Credit Union Journal has dedicated portions of the Aug. 6 issue and this current issue to helping credit unions to prepare for their 2013 Strategic Planning sessions. In my case, I've set my own goals for the new year: bankruptcy.
No, not the moral bankruptcy so many of you may assume I've already declared. I'm referring to standard, everyday, just plain ole' regular financial bankruptcy. Because after listening to one person, I have decided to walk away from all my debts, as it seems there is very little creditors can do about it. At the very least, I'm going to put the ssssllllooooowwww in "slow pay."
During the League of Southeastern Credit Unions' annual meeting in Orlando, David Jones of the Orlando-based law firm Rush, Marshall, Jones & Kelly, which works with numerous CUs on collections and bankruptcy-related issues, made it clear that what many already feel to be true is, in fact, reality. Apparently, it pays to be a deadbeat.
Not all debtors or delinquencies are deadbeats, of course. Many have legitimate life circumstances that suddenly have them on the dunning list and out of options.
Are You Comfortable?
There may have been bankruptcy reform, but at least in Florida and Alabama (which is served by the League of Southeastern CUs), observed Jones, credit unions and other creditors basically have to make sure they aren't making that debtor "uncomfortable."
He didn't say it, but lenders almost seem obligated to provide a comfortable chair and a cool drink to the past-dues.
Jones ran an audience through a list of Do's and Don'ts when it comes to collections, and it was hard to hear anything but the "don'ts."
"You can't say anything bad or good about the debtor. Don't talk to anyone about the debtor; that's what will get you in trouble," said Jones as he ran through rules only lawyers and legislators could concoct. "There are a lot of lawsuits out of all of this."
The devil is particularly in the details when it comes to the law, not that anyone can ever agree on precisely what those details mean (and who exactly is the devil is also up for interpretation). Jones noted, for instance, that if you're going to "communicate with the debtor or his or her family" it must be done with a frequency that is considered "reasonable." And what's reasonable? No reasonable person seems to know.
"If you don't have a really good reason to call them other than to harass them, that's harassment," he said. And in some cases credit unions are caught between the rock known as harassment and the hard place known as rules from Fannie and Freddie requiring a call to delinquent borrowers every 30 days. Good luck.
And What Does That Mean?
You likely know, too, to avoid "profane, obscene, vulgar or willfully abusive" language in talking to debtors. What do those terms mean? It's apparently in the willful ear of the beholder.
Something else to watch out for: the debtor initiates a conversation with the credit union and enters into a reaffirmation on a car loan. Great. Then you ask that same member about another debt. Um, not so great; it's against the law.
Other tips: don't leave messages of any kind on a phone machine, and if you retain a collections firm and they break the rules, chances are you could be sued under the Fair Debt Collection Practices Act.
Speaking of that law, Jones said as soon as a credit union says in a letter or a phone call that its communication is an "effort to collect a debt," it has made itself accountable under the Fair Debt Collection Practices Act.
Jones said one of his biggest peeves, which leads to real problems for credit unions, is when he is retained to review and rewrite a collection letter, and after he does so the credit union decides to modify the letter or "improve" it. "A lot of times, the modification is a violation of the law," said Jones.
The League of Southeastern Credit Unions' VP of Compliance Bill Bird said at the same meeting in Orlando that a particular vulnerability for many CUs is a merger, especially when the timing and nature of communications gets changed during the merger process.
"There is a penalty for every violation of this act," said Bird. "This can become a monster for you."
Jones said that many of the phone calls he reviews are in violation of the law. "Just because others are doing it, it's not OK," he said, noting things such as prerecorded messages for debtors are a violation of the law unless the borrower agreed to it at some point, such as in the borrower agreement, even though many do it. "Don't let an auto-dialer handle the call," he advised, adding with tongue in cheek, "You have to get the member to come in and agree to be dunned by a machine and other devices, and that's not going to happen."
Will Look For You In Line
And even if you're up to speed and currently in compliance, all of that case law and history could change, Jones said, once the CFPB starts weighing in with new rules. So an already-ambiguous legal morass that seems designed to put accountability down for the count is about to get even more "help" from the federal government?
I'll see you in the bankruptcy line-on the filing side.
Frank J. Diekmann can be reached at email@example.com.