11/11/08
Two recent blogs from a Michigan debtor attorney
Two recent blogs from an attorney out of Michigan are important for everyone in the debt collection industry to read.
Both are from an attorney by the name of Gary Nitzkin. One deals with his advice to people and/or companies interested in entering the debt buying space. His advice is do not do it. While it appears to be a great opportunity - paying pennies on the dollar with the opportunity collect 100 percent of the debt. He states he believes it is nothing more than a scam!
As an industry member, you may take issue with Mr. Nitzkin’s characterization of debt buying as a scam. However, the courts, the FTC, various state attorney generals, and the courts are moving more and more toward Mr Nitzkin’s position and farther away from the industry’s postion.
Bottom Line: If a debt collector and/or buyer cannot prove both the ownership of an account and prove the amount of debt owed, the FTC’s position is you cannot make any communication with the debtor (see FTC vs Bear Stearns/EMC Mortgage). This includes both the initial notification notice and the first phone call to the debtor!
The second deals with how easy it is to contest debt in court. He talks about the spreadsheet as the only proof of debt and how this is not sufficient evidence in court. This is the same postion the West Virginia Attorney General took in its settlement with Financial Credit Services, Inc. Whereas Mr Nitzkin is talking about an individual debtor. The settlment in West Virginia included the elimination of over $6.6 million in debt.
What would happen if Mr Nitzkin on behalf of his client files a class action lawsuit against the debt buyer? What would happen if Mr Nitzkin files a complaint on behalf of his client - and if possible - his class of clients with the Attorney Generals in each state which his clients reside? What would happen if Mr Nitzkin files a complaint on behalf of his client and/or clients with the FTC? Would this result in the next West Virgina and Bear Stearns/EMC settlement? What would happen to the value of debt portfolios?
The industry serves an important role in the accounts receivable management industry. However, there is a responsibility which comes with participating in the industry - that is maintaining the integrity of the data associated with each account. As long as the industry continues to fail in protecting the integrity of its data assets, the Mr Nitzkin’s of the world are going to continue to win in court and the value of debt portfolios are going to continue to decrease. There are numerous pressures on the price of porfolios including both the glut of accounts as well as economic pressures facing consumers. However, before these two factors begain raising their head, something else was was negatively impacting portfolio values: The silent killer - the lack of data integrity.
Just like high blood pressure is what they call the “silent killer” because of its lack of symptoms, so the lack of integrity of data is silently killing the debt buying industry. If you do not believe, go read the complaint and settlement documents at the FTC’s website.
10/23/08
9th Circuit Court issues ruling impacting debt collectors
The 9th Circuit Court of Appeals issued a ruling which every collector needs to be aware - especially those entities who collect or have offices in the 9th Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington).
The following story was written by Patrick Lunsford with insideARM
“A ruling this week by a federal appeals court held that debt collectors must provide more than a declaration that it had “extensive procedures” to avoid errors and a reliance on accurate creditor information when mounting a bona fide error defense to violations of the Fair Debt Collection Practices Act (FDCPA).
In a case before the U.S. Ninth Circuit Court of Appeals, Judge Mary M. Schroeder ruled late Monday that debt collection agencies could not blame errors that ran afoul of the FDCPA on creditor information, and that a collection agency must have processes in place to assure such errors do not occur.
The case involved collector National Credit Systems, Inc. (NCS). In 2002, NCS was seeking payment of a $2,124 debt from Robert Reichert. The debt was incurred on a breach of a lease agreement Reichert signed with an apartment complex.
Upon a request for validation of the debt, NCS sent a letter verifying amount the debt, including a $225 charge for an attorney’s letter that was sent by the apartment complex. Reichert claimed that since the fee was not expressly authorized by the lease agreement, NCS had violated the FDCPA.
NCS argued that it had relied on the apartment complex’s representation of the debt. NCS also said that it was entitled to a defense against liability because the violation had not been intentional and the error in good faith.
U.S. District Judge Roger G. Strand of the District of Arizona ruled for Reichert and the case was sent to the Ninth Circuit Court on appeal.
