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The long arm of Dodd-Frank

posted on 2010-10-12 by Jim Jordan

 In my last blog, I explored the ramifications to a bank’s borrowers and depositors when the FDIC takes over the bank. I now want to bring to your attention a recent and further expansion of the powers of the FDIC contained in the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” commonly referred to as “Dodd-Frank.”

Title II of Dodd-Frank has expanded the power and reach of the FDIC by granting the FDIC the right to take over certain non-bank financial institutions whose failure would jeopardize the U.S. financial system. The intent underlying this provision of the new law is to address the risk to our entire financial system by the failure of companies, such as Bear Stearns, which are not banks and thus not subject to the jurisdiction of the FDIC during the financial crisis that began in 2008.

Section 201 of Dodd-Frank defines such a non-bank financial institution as a company “predominately engaged in activities . . . that are financial in nature” (which requires that 85% or more of the company’s revenue be derived from such activities). Under section 203 of Dodd-Frank, before the FDIC can take over the company, the entity in question must be “in default or in danger of default” and the federal government must determine that collapse of such entity would have serious adverse effects on the U.S. economy. Federal regulators, including the Secretary of the Treasury, make these determinations, subject to an expedited limited right of appeal to the federal courts.

Unlike bankruptcy, which generally has the goal of successfully reorganizing and continuing the business of the debtor entity, the intent of the FDIC’s new power is to liquidate the assets of the seized institution to avoid a government bailout. Accordingly, many practitioners are concerned by the minimal judicial oversight and the absence of creditors’ rights protections of the type that are applicable in the bankruptcy context. Indeed, the conference committee report on Dodd-Frank states that the costs of liquidation “are borne first by shareholders and unsecured creditors, and, if necessary, by risk-based assessments on [other] large financial companies.”

Like much of Dodd-Frank, these provisions delegate substantial rulemaking authority to the regulators, and until the regulations are published, parties dealing with these large non-bank financial institutions will be faced with considerable uncertainty as to this issue.

Jim Jordan, a partner at Sutherland Asbill & Brennan LLP and chair of the firm's real estate practice group, would like to thank his colleague Justin Lischak Earley for his editorial assistance. The views above are those of the author and not of his law firm or any of its clients.

Read more: The long arm of Dodd-Frank - Atlanta Business Chronicle

DBA International Responds to Wall Street Journal

posted on 2009-10-20 by Roger Knauf


A Consumer Financial Protection Agency Would Offer Many Benefits

Your editorial "Another Scary Czar" (Oct. 8) appropriately airs many concerns that the financial services industry has about the creation of a Consumer Financial Protection Agency (CFPA). Our organization recognizes the problems and potential excesses CFPA poses. However, one regulator for both originating creditors and debt buyers could eliminate confusion for the financial services industry and consumers alike. CFPA must be given pre-emptive rule-making authority over states, or this super agency will be an ineffective paper tiger with little authority to create protection for consumers nationwide. Debt buyers today operate under state-by-state regulation, with different rules and attitudes about enforcement. Several states have sought short statutes of limitations—as little as three years—along with extinguishing the creditors' rights to collect overdue bills, hoping to protect consumers from the excesses of a small minority of debt collectors. Shortening the time period in which creditors can collect on past due debts further tightens credit standards in order to limit a lender's risk. It leaves many creditors with no choice but to rush to the courtrooms seeking judgments, with the cost of that unnecessary litigation passed on to the consumer. Credit is a simple idea that has become a part of our national fabric, from the loans that make purchasing a home possible, to the revolving credit that makes smaller purchases convenient. It's incredibly hard to protect simple ideas in a single piece of complex legislation. CFPA could be a viable solution to consumer protection, but with federal pre-emption, this one agency could have the ability to protect all consumers and businesses equally. Roger Knauf Executive Director DBA International McLean, Va.

Debt Collector Reacts To Forbes Story

posted on 2009-09-23 by Joel Lackey

  Dear Forbes and Mr. Hawkins, I am a very busy person and have never responded to a published article, but I feel compelled to comment on "How To Outsmart Your Debt Collector." The attitude of, "What can I get away with, or out of because of a meaningless technicality?" is exactly what our society does not need. As the owner of an 18-year-old collection agency, we are swamped with hyper-technical lawsuits from "ambulance chasing" attorneys and debtors who are searching for a way to get out of paying a legitimately owed debt. The number of these suits has increased dramatically over the past few years, and the merit of these suits are typically laughable with absolutely no damage suffered by the debtor. The primary reason for this is that attorneys have become aware of the fact that a third-party debt collector cannot win when sued. It is simply a matter of how bad you are going to lose. Even if you win in court, you have lost big-time in that it will likely cost you tens of thousands of dollars to prove your case. Let's see, settle for $4,000 even though you did nothing wrong and the charges against you were completely unreasonable or fabricated, or roll the dice to prove your innocence and spend $30,000 in the process. That is, $30,000 if you win, and by the way, you will have no meaningful chance of recovering any of your costs. The Fair Debt Collection Practices Act (FDCPA) is over 30 years old and largely regulates communication pertaining to debt collecting. Keep in mind, when FDCPA was crafted over 30 years ago, answering machines were not even used, let alone faxing, e-mailing, texting, etc. ... The FDCPA is in desperate need of being updated, and many attorneys take advantage of this fact. It is filled with vague language and gray areas that are ripe for misinterpretation, which is just wonderful for low-level plaintiff's attorneys who are looking to make a quick buck at the expense of those performing an honest and needed service. Most third-party collectors go to great lengths and expense in an effort to comply with the FDCPA. Third-party collectors, at least the vast, vast majority of us, are simply attempting to get someone, the debtor, to make good on his/her legitimate obligation. What's not good and noble about that? It seems that your article actually encourages bad behavior and "making out" on a trivial technicality. Just because you can get away with something does not make it right. And I doubt you would be so keen on technicalities if someone in your family was the victim of a violent crime and it was found that an arresting officer of the accused perpetrator mishandled two trivial words in reading Miranda rights to the accused. Maybe that headline could read, "How to Outsmart Your Arresting Officer After Committing a Violent Crime." I give you the benefit of the doubt in that most people do not see things from our perspective; however, your article is disturbing, and it is never "smart" to devoid yourself of your rightful responsibilities. It is simply immoral! Thank you, Joel Lackey

