A Legal Assessment of the Credit & A Legal Assessment of the Credit & Collection IndustryCollection Industry

Williams & Fudge, Inc. Williams & Fudge, Inc.

Winter BARWinter BAR

J.R. BerninzoniJ.R. Berninzoni

Associate Vice President of SalesAssociate Vice President of Sales

DisclaimerDisclaimer

This presentation should not be construed This presentation should not be construed as legal advise as to the topics discussed. as legal advise as to the topics discussed. You should seek independent legal advise You should seek independent legal advise to determine the most efficient and to determine the most efficient and compliant way to handle the concepts set compliant way to handle the concepts set forth herein.forth herein.

Institutionally Assessed Institutionally Assessed Collection FeesCollection FeesThe Law and the LiabilityThe Law and the Liability

Understanding Student Paid FeesUnderstanding Student Paid Fees

Collection Cost TermsCollection Cost Terms

Collection Costs – the mutually agreed upon contract Collection Costs – the mutually agreed upon contract amount that the institution pays the collection agency for amount that the institution pays the collection agency for collecting accounts on the school’s behalfcollecting accounts on the school’s behalf

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

Contract BasicsContract Basics

Schools have contractual relationships Schools have contractual relationships with students.with students.

Agencies have contractual relationships Agencies have contractual relationships with schools.with schools.

Agencies have Agencies have nono contractual relationship contractual relationship with students.with students.

What are some common What are some common misconceptions??misconceptions??

Collection costs = the amount the student pays the agencyCollection costs = the amount the student pays the agency The federal regulations allow for collection costs on Perkins loans The federal regulations allow for collection costs on Perkins loans

so it is okay to set up institutional debt the same wayso it is okay to set up institutional debt the same way Agreements have to be promissory notesAgreements have to be promissory notes Notifying the student in collection letters that a fee will be added if Notifying the student in collection letters that a fee will be added if

the account is sent to an agency is sufficientthe account is sent to an agency is sufficient There is a “right” to be “made whole” on institutional debtThere is a “right” to be “made whole” on institutional debt

Why should we be certain the Why should we be certain the amounts charged are compliant?amounts charged are compliant?

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

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

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

The Importance of State LawThe Importance of State Law

To assess fees, comply with state law, comply with agency contracts, To assess fees, comply with state law, comply with agency contracts, and limit your partnering agencies’ liability under the FDCPA – the and limit your partnering agencies’ liability under the FDCPA – the majority rule suggests; There needs to be an agreement with the majority rule suggests; There needs to be an agreement with the student to pay additional fees and the amount that the institution student to pay additional fees and the amount that the institution assesses needs to be “reasonable.” assesses needs to be “reasonable.”

There are various state provisions that speak specifically to this issue, There are various state provisions that speak specifically to this issue, but the standard stated above is the majority rule – it remains critical but the standard stated above is the majority rule – it remains critical to independently research the requirements in your state.to independently research the requirements in your state.

Examples of “permitted by law”Examples of “permitted by law”

The Higher Education Act creating the Perkins Loan program and the The Higher Education Act creating the Perkins Loan program and the regulations promulgated pursuant to the act specifically provide that regulations promulgated pursuant to the act specifically provide that the student be responsible for the fees associated with the collection the student be responsible for the fees associated with the collection of his/her defaulted loan. See 20 USC of his/her defaulted loan. See 20 USC §§ 1087aa et seq. and 52 §§ 1087aa et seq. and 52 Fed. Reg. 45552(1987).Fed. Reg. 45552(1987).

Hawaii – the law initially has some prohibitions on fees, but states in HI Hawaii – the law initially has some prohibitions on fees, but states in HI Code § 443B-9(b) that the prohibition section “shall not prohibit a Code § 443B-9(b) that the prohibition section “shall not prohibit a collection agency from collecting, or attempting to collect, from a collection agency from collecting, or attempting to collect, from a debtor, a commission authorized under a contract with the debtor, a commission authorized under a contract with the University of Hawaii.”University of Hawaii.”

