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

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

3. 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

4. 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).

5. 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.

6. 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

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

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

9. 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).

10. 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

11. 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.”

12. 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.

13. 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.

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

15. 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

16. 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

17. 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

18. 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

19. QUESTIONS
Kelly Lipinski