In her ruling, Judge Schroeder wrote, “The fact that the creditor provided accurate information in the past cannot, in and of itself, establish that reliance in the present case was reasonable and act as a substitute for the maintenance of adequate procedures to avoid future mistakes.” She also wrote that “A debt collector is not entitled under the FDCPA to sit back and wait until a creditor makes a mistake and then institute procedures to prevent a recurrence.”
That is the end of the Inside ARM article.
It appears the 9th Circuit is saying the same thing the FTC is saying. All debt must be validated before the collection process can begin. And, the debt collector/buyer cannot just rely on past performance of a the debt issuer. It has a responsibility to validate the data.
The 9th Circuit appears to have taken it one step further. The 9th Circuit is saying debt collectors/buyers need to be able to demonstrate to the courts satisfaction it has a data integrity program in place and verify how it was implemented for individual accounts. A simple statement in a filing of “extensive procedures” is no longer sufficient.
West Virginia AG announces landmark settlement with Illinois collection agency
Today, the West Virginia Attorney General’s office announced a settlement with Financial Credit Services (FCS), an Illinois based collection agency. The settlement resulted in the cancellation of over $6.6 million in consumer credit card debt. The debt included cards issued by Bank One, Citifinancial, Chase, GE Capital, Household, MNBA, and Providian.
To me the most important issue in the settlement was this line from the press release, “The Attorney General also alleged that FCS did not
have any verifiable proof of the debts that it sought to collect other than computer spreadsheets.”
Isn’t this how the entire industry works - the transfer of data on a spreadsheet? Isn’t this the exact same thing courts across the country have been complaining about - verifiable data?
What would happen if attorney generals in California, Texas, New York, Florida or any other state followed West Virginia’s lead? Would any debt buyer and/or collector be able to collect any account which based on a spreadsheet?
Click here to download the press release from the West Virginia AG.
09/23/08
A few more thoughts on the FTC Settlement with EMC Mortgage as it applies to the ARM Industry.
- EMC Mortgage was considered a “debt collection agency” by the FTC. The FTC’s complaint applied to any mortgage purchased by Bear Stearns prior to its acquisition by JP Morgan Chase and serviced by EMC Mortgage; the mortgage servicing unit of Bear Stearns. The “debt collection agency” determination by the FTC is what should make the whole industry standup and take notice. Unfortunately, the headlines did not read “Debt Collection Agency Fined $28 million” or maybe it would have received the attention it deserved.
- While the complaint was addressed to mortgage debt, the practices described happen with all types of debt; especially debt like credit card debt, auto loans, and other types of consumer lending products. Only a few of the issues identified in the complaint were mortgage specific.
- The definition of a new requirement for all industry members - the implementation of a “data integrity program.” Since no standards body has defined quite what that is, it is a “I know it when I see it standard.” Further, the assumption in this settlement, very similar to what I have seen in data security complaints filed by the FTC against ChoicePoint, BJ’s Wholesale Club, TJ Maxx, etc., is that industry members should already have implemented a data integrity program. I am not aware of many debt buyers or collection agencies that have implemented a formal data integrity program.
- The violations included FDCPA, FCRA and TILA. Yes, the addition of certain fees the FTC interpreted to be the addition of principal to the loan instrument and required a new TIL Statement to be produced to the consumer.
- Data exchanged between data trading partners must be accurate - whether the information is exchanged between the owner of data and a credit bureau or the owner of the data and the consumer, or the debt seller and buyer - and it must be authenticated. As a result, this enables a debt buyer to file an FTC complaint against a seller who sells the buyer a portfolio which has not been properly updated with activity which occurred during the buyers ownership. Now it is not just a property dispute: it can result in regulatory sanctions. And, it requires debt buyers to ensure sellers are who they say they are and will take steps to assure the integrity of the data.
- Good thing this case was filed before November 1, 2008. Obviously, they would not have met the requirements of the FACTA “Red Flag Rule” and then the fines could of potentially been twice that in the settlement.
- The reporting penalties and the involvement of the FTC in EMC’s business operations over the next eight years may result in associated fees and expenses which could equal what they are going to pay in fines. The $28 million fine is just the first dollars of expenses associated with this case; not the last. The total cost will not be known for 8 years. The closest FTC settlement I could find was ChoicePoint. ChoicePoint had a $10 million fine and total expenses of well over $30 million.
