Many believe that the next great financial crisis in America involves the enormous size and volume of student loan debt being acquired by our nation’s young adults. In a recent Bloomberg article titled “The Lawsuit Machine Going After Student Debtors,” it is stated student loans have surpassed credit cards to become the second-largest source of outstanding debt in the United States, leaving them only after mortgages. In fact, since 2007 the federal student loan balance has more than doubled, to almost $1.2 trillion from $516 billion.
The current state of the job market in the United States is news to no one and recent college graduates are facing harsh employment realities while carrying the burden of what can seem like insurmountable debt. With these pressures come defaults followed by an increased flow of legal debt collection matters.
Firm Claim Practices
With student loan defaults on the rise, increased concern turns to the record keeping by the creditors. While student loans are generally written contracts which provide superior proofs at trial and in many states, a longer statute of limitations, it also can lead to documentation concerns. First, many student loans are deferred while the student attends graduate or professional school. Economic or medical circumstances, military or service as a teacher might forgive some of the debt or defer payment on it. As a result, payments may never have been made or appear to have been made so long ago the case appears out of statute. Your internal process may need to accommodate these circumstances. Evidence of a deferment and a payment history may be required for placement review on a file. Second, bankruptcy, in most cases, only puts the loan(s) in abeyance; it does not discharge them. As a result, your standard vendor scrubs that locate a bankruptcy will need to be tweaked and reviewed in light of this unique wrinkle in student loans. Third, issues of venue and guarantees challenge the firm to determine who should be sued and where, as a consumer might reside in Illinois but the parent co-borrower lives in another state. Finally, as certain original lenders pool loans into asset-based securities that are purchased by trusts who administer them throughout the life of the loan, including while the loan is in good standing, traditional notions of original creditor versus debt buyer have to be put aside when determining the proper party plaintiff.
Utilization of Collection Firms
Collecting on these accounts may be challenging. In most cases, the consumer is a young person having trouble finding work and his parents, nearing retirement who don’t have the resources available to pay these loans. Likewise, many are hard debts for many consumers to accept as in many cases these lingering loans are reminders of frustrated expectations and dreams. For that reason, it is important to assure you and your student loan clients have open communications on settlement parameters, including graduated payment plans that recognize the hopeful short term financial woes of the consumer but allows for potential positive changes going forward. I have found most students want to pay these loans but are just having trouble right now. As always, despite the negative press, debt collection law firms are well suited to be the conduit to help students get back on their feet. Contrary to what many publications say, we want to speak to these consumers to help resolve their student debt issues either prior to going to court or during the litigation process.
More and more emphasis will be placed on student loan collections by regulatory agencies. This is a natural progression given the CFPB and other agencies contend that one out of four student loan borrowers are in default. At this point, much of the discussion is directed to the servicers of these loans. However, given the recent activity of the CFPB in the area of legal debt collection, I am confident changes will be on the way.
In my mind this may not be a bad thing. However, this only addresses the tail end of the issues. We all know today’s cost of education is extraordinary and showing no signs of slowing down. Perhaps Congress, the CFPB and the Department of Education might be better tasked to determine why college costs so much and how to make it more affordable…even for the people who collect debt for a living!
Fred N. Blitt, Esq., is a partner with Blitt and Gaines, PC in Illinois and Couch, Conville and Blitt in Louisiana. He is past president of NARCA.
As we continue to age it becomes more difficult to have a clean bill of health. Whether it be you or one of your loved ones that experience a medical hardship, it can be very difficult to cope. It seems inevitable that an unexpected health issue will arise leading to a visit to a medical professional followed by bills. While both medical and credit debt can affect your credit report, there are a few unique differences between the two types of debt. Patients don’t always have a choice when it comes to healthcare like they do when applying for credit. The medical service is needed in order to get well again. In most cases there isn’t a contract or predetermined payment plan when one incurs medical debt. Once the bill is sent the balance is due in full unless an arrangement is made with the provider. Patients are faced with using their savings accounts, taking on credit card debt and even bankruptcy in order to resolve their unpaid medical debts. The biggest difference for a consumer is: medical debt can only negatively affect their credit rating.
Over two decades ago I began my collection career working as a collector for a mom and pop medical collection agency. I quickly began to realize medical debt applied to everyone. While at the agency I collected on debts owed by professional athletes, friends, family and even a schoolteacher I had growing up. Their account could have been placed in collections for many different reasons: lack of insurance, billing errors or not understanding how their deductible and copay works. It was my job to find out why the account had not been paid and find a solution to resolve the patient’s account. Once the reason for delinquency had been identified I would either educate the consumer as to why they were responsible to pay the debt or I would file a UB92 form with their health insurance provider. The UB92 has since been replaced with the UB04 and while most healthcare providers and insurance companies continue to use the UB92, Medicare and Medicaid will no longer accept the older form.
