Collection Laws For Student Loans and Accounts Receivables

1. Collection LawsFor Student Loans and Accounts Receivables Presented By: David A. Head, Esq.

2. WWR Today • 9 offices in 5 states • 90 attorneys • Roughly 800 legal assistants, collectors and support staff • Historically ranked as the nation’s largest debt collection law firm (by revenue/placement) • WWR attorneys certified as Creditors Rights Specialists by the American Board of Certification

3. People: Culture of Excellence • Our Vision • To be the nation’s leading provider of creditors' rights solutions. • Core Values • Client Focus • Dedicating ourselves to exceeding clients’ expectations and earning clients’ trust. • Integrity • Being professional, ethical, honest and respectful in all our interactions. • Teamwork • Having a great workplace where we work together to achieve excellence. • Passion • Approaching our work with enthusiasm and intensity. We care! • Innovation • Learning and fostering new ideas to become better every day.

4. National Collections Coverage WWR is properly licensed and bonded in all states and U.S. territories necessary to facilitate traditional upfront collections matters.

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6. Overview – ABCs of Collection Laws • FDCPA/CFDCPA • UDAAP and the CFPB • SCRA • SOL • Collection Costs/Fees • Bankruptcy • Litigation Considerations

7. Fair Debt Collection Practices Act (FDCPA)/Colorado Fair Debt Collection Practices Act (CFDCPA)

8. FDCPA In a Nutshell Requires debt collectors to treat debtors fairly Prohibits certain methods of debt collection Addresses issue of proper and appropriate debt collection practices and techniques Does not erase any legitimate consumer debt owed Consumer protection act Strict liability statute Allegations of improper and inappropriate methods of collection may lead to filing of a lawsuit

9. FDCPA In a Nutshell • What debts are covered under the Act? • Consumer debts • Personal, family and household debts • Examples include... • Perkins loans • Institutional loans • Tuition • Other education-based receivables

10. Debt Collector • Any person or business who uses any instrumentality of interstate commerce or the mail with the principal purpose of collecting debt • One who regularly collects or attempts to collect debts owed, due, or asserted to be owed or due another • Attorneys involved in consumer debt collection on a regular basis are governed by the act • Debt collector does not include • Any officer or employee of creditor while, in name of creditor, collects debts for the creditor • Example — A college/university that undertakes collection efforts internally is not a debt collector. However, if the company hires another company to collect on its accounts, that company is a debt collector.

11. Verification of Debts • If debtor requests verification of debt, collector must cease all collection activities until requested verification is mailed by debt collector to consumer

12. Ceasing Communication • If debtor notifies in writing refusal to pay debt or wishes debt collector to cease further communication, debt collector shall not communicate further except: • To advise that although the debt collector's further efforts are being terminated, the debt still exists • To notify that debt collector or creditor may or will invoke specified remedies that are ordinarily invoked by them • If debtor notifies or debt collector is aware that debtor is represented by an attorney, direct contact is prohibited unless the attorney specifies otherwise

13. Harassment or Abuse • Debt collector may not engage in any conduct meant to harass, oppress or abuse any person in connection with collection of debt • Examples: • Obscene/profane language • Causing telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse or harass any person • Use or threat of violence or other physical means to physically harm the person, their reputation or property

14. False, Deceptive & Misleading Representations • Examples • Making false statement as to character, amount, or legal status of debt • Stating or implying that debt collector is attorney if he/she is not, or that any communication is from an attorney if it is not • Threatening to take any action that cannot legally be taken or that is not actually intended • Falsely representing that document is legal process, if it is not • Stating or implying that actual legal process is not legal process requiring attention of debtor

15. CFDCPA • Colorado Fair Debt Collection Practices Act – 12-14-101 • Similar to the FDCPA • Outlines further what a debt collector or collection agency must due in order to collect in the state of Colorado • Ensure your third party debt collection agencies and attorneys are complying with this when collecting your debts in the state of Colorado

16. UDAAP and the CFPB

17. UDAAP and the CFPB • It is unlawful to engage in any Unfair, Deceptive, or Abusive Act or Practices • FDCPA makes it illegal for debt collectors to engage in this activity • Consumer Financial Protection Bureau • Created by Dodd-Frank Act • Has authority to protect consumers against UDAAP violations • Original creditor and debt collectors

18. Unfair Acts or Practices • Unfair Acts or Practices • Causes or likely to cause substantial injury to consumers • The injury is not reasonably avoidable by consumers; and • The injury is not outweighed by counterveiling benefits to consumer or to competition • “Substantial Injury” • Usually involves financial harm or emotional distress caused by unreasonable harassment • “Not Reasonably Avoidable” • Consumer cannot reasonably avoid injury if the act or practice interferes with the consumer’s ability to effectively make decisions or to protect himself/herself from the injury • Occur without consumer’s knowledge or consent