- The extent to which the FTC will be involved in what EMC does is extremely broad. It touches almost every aspect of EMC Mortgage’s business including providing the FTC with lists of all consumers and documentation of activity relating to those consumers covered by the settlement.
09/18/08
FTC Settles with EMC Mortgage
The FTC has settled with EMC Mortgage, the mortgage servicing unit of Bear Stearns, over FDCPA, FCRA, and TLA allegations prior to JP Morgan Chase’s acquisition of Bear Stearns earlier this year. In addition to a $28 million fine, EMC was required to implement a data integrity program and accept FTC oversight of many of EMC’s business operations for the next 8 years.
Details of the original complaint and settlement agreement can be found at: http://www.ftc.gov/os/caselist/0623031/index.shtm.
:: Next Page >>
ARM: Compliance and Security in Review
This is the long description for the blog named 'Blog A'.
| Next >
| Sun | Mon | Tue | Wed | Thu | Fri | Sat |
|---|---|---|---|---|---|---|
| << < | > >> | |||||
| 1 | 2 | 3 | ||||
| 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| 11 | 12 | 13 | 14 | 15 | 16 | 17 |
| 18 | 19 | 20 | 21 | 22 | 23 | 24 |
| 25 | 26 | 27 | 28 | 29 | 30 | 31 |
Search
Categories
- All
- Announcements [A] (5)
- Background (3)
- News (4)
Archives
- November 2008 (1)
- October 2008 (2)
- September 2008 (4)
- More...
Choose skin
Linkblog
Announcements [A]
-
A few more thoughts on the FTC Settlement with EMC Mortgage as it applies to the ARM Industry.
- EMC Mortgage was considered a “debt collection agency” by the FTC. The FTC’s complaint applied to any mortgage purchased by Bear Stearns prior to its acquisition by JP Morgan Chase and serviced by EMC Mortgage; the mortgage servicing unit of Bear Stearns. The “debt collection agency” determination by the FTC is what should make the whole industry standup and take notice. Unfortunately, the headlines did not read “Debt Collection Agency Fined $28 million” or maybe it would have received the attention it deserved.
- While the complaint was addressed to mortgage debt, the practices described happen with all types of debt; especially debt like credit card debt, auto loans, and other types of consumer lending products. Only a few of the issues identified in the complaint were mortgage specific.
- The definition of a new requirement for all industry members - the implementation of a “data integrity program.” Since no standards body has defined quite what that is, it is a “I know it when I see it standard.” Further, the assumption in this settlement, very similar to what I have seen in data security complaints filed by the FTC against ChoicePoint, BJ’s Wholesale Club, TJ Maxx, etc., is that industry members should already have implemented a data integrity program. I am not aware of many debt buyers or collection agencies that have implemented a formal data integrity program.
- The violations included FDCPA, FCRA and TILA. Yes, the addition of certain fees the FTC interpreted to be the addition of principal to the loan instrument and required a new TIL Statement to be produced to the consumer.
- Data exchanged between data trading partners must be accurate - whether the information is exchanged between the owner of data and a credit bureau or the owner of the data and the consumer, or the debt seller and buyer - and it must be authenticated. As a result, this enables a debt buyer to file an FTC complaint against a seller who sells the buyer a portfolio which has not been properly updated with activity which occurred during the buyers ownership. Now it is not just a property dispute: it can result in regulatory sanctions. And, it requires debt buyers to ensure sellers are who they say they are and will take steps to assure the integrity of the data.
- Good thing this case was filed before November 1, 2008. Obviously, they would not have met the requirements of the FACTA “Red Flag Rule” and then the fines could of potentially been twice that in the settlement.
- The reporting penalties and the involvement of the FTC in EMC’s business operations over the next eight years may result in associated fees and expenses which could equal what they are going to pay in fines. The $28 million fine is just the first dollars of expenses associated with this case; not the last. The total cost will not be known for 8 years. The closest FTC settlement I could find was ChoicePoint. ChoicePoint had a $10 million fine and total expenses of well over $30 million.