West Virginia – specifically allows for the addition of student paid costs West Virginia – specifically allows for the addition of student paid costs on educational loans and states those costs may not exceed 33.3% on educational loans and states those costs may not exceed 33.3% of the amount due and owing – See W.V. Code § 46A-2-128of the amount due and owing – See W.V. Code § 46A-2-128

WashingtonWashington RCW 28B.10.293 - Additional charges authorized in collection of RCW 28B.10.293 - Additional charges authorized in collection of

debts - Public and private institutions of higher education.debts - Public and private institutions of higher education. Each state public or private institution of higher education may, in the control and Each state public or private institution of higher education may, in the control and

collection of any debt or claim due owing to it, impose collection of any debt or claim due owing to it, impose reasonablereasonable financing and financing and late charges, as well as late charges, as well as reasonablereasonable costs and expenses incurred in the collection costs and expenses incurred in the collection of such debts, of such debts, if provided for in the note or agreement signed by the debtorif provided for in the note or agreement signed by the debtor..

RCW 19.16.500 - Public bodies may retain collection agencies to RCW 19.16.500 - Public bodies may retain collection agencies to collect public debts - Fees.collect public debts - Fees. (b) Any governmental entity as described in (a) of this subsection using a (b) Any governmental entity as described in (a) of this subsection using a

collection agency may add a reasonable fee, payable by the debtor, to the collection agency may add a reasonable fee, payable by the debtor, to the outstanding debt for the collection agency fee incurred or to be incurred. The outstanding debt for the collection agency fee incurred or to be incurred. The amount to be paid for collection services shall be left to the amount to be paid for collection services shall be left to the agreement of the agreement of the governmental entity and its collection agency or agencies, but a contingent fee of governmental entity and its collection agency or agencies, but a contingent fee of up to up to 50%50% of the first one hundred thousand dollars of the unpaid debt per account of the first one hundred thousand dollars of the unpaid debt per account and up to and up to 35%35% of the unpaid debt over one hundred thousand dollars of the unpaid debt over one hundred thousand dollars per account per account is reasonableis reasonable, and a minimum fee of the full amount of the debt up to one , and a minimum fee of the full amount of the debt up to one hundred dollars per account is reasonable. Any fee agreement entered into by a hundred dollars per account is reasonable. Any fee agreement entered into by a governmental entity is presumptively reasonable.governmental entity is presumptively reasonable.

WashingtonWashington RCW 19.16.500 - RCW 19.16.500 - Public bodies may retain collection agencies to collect public debts - Public bodies may retain collection agencies to collect public debts -

FeesFees (1)(a) Agencies, departments, taxing districts, political subdivisions of the state, (1)(a) Agencies, departments, taxing districts, political subdivisions of the state,

counties, and cities may retain, by written contract, collection agencies licensed under counties, and cities may retain, by written contract, collection agencies licensed under this chapter for the purpose of collecting public debts owed by any person, including this chapter for the purpose of collecting public debts owed by any person, including any restitution that is being collected on behalf of a crime victim.any restitution that is being collected on behalf of a crime victim.

(b) Any governmental entity as described in (a) of this subsection using a collection (b) Any governmental entity as described in (a) of this subsection using a collection agency may add a reasonable fee, payable by the debtor, to the outstanding debt for agency may add a reasonable fee, payable by the debtor, to the outstanding debt for the collection agency fee incurred or to be incurred. The amount to be paid for collection the collection agency fee incurred or to be incurred. The amount to be paid for collection services shall be left to the agreement of the governmental entity and its collection services shall be left to the agreement of the governmental entity and its collection agency or agencies, but a contingent fee of up to 50% of the first one hundred thousand agency or agencies, but a contingent fee of up to 50% of the first one hundred thousand dollars of the unpaid debt per account and up to 35% of the unpaid debt over one dollars of the unpaid debt per account and up to 35% of the unpaid debt over one hundred thousand dollars per account hundred thousand dollars per account is reasonable, is reasonable, and a minimum fee of the full and a minimum fee of the full amount of the debt up to one hundred dollars per account is reasonable. Any fee amount of the debt up to one hundred dollars per account is reasonable. Any fee agreement entered into by a governmental entity is presumptively reasonable.agreement entered into by a governmental entity is presumptively reasonable.