19. Deceptive Acts or Practices • Deceptive Acts or Practices • The act/practice misleads or is likely to mislead consumer • The consumer’s interpretation of the act/practice is reasonable under the circumstances • The misleading act/practice is misleading • Can take the form of representation or omission • “Reasonable Under the Circumstances” • Would a significant minority be mislead? • Would another person in the consumer’s situation interpret the same way the consumer did? • “Material” • Information important to consumer when he/she makes a choice

20. Abusive Acts or Practices • Abusive Acts or Practices • Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or • Take reasonable advantage of • Lack of understanding of material risks, costs or conditions • Inability to protect his/her interests; or • Reasonable reliance on a covered person to act in his/her interests

21. UDAAP and the CFPB • Examples of UDAAP violations • Falsely representing character, amount or legal status of debt • Threatening any action that is not intended or no authority to pursue • Collecting or assessing a debt or additional amounts (including fees) not expressly authorized by the agreement or permitted by law • Failing to post payments timely or properly or to credit the account • Disclosing consumer’s debt, without consent, to third parties, employer or co-workers

22. Servicemembers’ Civil Relief Act (SCRA)

23. SCRA In a Nutshell • SCRA does not excuse the member from any legal obligation, it simply delays it • The protection is not automatic, member must apply for it • Protection will only apply if the obligation was entered into prior to active duty • Protection extends from first day of active duty through 30-90 days after discharge • Interest rate may be reduced to flat rate of 6% • The burden is on creditor to seek relief by proving servicemember is not materially affected by service

24. Who Does SCRA Apply To • All active members of the U.S. armed services • All officers of the Public Health Service detailed for duty with either the Army or Navy • Members in basic training or boot camp • Members of the Reserves and National Guard who are called to active duty for one of the following reasons: • mobilized for federal service • annual training • military school • National emergency for 30+ days

25. Who Does the SCRA Not Apply To • Civilian employees • Employees of government contractors • Servicemembers who incurred the debt while on active duty • Persons secondarily liable • This is at the discretion of the courts • Business partners

26. Application For Protection • Servicemember must notify the college/university to invoke SCRA protection • Strictly speaking, this means a submission of proof of mobilization and placement on active duty, along with notice to invoke SCRA • Servicemember must assert/demonstrate that he/she is materially affected by his/her active duty status • Servicemember may avail him/herself of the protection at any time after orders are received and up to 180 days after discharge • Protection relates back to the date the servicemember is called to active duty

27. Active Duty • Begins upon induction • Ends upon death or discharge • Includes period during which servicemember is absent from duty on account of sickness, wounds, leave, or other lawful cause • Constructed broadly by courts

28. Material Affect • Two-pronged test: • 1) The servicemember’s ability to protect his/her rights • Is he/she stationed in the United States or overseas? • 2) The servicemember’s ability to meet financial obligations • Is his/her salary while on active duty less than it would be for his/her normal job? • Servicemember will need to submit supporting documentation to establish this if the creditor challenges whether the member is materially affected by active duty

29. Interest Rate Cap • Servicemember must notify his/her intent to invoke the fixed interest rate cap • If material affect is established, the debt must not accrue interest at a rate in excess of 6% • An adjustment is made to the monthly payment to reflect the lower interest rate and the difference may not be collected

30. Interest Rate Cap • The rate cap applies during the period of military service through 30-90 days after discharge • The rate cap may apply to dependents so long as they are jointly liable on the obligation with the servicemember • Creditor may seek relief from the cap if they can establish the servicemember is not materially affected • Courts do have discretion to adjust the interest rate higher than 6% and lower than the original contract interest rate

31. Installment Contract Protections • Servicemember may receive relief from making payments pursuant to the terms of the contract • Generally, at least one deposit or installment payment must have been made on the contract before active duty • No fines or penalties accrue for failure to comply with contract during active duty • Creditor is prohibited from exercising rights under the contract unless approved by a court • The statute of limitations for the contract is tolled during active duty

32. Default Judgment • A default judgment cannot be entered against a member without his/her knowledge • Department of Defense Manpower Data Center • www.dmdc.osd.mil/scra/owa/home • You will need borrower name and SSN • A creditor may only seek default judgment against a servicemember it knows is on active duty if the court has appointed an attorney to represent him/her • The servicemember may reopen the case to vacate the judgment if motion is made within 90 days of leaving active duty, has been prejudiced, and has a defense

33. Penalties and Causes of Action • If found guilty of knowingly violating the SCRA, the violator could be fined up to $1,000.00 and/or imprisoned for up to 1 year • Attorney General may initiate civil action against creditor, seeking equitable and declaratory relief, monetary damages for the aggrieved party, and vindication of the public interest