- The extent to which the FTC will be involved in what EMC does is extremely broad. It touches almost every aspect of EMC Mortgage’s business including providing the FTC with lists of all consumers and documentation of activity relating to those consumers covered by the settlement.
- 9th Circuit Court issues ruling impacting debt collectors
The 9th Circuit Court of Appeals issued a ruling which every collector needs to be aware - especially those entities who collect or have offices in the 9th Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington).
The following story was written by Patrick Lunsford with insideARM
“A ruling this week by a federal appeals court held that debt collectors must provide more than a declaration that it had “extensive procedures” to avoid errors and a reliance on accurate creditor information when mounting a bona fide error defense to violations of the Fair Debt Collection Practices Act (FDCPA).
In a case before the U.S. Ninth Circuit Court of Appeals, Judge Mary M. Schroeder ruled late Monday that debt collection agencies could not blame errors that ran afoul of the FDCPA on creditor information, and that a collection agency must have processes in place to assure such errors do not occur.
The case involved collector National Credit Systems, Inc. (NCS). In 2002, NCS was seeking payment of a $2,124 debt from Robert Reichert. The debt was incurred on a breach of a lease agreement Reichert signed with an apartment complex.
Upon a request for validation of the debt, NCS sent a letter verifying amount the debt, including a $225 charge for an attorney’s letter that was sent by the apartment complex. Reichert claimed that since the fee was not expressly authorized by the lease agreement, NCS had violated the FDCPA.
NCS argued that it had relied on the apartment complex’s representation of the debt. NCS also said that it was entitled to a defense against liability because the violation had not been intentional and the error in good faith.
U.S. District Judge Roger G. Strand of the District of Arizona ruled for Reichert and the case was sent to the Ninth Circuit Court on appeal.In her ruling, Judge Schroeder wrote, “The fact that the creditor provided accurate information in the past cannot, in and of itself, establish that reliance in the present case was reasonable and act as a substitute for the maintenance of adequate procedures to avoid future mistakes.” She also wrote that “A debt collector is not entitled under the FDCPA to sit back and wait until a creditor makes a mistake and then institute procedures to prevent a recurrence.”
That is the end of the Inside ARM article.
It appears the 9th Circuit is saying the same thing the FTC is saying. All debt must be validated before the collection process can begin. And, the debt collector/buyer cannot just rely on past performance of a the debt issuer. It has a responsibility to validate the data.
The 9th Circuit appears to have taken it one step further. The 9th Circuit is saying debt collectors/buyers need to be able to demonstrate to the courts satisfaction it has a data integrity program in place and verify how it was implemented for individual accounts. A simple statement in a filing of “extensive procedures” is no longer sufficient.
- West Virginia AG announces landmark settlement with Illinois collection agency
Today, the West Virginia Attorney General’s office announced a settlement with Financial Credit Services (FCS), an Illinois based collection agency. The settlement resulted in the cancellation of over $6.6 million in consumer credit card debt. The debt included cards issued by Bank One, Citifinancial, Chase, GE Capital, Household, MNBA, and Providian.
To me the most important issue in the settlement was this line from the press release, “The Attorney General also alleged that FCS did not
have any verifiable proof of the debts that it sought to collect other than computer spreadsheets.”Isn’t this how the entire industry works - the transfer of data on a spreadsheet? Isn’t this the exact same thing courts across the country have been complaining about - verifiable data?
What would happen if attorney generals in California, Texas, New York, Florida or any other state followed West Virginia’s lead? Would any debt buyer and/or collector be able to collect any account which based on a spreadsheet?
Click here to download the press release from the West Virginia AG.
News
- FTC settlement with EMC Mortgage impacts ARM Industry
The settlment announced last week between the FTC and EMC Mortgage, a division of Bear Stearns (now owned by JP Morgan Chase), at first glance appears to have broad ramifications to the debt buyers and debt collection agencies. So what is so important about the settlement.