How we collect medical debt has changed quite a bit over the last couple of decades. Collectors have to carefully determine if the consumer has a legitimate billing issue due to how their insurance or financial assistance claim was filed. If not, they must overcome the consumer’s objection while avoiding a potential complaint. Collectors still want to take an empathetic approach, show compassion and remain respectful but also be assertive and well versed in financial assistance programs offered by the provider, charity programs, insurance billing and all healthcare regulatory requirements. It’s our job as collectors to turn difficult circumstances into positive experiences.
If you’ve visited a medical professional over the last few years you may have noticed service providers’ office personnel will check for healthcare coverage and even collect their copay prior to providing treatment. The healthcare providers have had to train their personnel in order to increase the likelihood of getting paid for their service. I’ve listed a few suggestions for agencies and their collectors to remember when collecting medical debt:
• Collectors and their agencies must comply with 501(r), which prohibits extraordinary collection activity before making reasonable efforts to determine whether a patient is eligible for financial assistance. A few examples of extraordinary collection activity include legal action, reporting adverse information to the credit bureau and selling the debt.
• It’s important to properly train collectors on the Health Insurance Portability and Accountability (HIPAA) Act which was created to protect patients’ private information. You should frequently monitor how collectors document patients’ account and communication with third parties including spouses and attorneys to avoid disclosing personal or private medical conditions.
• The Health Information Technology for Economic and Clinical Health (HITECH) Act was put in place with the purpose of implementing the use of electronic health records. While collectors do not directly fall under the scope of the HITECH Act, it’s still important that we protect the privacy and security of all electronic health records.
• Create a culture in your organization where your collectors show genuine empathy, professionalism and respect to the individual on the other end of the phone. We have found those three traits not only help avoid complaints but they also help increase collections.
Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves on the Board of Directors for the Missouri Collectors Association.
Ten Questions to Ask Your Collection Software Vendor
Our industry is constantly evolving. Asking the right questions can be a daunting task. If you are evaluating collection software solution vendors to automate your collection and ARM requirements, or have already selected your vendor but want to verify the processes, we want to provide some guidance on the ten critical questions you should ask. CLICK FOR THE WHITE PAPER.
Collectors have been searching for a softer collection method for decades. Many have been false promises. Virtual collections debuted with great promise in 2006. It has taken 10 years to show effectiveness. I saw a new hopeful solution to soft collections this past year at annual conventions for DBA International, ACA International and ACA of Texas. A few new companies and one well-known company offered email and text messaging to remind customers of payments due. This method is gaining ground when servicing first party accounts, and with proper permissions is utilized by early adopter third party agencies as well.
When the TCPA rule from telemarketing was applied to collection calls a huge groan could be heard from sensible business people. Now, after several years of obtaining permissions to use cell phones and email messages as collection reminders, the process is beginning to make sense again. This comes at a good time. Several countries use cell phones predominantly. The U.S. is following suit. According to industry veteran, Rob Fite, “50% have mobile phones instead of landlines and 94% of households have mobile phones.” Fite spent significant time with FICO and LexisNexis. Fite says, “75% have smartphones, which means web access to a payment portal.” This enables sending a test message to a customer so they may self-cure their debt.
Speaking of London Bridge, I ran into Jim Crawford, from London Bridge software before it was acquired by FICO. Crawford has joined VoApps, which is another TCPA solution gaining traction. The VoApps product drops the collection call phone number on a voice mailbox, which does not reside on a cell phone. Customers then return the call. What was considered controversial has gained traction and imitators have begun to pop up.
Call recording and call analytics are advancing to the point where the system can understand the debtors comments and “suggest the next statement a collector should make,” according to Anne Pacifico with Castel Communications. When compliance auditors arrive, you are able to show how a collector deals with a situation, and even, “provide a real-time score of a call,” says Pacifico.
Electronic payment is an essential tool for collections. Even though NACHA approved one-day settlement for ACH payments, it will only speed up payroll this year. “ACH may not improve other payments until 2018,” according to Dave Yohe, VP at Billing Tree. Every couple of years some agencies lose their ability to process payments because of a decision made by a payment vendor or payment portal. A solution to this is to work with a payment processor who is, “settlement agnostic and can settle with almost any acquirer,” according to Autoscribe CEO Rob Pollin. The problem of companies being denied payments for arbitrary reasons, sometimes referred to as operation chokepoint, appears to have ended, or as Pollin noted, “what only theoretically existed is not over.”