(2) No debt may be assigned to a collection agency unless (a) there has been an (2) No debt may be assigned to a collection agency unless (a) there has been an attempt to advise the debtor (i) of the existence of the debt and (ii) that the debt may be attempt to advise the debtor (i) of the existence of the debt and (ii) that the debt may be assigned to a collection agency for collection if the debt is not paid, and (b) at least thirty assigned to a collection agency for collection if the debt is not paid, and (b) at least thirty days have elapsed from the time notice was attempted.days have elapsed from the time notice was attempted.

  

What is an agreement?What is an agreement?

An agreement is a mutual understanding between two or An agreement is a mutual understanding between two or more persons about their relative rights and duties more persons about their relative rights and duties regarding past or future performances; a manifestation of regarding past or future performances; a manifestation of mutual assent by two or more persons. This definition mutual assent by two or more persons. This definition was taken from the Seventh Edition of Black’s Law was taken from the Seventh Edition of Black’s Law Dictionary.Dictionary.

Promissory notes certainly evidence an agreement, but Promissory notes certainly evidence an agreement, but are not required to form an agreement.are not required to form an agreement.

FAQ????FAQ????

Does a handbook count?Does a handbook count? What should it say?What should it say? Do electronic signatures count?Do electronic signatures count? Can the agreement be in writing and not Can the agreement be in writing and not

be a contract?be a contract? How should we proceed to get compliant?How should we proceed to get compliant?

What is going on in the debt What is going on in the debt collection industry?collection industry?

The Statute of LimitationsThe Statute of Limitations

Changes in New Mexico, New York, and North Changes in New Mexico, New York, and North Carolina.Carolina.

How should a school view the statute of How should a school view the statute of limitations?limitations?

The difference between the law school definition The difference between the law school definition and the definition being advocated those in and the definition being advocated those in “consumer protection”.“consumer protection”.

Why is this important to my school?Why is this important to my school? RCW 4.16.160RCW 4.16.160

Contract IssuesContract Issues

Choice of law provisions;Choice of law provisions; Attorney’s FEES and collection FEES;Attorney’s FEES and collection FEES; Protections from TCPA liability for both the Protections from TCPA liability for both the

school and the agency;school and the agency;

Telephone Consumer Protection Telephone Consumer Protection ActAct

The industry’s effort to fight against The industry’s effort to fight against abusive litigation that is hurting your abusive litigation that is hurting your agencies and their ability to be efficient on agencies and their ability to be efficient on your behalf.your behalf.

The liability – it is important to understand The liability – it is important to understand what your partnering agencies are fighting what your partnering agencies are fighting against.against.

Default ManagementDefault ManagementBest PracticesBest Practices

Aged ReportsAged Reports Quicker = Increased RecoveryQuicker = Increased Recovery Rotating AccountsRotating Accounts Free Web based trainingFree Web based training

AgencyAgency

Options:Options: Western Washington UniversityWestern Washington University

WIPHE ParticipationWIPHE Participation Higher Education SpecificHigher Education Specific

State ContractState Contract Go out to bid (RFP)Go out to bid (RFP)

ConclusionConclusion

There has never been a more difficult maze of laws and There has never been a more difficult maze of laws and regulations in this industry. It is more important than regulations in this industry. It is more important than ever to be fully aware of the difficulties you and your ever to be fully aware of the difficulties you and your partnering agencies will face. I hope you found this partnering agencies will face. I hope you found this information informative.information informative.

J.R. BerninzoniJ.R. BerninzoniAssociate Vice President of SalesAssociate Vice President of Sales

Williams & Fudge, Inc.Williams & Fudge, Inc.Office: 800-849-9791 x2710Office: 800-849-9791 x2710

Mobile: 803-322-3081Mobile: 803-322-3081Email: berninzo@wfcorp.comEmail: berninzo@wfcorp.com