34. Penalties and Causes of Action • Private cause of action can be brought seeking equitable and declaratory relief, monetary damages, costs and attorneys fees • This was codified after case law set the precedent • DOJ has a SCRA enforcement division

35. Statute of Limitations

36. Statute of Limitations - Loans • When does SOL calculation begin • Date of last payment • Date of default • Date payment became due • Federal Loans (i.e. Perkins) • No SOL considerations • Other Loans (i.e. Institution Loans) • SOL to be determined by state law • Choice of law provision in the contract • Substantive vs Procedural • Six years in the state of Colorado

37. Statute of Limitations – Tuition/Receivable • Tuition and other receivables • Contract or not? • Three or six years? • Portercare Adventist Health System v Lego (2012) • Colorado Supreme Court provided clarification • Involved medical services • Liquidated debt or determinable amount • Debt either referenced in an agreement or determined by simple computation using extrinsic evidence • Six year SOL applies, even when there is no agreement, where the debt can be computed

38. Collection Costs/Fees

39. Collection Costs/Fees and Perkins • Perkins Loan • Federal regulation supersedes state laws restricting the assessment and collection of collection costs • Federal regulation allows reasonable collection costs • 30% for first placement • 40% for second placement and litigation placement • Despite federal regulation, state courts may still attempt to limit the amount of collection costs assessed to an account • May request proof of costs and reasonableness

40. Collection Costs/Fees • Can collection costs be assessed? • Depends on state law • Colorado • Look to the contract • 12-14-108(a)(1) – Debt collector or collection agency shall not collect • “any amount, including any interest, fee, charge, or expense incidental to the principal obligation, unless such amount is expressly authorized by agreement creating the debt or permitted by law”

41. Collection Costs/Fees – AG Guidance • Attorney General Letter dated August 12, 1994 • Are the costs/fees expressly authorized in the contract? • How much is reasonable before it becomes unfair or unconscionable? • Actual costs expended in collecting the debt • The cost/fee cannot constitute a penalty • Flat percentages, arbitrarily determined, to recover 100% are unconscionable and against public policy

42. Collection Costs/Fees – Recent Caselaw • Bradley v Franklin Collection Service, Inc. (2014) • Eleventh Circuit ruling • Medical debt where 30% collection cost/fee was added • Agreement said “I agree to pay all costs of collection . . . and reasonable collection agency fees” • Kojetin v CU Recovery, Inc. (2000) – Eighth Circuit ruling • Violation of FDCPA to add collection cost/fee based on percentage of the principal balance • Only entitled to actual cost of collection • Seeger v AFNI, Inc. (2008) – Seventh Circuit ruling • Percentage based fee can be appropriate if the parties agree to it in the contract

43. Collection Costs/Fees – Recent Caselaw • Seeger continued • Contractual language stated the following • “You agree to reimburse us the fees of any collection agency, which may be based on a percentage at a maximum of 33% of the debt, and all costs and expenses, including reasonable attorneys’ fees, we incur in such collection efforts.” • Bradley’s contract did not specify the collection agency fee to be charged • FDCPA violated when added 30% fee • Future?

44. Bankruptcy and Education Related Debts

45. Bankruptcy • Automatic Stay Provision • Halts all action by school to collect debt • Starts when student/consumer filed bankruptcy • Discharge Injunction • Fresh start • Education Loans generally presumed non-dischargeable • Perkins Loan • Institutional and other education loans

46. Bankruptcy • Adversary Proceeding • Proper procedure to determine dischargeability • Need to establish undue hardship • Proof of claim • File if there are assets in Chapter 7 and monitor • File in Chapter 13 • Chapter 13 Plan • Repayment plan, generally over five years • Review and object if plan discharges education related debts • Espinosa Case (2010) – US Supreme Court

47. Bankruptcy – Tuition Receivable • Tuition Receivable • Presumed non-dischargeable? • Presumed non-dischargeability depends on certain factors • Bankruptcy court will need to recognize the obligation as a loan • Is there a written agreement? • Is credit extended? • Make the decision easier for a court

48. Bankruptcy – Transcript and Registration • Withholding Transcripts • Likely viewed as violation of automatic stay provision • Serves no purpose other than to compel repayment • Ok to withhold after bankruptcy, as long as not discharged • Registration • Refusal to allow registration likely viewed as violation of automatic stay • If bankruptcy is pending, cannot force student to pay past-due debt before allowing them to register • However, can make student pay in full for the semester he/she is registering

49. Litigation Considerations

50. Why Litigate? • Litigation can be a highly effective collection tool • Litigation is often overlooked or used as a last resort • In some instances, litigation is required in order to continue collections • To avoid the statute of limitation from preventing further collections