US Private Child Support Collection Companies Regulation Resources in United States

US Private Child Support Collection Companies Regulation Resources

The Issue

State child support (IV-D) agencies are required to provide child support collection services to any state residents who request them, pursuant to federal law. In addition, residents who receive TANF are required to cooperate with the agency in pursuing child support. State and local programs have helped millions of custodial parents and their children. Recent advances and innovative enforcement mechanisms, such as automated computer systems, automatic income withholding and new hire reporting, have increased the effectiveness of government agencies.

In spite of these efforts, state programs have been criticized for the child support they fail to collect. Some obligors continue to evade state enforcement. Overburdened state and local agencies may not have the time or resources to devote to all of the difficult cases. In spite of the performance achievements of many state agencies, some cases slip through the cracks. Nationally, child support arrears equaled nearly $102 billion in 2004. In response, frustrated parents look for other solutions, including the courts and private debt collectors.

Private collection agencies have a strong incentive to collect support in even the most difficult of cases, since their payment is a percentage of any collection they make. (There is a distinction between private firms that provide child support services to the state and are subject to state oversight and scrutiny, as well as the terms of the state contract, and private child support collectors who work directly for obligee parents and may not be subject to any oversight or regulation.) They can take the time to pursue aggressively the most egregious support evaders. Custodial parents who turn to them for service say that even though private companies take a percentage of the support collected, children still come out ahead if they’re getting some of the support owed them, rather than none at all.

Because their payment is a cut of what they collect, private companies are more affordable than hiring an attorney for many lower-income families. They provide an option for those parents unhappy with how the public agency handles their case, but unable to afford expensive attorney fees.

As more private companies pursue child support debt, however, more parents, both custodial and noncustodial, are complaining about some of the business practices of these companies. Some of the complaints include:

written and oral communications with obligees designed to look or sound like they are from the state child support agency or other government entity,

repeated harassment of employers, family members and neighbors of obligors,

keeping as payment for services 50% or more of support collected,

intercepting current support payments from the state agency to apply to back support they contracted to collect for the obligee,

charging a fee for collections made by the state agency,

refusing to terminate contracts when requested by the obligee, and

requesting income withholding from employers without proper authority.

Furthermore, parents are discovering that there is very little state and federal oversight of these businesses. Private child support collection agencies are not covered under the federal Fair Debt Collection Practices Act that governs other collection agencies and lawyers. Some state regulations cover a broader category of debt collectors than the federal Act that may include child support collectors, although child support is rarely mentioned specifically in consumer protection statutes. Child support collectors also may be subject to state Unfair and Deceptive Acts and Practices (UDAP) statutes.

Pros and Cons of Regulating Private Support Collection Agencies

Arguments For Regulation

These laws can protect obligors, obligees and the private companies by clearly outlining acceptable behavior and business practices, and establishing consequences for any party that fails to abide by an agreement.
Regulation can prevent or curb the more egregious and abusive practices that some private companies allegedly engage in. In addition to protecting parents and children, this enhances the reputations of companies conducting their business ethically and honorably.
Regulations that cap fees ensure that the children who need support get most of the money collected on their behalf.

Arguments against Regulation

These laws are redundant. Parents with grievances already have an avenue to pursue redress – the courts.
Unethical companies will go out of business anyway. Consumers will hear through word of mouth and the media which companies to avoid. Likewise, they will hear which companies treat their clients well. Those companies that treat people poorly will lose customers and lose money fighting lawsuits.
Caps on fees and overzealous regulation will prevent well-meaning, ethical businessmen from engaging in child support collection, or put good companies out of business. This will limit consumer choice and may result in some kids not getting the support they deserve.

State Action

Ten states have passed laws specifically regulating private child support collectors: Arkansas, Connecticut, Illinois, Louisiana, Maine, Oklahoma, Oregon, Texas, Washington and West Virginia.

Arkansas

(A.C.A. §17-24-102)

Arkansas requires that private child support collection agencies be licensed by the State Board of Collection Agencies, and they are subject to the state debt collection law. They are prohibited under that law from charging more than 50% of the amount they actually collect.