Debt Collectos Warm and Fuzzy Side

posted on 2009-09-02 by Jim Stratton

Press release of the week so far goes to ACA International, the association representing debt collection agencies around the world.

It starts by pointing out that in 2008, complaints about debt collection firms was the number one problem cited by the National Association of Attorneys General. More people complained about debt collectors than they did car salesman, contractors and even telemarketers.

But lest you get the wrong idea, ACA International officials want to make clear that they're really looking out for you. They say they want to find ways to weed out the "small fringe of bad actors."

"There is no place in our industry for debt collectors who cannot treat consumers with dignity and respect," said Rozanne Andersen, the executive vice president and general counsel for ACA International. "The members of ACA International do not condone nor endorse any illegal, unethical or deceptive tactics when it comes to collectors contacting consumers."

To that end, the ACA board recently agreed to "explore the development of a national debt collection dispute resolution program."

It also "gave a green light this summer to further discussion on and research the concept of creating a national debt-collector registry."

So the group will "explore the development" of a mediation panel and have "further discussion" on "the concept" of creating a national registry.

Wow, that sort of bold action will send the "bad actors" scurrying for cover.

I am intrigued, though, by the debt-collector registry idea.

Do you suppose they'll have to alert nearby homeowners when they move into a new neighborhood?

Is the Collection Industry going forward or backwards?

posted on 2009-07-29 by Steve Ruderman

This month was a tough one for the collections industry. Attorney Generals from New York, Ohio and Virginia all went after collection agencies and collection attorney firms. Each of these attorney generals claimed that the agencies were violating the fair debt collections act and even claimed fraudulent activity. The Minnesota AG literally shut down the arbitration business by closing down the National Arbitration Association’s credit card arbitration business, which was followed by the American Arbitration Association backing out of the debt collection arbitration business as well. AG’s settled with Bank of America on the foreclosure issues with its' Countrywide subprime division it bought. Even the rental business is not safe. Rent-a-Center is being accused of illegal collection practices in the state of Washington, including harassing customers with profanity during collection calls and scaring children by telling them that their parents would be jailed. Is it coincidence that all these items are happening at once or is there a pattern that is being set? Has the Attorney Generals had enough with the financial services industry or have they figured out a way to go after an industry that is not popular with the media and has deep pockets to gain a badly needed revenue source? The states are hurting for revenue and is our industry the target of a way to increase their revenues? Unfortunately our industry is a prime target for politicians. Lisa Madigan the AG from Illinois (who has aspirations of higher offices) has said the worst type of companies are polluters and collectors. Great, we have been categorized with those who damage our environment. Let’s face it; we do not work in a user friendly industry. I spent 10 years working for one of the credit reporting agencies, when someone heard that I worked there it usually was followed up with a “you ruined my credit” comment. How often do you get a positive comment when you say you work in the collections marketplace? “Thanks for collecting all those debts owed, we know it keeps our rates down!” If you consider that 90% plus of consumers pay their bills on time and have a serious issue in having to pay for someone else who does not pay their bill. If everybody paid their bills on time, interest rates would be low and borrowing would never be an issue.I know I would not want to end up in court in front of 12 jurors and explain that I think the 12 jurors should have to pay my bills because I can’t afford to pay my own bills. If a politician is looking to gain popularity ask them about debt collection agencies? Regulate them, enforce against them, and never support us publicly. The fact that our industry is very necessary to recover funds for businesses is a lost issue. Our industry certainly is not without its faults. We have created this two headed monster with a lot of bad business moves. Universal default will not go down as a smart business decision, profitable in the short run, devastating in the long run. There are rouge agencies out there that do whatever it takes to collect outstanding balances. And the main stream press loves that. Nothing better than getting a collector on tape (or better yet film) screaming and cursing at a poor little old consumer who happens to have the same name as another deadbeat bill dodger. Overzealous collectors can take your business from profitable to shut down if they are not closely monitored. You have such a fine line to balance, if you are overly nice, good luck getting paid. If you are over aggressive, good luck getting paid and expect an on rush of media, consumer lawyers and politicians. Taking the approach as a professional is the best approach. You need empathy for the consumers today, who with the current economic conditions are completely different than the debt dodgers of the past. Now you have middle and upper class debtors who have never experienced delinquencies. How you treat these individuals now, will have a lasting effect on the consumers and our industry. The concept of self regulation has been tossed around for a while but has recently taken on a new drive. Let’s face it, if we do not control the industry, the government will do it. And we all know how successful the government is in regulating an industry. The hardest part of self regulation will be the breaking of the bonds and codes that exist about supporting your brethren in the collections industry. If they are not complying with the laws then turn them in. Let’s clean up our industry before the government does it. And judging by the number of Attorney Generals and FTC complaints, it is just a matter of time before regulations take hold. New York, New Jersey and North Carolina already have pending bills and more states are looking at new laws.

People, lets clean it up now and take out our own trash before the government does it for us! 

Your comments are welcome.

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