A fascinating application was demonstrated by Albert Rookard, president of Applied Innovation. PayStreamZ enables debtors to settle debts and pay the fee themselves. Because the amounts are paid separately, the dollars received are whole dollars and not dollars discounted by 3% or more for credit card transaction fees. Applied Innovation also presented a portal where debtors could negotiate payment amounts online.
It has been said that the basis of philosophy before and after Socrates has been “know thyself.” The bottom line on electronic payments and all facets of collection technology is know thy vendor. I received a handling fee for paying a vendor (Guru.com) in the UK out of my cash account recently. These charges were never agreed to or authorized by me. For 36 hours they made no payment at all to a vendor waiting to be paid. They essentially held me hostage until I added money from Paypal. After placing several phone calls and sending emails, no one ever responded. I was disturbed to find the same danger among collection vendors. There are reps at tradeshows, there are websites, but there is no person responsible there. They have no address, no phone number and no officer of the company you can speak with if a problem arises. I looked up a couple at the Secretary of State websites where they purported to be located and they weren’t there either.
Collections needs the highest caliber collection technology vendor. Collection Advisor continues to only cover companies where a responsible party is accessible. Text collecting and payments enhances collections just make sure you know with whom you are dealing.
In this issue we will take a look at tracing on student loan debt. Again, as in all tracing endeavors, there must be a starting point and as I have stated many times previously, when tracing, to go forward you must first go backward. Let’s explore how the professional tracer can locate student loan consumers utilizing what the industry refers to as the “waterfall technique.”
The first thing the tracer must establish with student loan debt is liability. Who is actually responsible for the debt? Is there joint liability? This action is accomplished by going back to the origination documents of the indebtedness for basic information. In many cases the tracer will find the parents of the student are guarantors on the debt and the parents are usually much easier to locate than the student.
Three items which are of upmost importance to the tracer when working student loans are, 1) the original application, which will usually list the parents, their address and their phone numbers; 2) the original contract or copy thereof to ascertain parties with liability on the debt; and 3) the information document which will contain the last educational institution the student attended. In many cases this will also include the student’s degree which might be an indicator of what job market they entered after graduating or discontinuing their education.
Once these documents are obtained and analyzed for data extraction, I believe in taking the course of least resistance, the first level of the waterfall, efforts which require no expenditure of funds, only time and labor. In most cases that is contacting parents and relatives listed on the original application. This endeavor will often provide the tracer with information related to the consumer’s current residence, employment and contact numbers. I would call your attention to the fact that when contacting third parties at this point in the attempt to gain location information, conversations are kept to a minimum with the informants with very little in depth conversation and no usage of neuro-linguistic questioning techniques.
Cases requiring continued efforts warrant my next step which is utilizing the information I have accumulated and go online through alumni.com and/or classmates.com to peruse the online college annuals and alumni directories. These sources can contain photographs as well as information related to the student such as social or academic associations they might have belonged to as well as any sports or extra-curricular activities in which the student may have been involved. Each bit of information the tracer discovers is another piece of the puzzle that could link everything together providing current location information. I have found there is always a lot of information that can be gleaned from these online sources which allow an astute tracer to gain insight into the consumer’s persona. If my attempts to locate the consumer have proved futile I must move to the next level of the waterfall.
At this level I will go back to my data and again contact relatives and references, this time utilizing neuro-linguistic questioning techniques (as explained in previous articles) developed over many years of extracting information from informants. These advanced questioning techniques have yielded very good results and in many cases provided the information required to locate the consumer. Keep in mind that up to this point there have been no monetary expenditures, only time and effort.
If all the previous efforts have still yielded no positive results it is time to move on to the final stage of the waterfall technique. Spend some money and utilize the various “pay sites” provided by the data brokers who accumulate consumer data and store the information in their electronic repositories.
We have discussed several of these data brokers in the past such as TLO, Tracers, Inc. and CLEAR. I use a formula when selecting the data broker I use first, second and third. The decision is based on prior experience related to where I feel the consumer is residing, the consumer’s age, background and the vocation I feel the student has chosen.
As you can see, tracking the traces of the consumers who have a student loan debt is always a challenge and has the potential to be another exciting adventure for the professional tracer.
Until the next issue…good luck and good hunting!
Ron Brown is a member of the National Association of Fraud Investigators and the author of “MANHUNT: The Book.” Contact him at firstname.lastname@example.org.