A Legal Assessment of the Credit & Collection Industry

1. A Legal Assessment of the Credit & Collection Industry Williams & Fudge, Inc. Winter BAR J.R. Berninzoni Associate Vice President of Sales

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

3. Institutionally Assessed Collection FeesThe Law and the Liability Understanding Student Paid Fees

4. Collection Cost Terms • Collection Costs – the mutually agreed upon contract amount that the institution pays the collection agency for collecting accounts on the school’s behalf • Institutionally Assessed Fees – The amount charged to a student subject to an agreement between the student and the school or the amount permitted by law (i.e. the Higher Education Act and Perkins Regulations)

5. Contract Basics • Schools have contractual relationships with students. • Agencies have contractual relationships with schools. • Agencies have no contractual relationship with students.

6. What are some common misconceptions?? • Collection costs = the amount the student pays the agency • The federal regulations allow for collection costs on Perkins loans so it is okay to set up institutional debt the same way • Agreements have to be promissory notes • Notifying the student in collection letters that a fee will be added if the account is sent to an agency is sufficient • There is a “right” to be “made whole” on institutional debt

7. Why should we be certain the amounts charged are compliant? • The Fair Debt Collection Practices Act states that it is a violation to collect any amount that is not “expressly authorized by the agreement creating the debt or permitted by law.” See 15 U.S.C. 1692f. • Further, state consumer protection statutes and unfair trade practices statutes may implicate creditors (schools) that are not compliant with state requirements regarding the addition of student paid fees. • Agencies and Schools demand compliance in the contracts that govern the relationship.

8. The Importance of State Law To assess fees, comply with state law, comply with agency contracts, and limit your partnering agencies’ liability under the FDCPA – the majority rule suggests; There needs to be an agreement with the student to pay additional fees and the amount that the institution assesses needs to be “reasonable.” There are various state provisions that speak specifically to this issue, but the standard stated above is the majority rule – it remains critical to independently research the requirements in your state.

9. Examples of “permitted by law” The Higher Education Act creating the Perkins Loan program and the regulations promulgated pursuant to the act specifically provide that the student be responsible for the fees associated with the collection of his/her defaulted loan. See 20 USC §§ 1087aa et seq. and 52 Fed. Reg. 45552(1987). 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 collection agency from collecting, or attempting to collect, from a debtor, a commission authorized under a contract with the University of Hawaii.” West Virginia – specifically allows for the addition of student paid costs on educational loans and states those costs may not exceed 33.3% of the amount due and owing – See W.V. Code § 46A-2-128

10. Washington • RCW 28B.10.293 - Additional charges authorized in collection of debts - Public and private institutions of higher education. • 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 reasonable financing and late charges, as well as reasonable costs and expenses incurred in the collection of such debts, if provided for in the note or agreement signed by the debtor. • RCW 19.16.500 - Public bodies may retain collection agencies to collect public debts - Fees. • (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 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 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 hundred thousand dollars per account is reasonable, 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 governmental entity is presumptively reasonable.

11. Washington • RCW 19.16.500 - Public bodies may retain collection agencies to collect public debts - Fees • (1)(a) Agencies, departments, taxing districts, political subdivisions of the state, 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 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 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 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 dollars of the unpaid debt per account and up to 35% of the unpaid debt over one hundred thousand dollars per account is reasonable, 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 governmental entity is presumptively reasonable. • (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 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.

12. What is an agreement? • An agreement is a mutual understanding between two or more persons about their relative rights and duties regarding past or future performances; a manifestation of mutual assent by two or more persons. This definition was taken from the Seventh Edition of Black’s Law Dictionary. • Promissory notes certainly evidence an agreement, but are not required to form an agreement.

13. FAQ???? • Does a handbook count? • What should it say? • Do electronic signatures count? • Can the agreement be in writing and not be a contract? • How should we proceed to get compliant?

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

15. The Statute of Limitations • Changes in New Mexico, New York, and North Carolina. • How should a school view the statute of limitations? • The difference between the law school definition and the definition being advocated those in “consumer protection”. • Why is this important to my school? • RCW 4.16.160

16. Contract Issues • Choice of law provisions; • Attorney’s FEES and collection FEES; • Protections from TCPA liability for both the school and the agency;

17. Telephone Consumer Protection Act • The industry’s effort to fight against abusive litigation that is hurting your agencies and their ability to be efficient on your behalf. • The liability – it is important to understand what your partnering agencies are fighting against.

18. Default ManagementBest Practices • Aged Reports • Quicker = Increased Recovery • Rotating Accounts • Free Web based training

19. Agency • Options: • Western Washington University • WIPHE Participation • Higher Education Specific • State Contract • Go out to bid (RFP)

20. Conclusion • There has never been a more difficult maze of laws and regulations in this industry. It is more important than ever to be fully aware of the difficulties you and your partnering agencies will face. I hope you found this information informative. J.R. Berninzoni Associate Vice President of Sales Williams & Fudge, Inc. Office: 800-849-9791 x2710 Mobile: 803-322-3081 Email: berninzo@wfcorp.com