A Guideline to Self-Review of Debt Collection Letters

In 2010, a record-setting number of lawsuits were filed against members of the collection and debt purchasing industry, marking a huge increase over the already-high 2009 totals (“Nearly 11,000 FDCPA Lawsuits Filed in 2010,” Jan. 12). Industry estimates suggest more than five times as many lawsuits were settled in advance of filing during this same period.

The vast majority of these suits alleged excessive call frequency, harassment or unauthorized third party disclosure of the debt in a voice mail message or at the consumer’s place of employment. Due to this increase in claims based upon telephone calls, the unrelenting Catch 22 presented by Foti and an alarming increase in Telephone Consumer Protection Act claims, the industry has become understandably apathetic about suits alleging collection notice violations.

Many of you who are new to the industry may not realize claims based on alleged collection notice violations were all the rage during the 90’s. In fact, the cottage industry we know today as the mansion industry of FDCPA consumer lawyers found its roots in collection notice law suits. The suits were easy to prove, difficult to defend, costly to settle and almost always pled as a class action. The situation eventually became so alarming and so costly that some errors & omissions insurance carriers actually mandated the legal review of collection notices as a condition of coverage. I am pleased to report the industry took the letter review process very seriously and within just a few short years made the FDCPA lawsuit based upon a collection notice an historic footnote.

But history repeats itself and a review of recent claim trends suggests the collection notice letter lawsuit is once again gaining a foothold. Fortunately my five point checklist will help protect you from such litigation:

1. Take inventory of your collection notices. Do you really know how many you have in your inventory, when they should be used and who has the authority to use them? Have you deluged your letter vendors with so many variations of your collection notices even the best of the best might be confused to their usage?

2. Reduce your inventory of letters. Even the largest, most diverse collection agency does not need 750 different collection notices. I know many believe the carefully chosen wording of their collection notices is the reason they are successful. The truth is letters don’t collect money; people do. You should certainly have a variety of letters in your inventory to handle specific situations, markets and campaigns. But before you add another letter to your inventory or save another one for posterity, test the letter’s return on investment and like the clothes in your closet…if you haven’t used it in two years, get rid of it.

3. Ask yourself, are you irrationally or emotionally tied to your collection letters? Were you unable to reduce your inventory of letters as recommended in step two? If so, you have lost the ability to be objective about the content of your letters. I won’t go so far as to suggest you need an intervention; but you may need a third party to help you let go. I recently spoke with an agency owner who told me he still likes his letters from the 70’s. He explained if they were good enough for his father they are good enough for him. While this is touching; it is not good business.

4. Conduct a compliance review of all of your letters. Those of us who conduct letter reviews usually run each letter through a 50 point checklist. Special text requirements, font size, conspicuous notice requirements, license numbers and overshadowing are just a few of the many legal issues presented in collection notices.

5. Establish a letter seeding program. Letter seeding is an internal process whereby the owner and executive management staff of the collection agency or the debt purchaser who has contracted with a collection agency to service its debt, actually receives a copy of each unique collection notice the agency mails to consumers. This recommendation is the explanation for the title of this week’s blog and a step often overlooked by key decision makers. It is easy to institutionalize once you establish the policy of seeding your collection notices and serves as a wakeup call for many owners and debt purchasers.

Andersen has a national law practice with the esteemed compliance and reputation management firm of Morrison Fenske & Sund in Minnetonka, MN. She may be reached at 952.277.0132 or by email at randersen@morrisonfenske.com