EMC is services mortgages purchased by Bear Stearns. In the complaint, the FTC declared EMC a debt collection agency for any debt which was in default when it was acquired by EMC. As such, the settlement found violations of FDCPA, Fair Credit Reporting Act (FCRA), and Truth in Lending Act (TLA).
Further, the FTC appears to have established a new requirement for debt buyers and debt collection agencies: the establishment of a “data integrity” program. What is a data integrity program you may ask?
Good question. I did some research on the internet and could not find any standards body which have published guidelines for data integrity which are applicable in this circumstance. Rather, you have to go to the settlement itself and read between the lines to determine what it is the FTC is expecting in a data security program.
Over the next week I will explore what the basis for the complaint filed by the FTC against EMC, what the settlment agreement stated, and what the impact will be to the industry including what is meant by a data integrity program.
David Mertz
- FTC Settles with EMC Mortgage
The FTC has settled with EMC Mortgage, the mortgage servicing unit of Bear Stearns, over FDCPA, FCRA, and TLA allegations prior to JP Morgan Chase’s acquisition of Bear Stearns earlier this year. In addition to a $28 million fine, EMC was required to implement a data integrity program and accept FTC oversight of many of EMC’s business operations for the next 8 years.
Details of the original complaint and settlement agreement can be found at: http://www.ftc.gov/os/caselist/0623031/index.shtm.
- Introduction
Welcome to ARM: Complance and Security in Review
ARM: Compliance and Security in Review is focused on data security and compliance issues impacting the ARM Industry.
David Mertz, Managing Partner for Compliance Security Partners, a compliance and security consulting firm, provides commentary on the leading data security and compliance issues impacting the industry.
- Two recent blogs from a Michigan debtor attorney
Two recent blogs from an attorney out of Michigan are important for everyone in the debt collection industry to read.
Both are from an attorney by the name of Gary Nitzkin. One deals with his advice to people and/or companies interested in entering the debt buying space. His advice is do not do it. While it appears to be a great opportunity - paying pennies on the dollar with the opportunity collect 100 percent of the debt. He states he believes it is nothing more than a scam!
As an industry member, you may take issue with Mr. Nitzkin’s characterization of debt buying as a scam. However, the courts, the FTC, various state attorney generals, and the courts are moving more and more toward Mr Nitzkin’s position and farther away from the industry’s postion.
Bottom Line: If a debt collector and/or buyer cannot prove both the ownership of an account and prove the amount of debt owed, the FTC’s position is you cannot make any communication with the debtor (see FTC vs Bear Stearns/EMC Mortgage). This includes both the initial notification notice and the first phone call to the debtor!
The second deals with how easy it is to contest debt in court. He talks about the spreadsheet as the only proof of debt and how this is not sufficient evidence in court. This is the same postion the West Virginia Attorney General took in its settlement with Financial Credit Services, Inc. Whereas Mr Nitzkin is talking about an individual debtor. The settlment in West Virginia included the elimination of over $6.6 million in debt.
What would happen if Mr Nitzkin on behalf of his client files a class action lawsuit against the debt buyer? What would happen if Mr Nitzkin files a complaint on behalf of his client - and if possible - his class of clients with the Attorney Generals in each state which his clients reside? What would happen if Mr Nitzkin files a complaint on behalf of his client and/or clients with the FTC? Would this result in the next West Virgina and Bear Stearns/EMC settlement? What would happen to the value of debt portfolios?
The industry serves an important role in the accounts receivable management industry. However, there is a responsibility which comes with participating in the industry - that is maintaining the integrity of the data associated with each account. As long as the industry continues to fail in protecting the integrity of its data assets, the Mr Nitzkin’s of the world are going to continue to win in court and the value of debt portfolios are going to continue to decrease. There are numerous pressures on the price of porfolios including both the glut of accounts as well as economic pressures facing consumers. However, before these two factors begain raising their head, something else was was negatively impacting portfolio values: The silent killer - the lack of data integrity.Just like high blood pressure is what they call the “silent killer” because of its lack of symptoms, so the lack of integrity of data is silently killing the debt buying industry. If you do not believe, go read the complaint and settlement documents at the FTC’s website.
Misc
XML Feeds
What is RSS?
Who's Online?
- Guest Users: 1
