Kelly Lipinski McGlinchey Stafford PLLC klipinski@mcglinchey.com SLSA Private Loan Committee Meeting: Trends in State Debt Collection Requirements Kelly Lipinski McGlinchey Stafford PLLC klipinski@mcglinchey.com

Third-Party Servicer/Collection Agency License Issues Substantive Conduct Requirements Recent Developments Additional Trade Names

Third-Party Servicer and Collectors Fair Debt Collection Practices Act Conduct Consumer Financial Protection Bureau Overlay of state regulation Documentation requirements Statute of limitations Licensing

Federal Preemption Higher Education Act Express preemption Conflict preemption Field preemption HEA preemption of state laws applied to federal student loan pre-litigation collection. Brannan v. United States Aid Funds, 94 F.3d 1260 (9th Cir. 1996). HEA does not preempt state law. Cliff v. Payco, 363 F.3d 1113 (11th. Cir. 2004).

Department of Education Interpretation Secretary of Education interpretation that certain Guaranteed Student Loan Program rules are a uniform national minimum level. Preempt any state requirement that will hinder or prohibit the collection actions required under the DOE rules. Minimum standards Inapplicable to private education loans.

Preemption Call volume Call times Federal requirement to call a certain number of times/week State restriction that prohibits more than 7 calls/week Call times FDCPA State restrictions

State Licensing Framework Considerations: Asset Status of consumer’s account Charged-off v. delinquent Allocation of responsibilities

Unsecured Credit Uniform Consumer Credit Code Consumer lending laws Ten states Consumer lending laws Loan characteristics Dollar amount Finance charge Duplicative licensing

Unsecured Credit Kansas Uniform Consumer Credit Code: Take assignments of and directly or indirectly, including through the use of servicing contracts or otherwise, undertake collection of payments from debtors arising from supervised loans; or Take assignments of and directly or indirectly, including through the use of servicing contracts or otherwise, enforce rights against debtors arising from supervised loans. Kan. Stat. § 16a-2-301(2).

Third-Party Servicers Collection agency/debtor collection laws Thirty-four states license collection agencies Scope Collecting for another person Collecting for oneself Status of account Delinquent v. default Activities rendered

Third-Party Servicers Lack of specificity concerning the status of an account “An obligation for the payment of money or its equivalent and a sum or sums owed, due or asserted to be owed or due to another, for which a person is employed to demand payment and collect or enforce such payment” “Any obligation for the payment of money or thing of value arising out of any agreement or contract, express or implied.”

Third-Party Servicers Broad definition of “Debt Collectors” An person who collects debts incurred in [state] from debtors located in [state] by means of interstate communications, including telephone, mail or facsimile or any other electronic method, from the debt collector's location in [state]. Any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.

Third-Party Servicers Massachusetts Separately regulate “debt collectors” and “third party loan servicers” “Third party loan servicer” is a person who uses an instrumentality of interstate commerce or the mails in any business the principal purpose of servicing a loan directly or indirectly, owed or due or asserted to be owed or due another. “Servicing” is receiving a scheduled periodic payment from a borrower pursuant to the terms of a loan, including amounts for escrow accounts, and making the payments to the owner of the loan or other third party of principal and interest and other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the servicing loan document or servicing contract.

Third-Party Servicers Key Elements Performing services for another person Primary business purpose Conducting business through interstate means

Third-Party Servicers Substantive conduct requirements applicable even if a license is not required California: Rosenthal Fair Debt Collection Practices Act New York: Debt Collection Procedures North Carolina: Debt Collection Practices

Third-Party Servicers Massachusetts Attorney General Debt Collector Regulations, Mass. Code Reg. tit. 940 §§ 7.01 et seq. Applicable to creditors and their agents A debt is an obligation that is more than 30 days past due There is no servicer exemption, student loan exemption, or bank exemption The Attorney General regulations do not establish a license requirement, but impose significant conduct requirements Debt validation notice Restricts number of calls, including text messages, to two in seven day period Written disclosure every six months

Third-Party Servicers Massachusetts Attorney General’s January 24, 2013 Guidance with Respect to Debt Collection Regulations Unsuccessful attempts by a creditor to reach a debtor via telephone may not constitute initiation of a communication if the creditor is unable to reach the debtor or leave a message With respect to revolving accounts, where status of the debt often fluctuates, a validation notice is not required each time the account is 30 days past-due

Planning and Management Consider portfolio characteristics and assess current status Identify deficiencies and budget lead time Ensure adequate documentation, or access to documentation Once licensed, ongoing obligations Renewals, changes in business activity, and personnel Address statutory and regulatory amendments Licensure and conduct

QUESTIONS Kelly Lipinski klipinski@mcglinchey.com 216.378.4969