usually not the case for a closely-held company that is still owned by its initial founders.

Myth #2: All it Takes is a Few Calls to Get a Deal Done.

It generally takes many hundreds of calls, meetings, and follow-up efforts to close an M&A transaction, not to mention significant resources to prepare a firm for sale, and to create marketing materials, in order to get the attention of the right buyer. To find that buyer, for example, we’ve found that it typically requires making contact with dozens of potential buyers. To be clear, we are referring to groups that are pre-qualified in order to meet certain initial criteria and to have interest in ARM companies, as it’s important to limit any outreach in order to ensure maximum confidentiality, and to avoid wasting time with groups that aren’t a fit, based upon the seller’s requirements and needs. A filtering effect then occurs, where certain firms are not interested, other firms are not a fit for one reason or another, and still other firms may be interested but unable to finance a deal. This “outreach funnel” will lead to the right buyer, which is interested, proposes deal terms and a structure acceptable to both parties, and is able to finance the transaction. The odds for finding the best group by calling just a few groups, or by listening only to the groups that contact you, are extremely low. In the end, even after the right buyer is identified and the right deal is proposed, there is extensive information gathering, analysis, discussion, negotiation, financing, and documentation legwork required before a transaction will ultimately close. Taking a casual approach to the selling process will rarely result in success.

Myth #3: Confidentiality is Always Breached.

Deciding to sell your firm is never a decision to be taken lightly. For many owners who are contemplating a sale process, one of the major concerns is whether “word” will get out about the company being for sale and if so, what the impact might be to the company. For owners, it’s essential to make sure a sale process is kept confidential to avoid negative repercussions. In order to do this, it’s important to assess who you’re working with, and how the process will work. If you are hiring an advisor, ask around regarding their reputation for keeping information private. It’s also standard practice to have potential buyer candidates sign confidentiality agreements in order to legally compel them to keep quiet about the fact that your company is entertaining a sale. And while in our opinion it is completely unacceptable, word does sometimes leak out. However, this doesn’t have to happen, as illustrated by 2 substantial transactions in which we recently advised; the sales of National Asset Recovery Services (NARS) and TRAKAmerica. In both cases, 100% confidentiality was maintained all the way to the closing, as many of the industry’s most connected people later informed us they had no idea those deals were under consideration.

There are many more “myths” regarding M&A in ARM that we haven’t addressed here, but we hope that this article helps to dispel at least a few of them. M&A transactions can bring a host of benefits to owners, executives, and employees alike. While change tends to bring uncertainty and it’s important to cover your bases, it’s also important to factor in the positive benefits that can occur as a result of a well-executed M&A transaction.

To learn more about how to achieve the best results in your own M&A transaction, or to ask other questions, contact Shaun Tiwari at Greenberg Advisors at 301-576-4000 x2 or email stiwari@greenberg-advisors.com.

About Greenberg Advisors

Greenberg Advisors, LLC (www.greenberg-advisors.com) provides value-added strategic advice to clients in the Accounts Receivable Management and related Specialty Finance sectors worldwide. With 15 years of experience dedicated to this niche, and the completion of more than 75 Merger & Acquisition (M&A) and strategic advisory transactions, the firm's success is a result of its distinct client-first approach, deep sector expertise, and roll-up-the-sleeves hard work. Greenberg Advisors offers market-leading advisory services focused on M&A, Capital Raising, and Valuation, as well as a variety of analytical and planning services to assist clients in understanding and enhancing the value of their business. The firm’s two most recent closings involve representing a strategic buyer from outside the US in its search and acquisition of a US-based ARM firm, as well as raising a significant credit facility for a US-based debt purchaser.

The Rising Trend of Regulation

by Matt Pridemore, Vice President

Public opinion is generally driven by the media and negative press has defined so much of our industry for years. State lawmakers have continued to respond to this by making the collection industry one of the most strictly regulated white-collar industries in the US.

If your firm is directly contacting consumers, you are clearly on the radar of both predatory attorneys and the various state regulators. While there are still a number of possible statutory exemptions available to traditional consumer agencies and there are a number of states that still do not have a debt collection licensing requirement, that trend is quickly changing. Over the past few years a number of states that historically did not require a debt collection license have “closed their borders” and now require a debt collection license. There is a couple more states that have current legislation moving through their legislative bodies that if enacted will require a debt collection license.

Historically there have been other segments of our industry (collection attorneys and both active and passive debt buyers) that either through specific statutory exemptions or ambiguous statutory language were seemingly less regulated from a licensing perspective. These segments of our industry are no longer flying under the radar and in fact the majority of the regulatory opinions published in recent years relate specifically to them. The trend suggests that in the future all segments of our industry will be required to meet the similar licensing requirements.

Collection Attorneys:
Ten years ago you would be hard pressed to find a collection attorney that maintained a debt collection license in more than a few jurisdictions. Now through a series of legislative changes, regulatory opinions and other authoritative guidance more than twenty (20) states clearly require collection attorneys to obtain a debt collection license.

Debt Buyers:
While there have always been states whose statutory language specifically included debt buyers in their definition of a collection agency, it was not until the last few years that debt buyers have landed squarely on the radar of both predatory attorneys and state regulators. This increased exposure first affected “Active” debt buyers and more recently “Passive” debt buyers.

Active Debt Buyer – Both Purchase and Collect Themselves:
More than twenty-five (25) states require Active Debt Buyers to obtain a debt collection license.

Passive Debt Buyer – Purchase Accounts and Outsource all Collections:
States are clarifying their position as it relates to Passive Debt Buyers. Almost ten (10) states have issued opinion letters clarifying their state’s licensing statutes to include Passive Debt Buyers in the definition of a collection agency therefore requiring them to obtain a debt collection license.

Debt collection licenses are not the only licenses that debt buyers (both active and passive) should concern themselves with. Oftentimes the statutory regulations that govern the underlying asset apply to any subsequent purchaser. In other words, if a license was necessary to originate the loan in a particular state it is not uncommon for the debt buyer to be required to maintain the same license. Prior to purchasing a portfolio, it is imperative to review the underlying statutes that regulate the portfolio in question and understand what licensing requirements there might be.

Summary:
The point is that more regulation and stricter requirements are the rule and not an exception to the rule. We are not operating in a static regulatory environment and it is imperative that you know the new legislation and authoritative guidance and understand how it impacts you.

Potential Government Shutdown in Minnesota

Minnesota Governor Mark Dayton and the Republican-controlled Legislature are at odds over $1.8 billion in state spending for the upcoming two-year budget cycle.

The governor has proposed raising taxes on the wealthiest Minnesotans to support more spending in the coming biennium, but Republicans have rejected Dayton's plan. The Legislature passed a $34 billion budget with no tax increases, but Dayton vetoed it.

The Minnesota Constitution requires appropriations before the state can spend any money, and so far, only funding for the Department of Agriculture has been signed into law.

For services to continue at all other agencies and departments, Dayton and the Republican-controlled Legislature must come to a spending agreement by July 1, the start of the new fiscal year. If not, the state will face a government shutdown; as many as 36,000 state workers could be laid off.

Cornerstone Support has been monitoring this situation closely and working with the Minnesota Department of Commerce to understand its impact on the ARM Industry. Should a deal not be reached by July 1 all licensing activity at the Minnesota Department of Commerce both online (new collector registrations and renewals) and directly with a representative will cease. Please make sure that you have filed your renewal and have a current bond in place by June 30, 2011. If you are attempting to obtain a debt collection license in the state of Minnesota it is advisable to get the completed application to the state by June 30, 2011.

If you have any further questions please contact our staff directly at (770) 587-4595 or email us at info@cornerstonesupport.com.

How Licensing is Like Doing Your Taxes

by Matt Pridemore, Vice President

Do you remember the first time you filed your taxes? Though the paperwork might have seemed daunting at first, it was ultimately no big deal because you likely only had one job, one income, and no dependents to deal with. But as time goes on, the process gets much more complicated as you add houses, dependents, charitable donations, and the like. You start to realize that you might be shortchanging yourself by missing out on write-offs, or worse yet, you might be getting in trouble for missing details somewhere along the way. So, like millions of Americans do, you find a qualified accounting professional to outsource your taxes to.

Getting your agency licensed may have been similarly simple at the start, but then became much more complicated and harder to keep up with as you grew. Many agencies do not realize that they can outsource their licensing the same way they outsource their taxes, and save their organization endless time, money, and hassle.

Organizations that outsource certain corporate functions that have historically been handled in-house (i.e. collections, licensing, IT, customer service, etc.) do so for a number of reasons. Here are a few of the more common reasons:

• Reduction of labor costs - An outsourced provider with the right volume, operating efficiencies and cost structure should be able to perform the particular operating function at a much lower cost than the organization would be able to do using their own resources.
• Focus on core business functions - Internal resources can focus more directly on an organizations core competency and reduce the distractions of operating functions that do not generate revenue.
• Operational Expertise/Knowledge - Provides an organization with operational best practice and a wider experience and knowledge base that would be difficult or time-consuming to develop in-house.
• Scalability - An outsourced provider should be prepared to manage a temporary or permanent increase or decrease in production levels.
• Reduce Liability - An approach to risk management for some types of risks is to partner with an outsource provider who is better able to provide a service that helps mitigate the associated risks.

As you are aware, each state has the right to enact its own set of collection laws and requirements. As such, most jurisdictions have very different statutory regulations and application requirements. Not to mention the fact that we are not operating in a static regulatory environment - both the regulations and application requirements are always changing. The overall cost savings that outsourcing can provide combined with the overall assurance that you are compliant in this ever changing regulatory environment makes outsourcing a compelling option if you are licensed in more than just a few states. Here are a few questions to ask when selecting a licensing provider:

Is collection agency licensing the firm/individual's core competency?
Collection agency licensing is different than most other corporate registration. In addition, the states are continually changing statutory regulations and application requirements. Just because the firm/individual has done some collection agency licensing or does other types of corporate licensing does not mean it will translate to your collection agency licensing project.

How long has the firm/individual been providing collection agency licensing services?
Relationships with the various state regulators are important and can only be developed over time. Furthermore, no two licensing projects are alike and sometimes lessons are learned through mistakes made. You do not want the firm/individual that you are using learning lessons at your expense. Even small mistakes can significantly extend the time in which it takes to get licensed.

Does the firm/individual guarantee their service?
While no one can guarantee whether or not a state will grant your organization the required debt collection license, they can guarantee that all license renewals and annual reports are filed on a timely basis. Make sure that if the individual/firm that you are selecting fails to meet a license renewal deadline and you have provided all necessary materials on a timely basis, then they will pay any late fees or penalties that are incurred.

Cornerstone Support has established a reputation as the premier licensing service provider to the collection industry. We understand the particular nuances of licensing all types of collection agencies and are professionally staffed and trained to get your agency licensed faster than anyone else in the industry. We realize that your time is best spent on the moneymaking ventures of your business. In allowing us to take care of your licensing, you can be assured that you are compliant in every state without the stress of managing every detail.

New North Dakota Licensing Requirements

A piece of new legislation has just been signed by North Dakota Governor Jack Dalrymple (R) on April 19, 2011. H.B. 1080 makes several significant changes to the licensing, bonding, and branch requirements in North Dakota. This bill will go into effect on August 1, 2011.

This bill removes the exemption previously available to out-of-state debt collectors, thus requiring that out-of-state agencies attempting to collect debt in North Dakota have a collection agency license.

Section 7 of the bill requires a surety bond of $20,000 to be maintained, and that bond must be in a form prescribed by the commissioner. The commissioner may require the filing of a new bond if an action is commenced on the current bond, and immediately upon recovery of any action on the bond, the licensee must file a new bond.

Section 8 requires a minimum net worth of $25,000 to be continuously maintained by every licensee. When reviewing the net worth, the state department will be looking for tangible net worth.

While the North Dakota Department of Banking and Financial Institutions has required/requested written notification of all branch locations for quite some time, an application was only necessary for those branch offices physically located in the state of North Dakota. This is no longer the case. The new law changes the definition of a "branch office" to mean a physical location where collection activity is carried out. This does not include a virtual office - a remote location from which employees can work under the full control and monitoring of the collection agency through telecommunications and computer links. As such, all locations will be required to file a branch licensing application with the North Dakota Department of Banking and Financial Institutions going forward. Please note that a representative of the North Dakota Department of Banking and Financial Institutions has informed Cornerstone that the simplest way to implement the branch licensing for both their Licensees and the Department would be to do so during the 2012 renewal period for current licensees. However, any new application filed after August 1, 2011 would be subject to the branch application and fee amount.

The state anticipates enforcing a $50 branch fee but this has not yet been confirmed.

To see the bill in its entirety, go to http://www.legis.nd.gov/assembly/62-2011/documents/11-8083-04000.pdf.

Should you have any questions or issues concerning this matter or should you wish to engage Cornerstone Support's assistance in obtaining specific state licenses or registrations, contact a Cornerstone Support licensing consultant today at 770-587-4595 or e-mail us at info@cornerstonesupport.com.


THIS INFORMATION IS NOT INTENDED TO BE, NOR IS IT LEGAL ADVICE. IT IS INTENDED FOR INFORMATION PURPOSES ONLY. WE MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY OR RELIABILITY OF THIS INFORMATION. WE ARE NOT ATTORNEYS.YOU MUST RETAIN YOUR OWN ATTORNEY TO RECEIVE LEGAL ADVICE. WHILE CORNERSTONE STRIVES TO PROVIDE THE MOST CURRENT AND ACCURATE STATE LICENSING INFORMATION, THE RESPONSIBILITY FOR ANY DECISION RELATED TO STATE LICENSING OR AGENCY COMPLIANCE IS SOLELY YOURS.