Connecticut

(C.G.S. § 4a-18, §17b-93, §36a-805, §46b-213w, §52-362d)

Connecticut passed a bill in 2001 that expands the definition of a consumer collection agency to include private child support collection agencies and requires that they be licensed by the state Banking Department. Fees are limited to 25 percent of overdue child support actually collected, and private collectors are prohibited from charging a fee for support collected by a government agency. The new law requires contracts to specify fees and disclose that services are available from the state for a nominal fee.

Illinois

(225 ILCS §425.2.04)

Illinois includes private child support collectors in their debt collection law, but in a separate provision, allows them more leeway than other debt collectors. They are not restricted from:

frequently contacting obligors who owe arrears,
contacting employers of obligors,
Publishing or threatening to publish a list of obligors in arrears,
Disclosing or threatening to disclose an arrearage under dispute, or
Engaging in conduct that would not cause a reasonable person mental or physical illness.

In 2004, Illinois passed a bill prohibiting private collection companies from imposing a fee or charge for any payments collected through the efforts of a federal, state or local government agency; or for collection of current support. Collectors must apply any collections to current support as specified in the support order. Collectors need to provide documentation to the obligee demonstrating that payments resulted from the actions of the collector. Collectors may not charge fees once the total amount of arrearages due at the date of the execution of the contract has been collected.

The legislation directs the Department of Professional Regulation to establish a fee rate of not less than 25 percent and not more than 35 percent, depending on the costs demonstrated by licensees. It established a temporary rate of 29 percent until the department establishes a rule.

Louisiana

(LA R.S. §46.236.1.2)

Requires private collection agencies to comply with the Fair Debt Collection Practices Act (15 U.S.C. 1692 et seq.), and the Federal Trade Commission Act (15 U.S.C. 42 et seq.).

Maine

(19-A MRSA §2109)

Maine passed a law in 2003 that prohibits private collectors from charging a fee based on future child support payments. The law limits fees to unpaid past child support arrearages. The law also prohibits anyone who is not an attorney licensed to practice in Maine from entering into an agreement with another to collect child support. Finally, it subjects any private collectors to the provisions of the Maine Fair Debt Collection Practices Act.

Oklahoma

(O.S. §43.118.4)

Oklahoma passed legislation in 2004 that prohibits assigning child support to anyone except an attorney for legal representation of a client, or the department for recoupment of TANF costs. Attorneys must follow the Oklahoma Rules of Professional Conduct and cannot keep more than 50% of the amount of child support collected.

Oregon

(O.R.S. §25.020)

Oregon passed a law in 2001, and amended it in 2003. The current law allows an obligee to enter into an agreement with a collection agency. It directs the department (IV-D agency) to disburse payments to the private collection agency, upon request of the obligee. It also requires the department to create a form that an obligee can use to notify the agency of an agreement with a collection agency, and on that form, to notify the obligee that services are available from the department or district attorney without charges associated with a private collector. The law instructs the obligee to notify the department about an agreement with a collection agency and to notify the department when an agreement is terminated.

It requires collection agencies to include in an agreement with the obligee information on the fees, penalties, termination and duration of the agreement. Fees charged by private collection companies may not exceed 29 percent of each payment received, unless the agency, as authorized by an agreement with the obligee, hires an attorney to perform legal services on behalf of the obligee. The law also allows the IV-D agency to use information disclosed by the collection agency to provide enforcement services. It directs the IV-D agency to credit the obligor’s account for any support received by the department and disbursed to the collection agency. The collection agency is prohibited from initiating any type of enforcement action which is provided by the department without appropriate authorization. Finally, it directs the Department of Consumer and Business Services to adopt rules to regulate private collection companies

Texas

(Tex. Fin. Code, ch. 396)

Texas also passed a law in 2001 regulating private child support collection agencies. Texas law requires private collection agencies operating within the state to register with the Department of Banking and pay a $500 application fee, and allows the department to charge private collectors an annual fee of $500. The law also requires collectors to provide a surety bond or deposit of $50,000, and renew their registration every three years. Private collectors must have a written contract for services with clients with terms in “clear language.” The law prohibits collectors from:

Using threats or coercion,
Using or threatening violence or other criminal means to cause harm,
Falsely accusing an obligor of violating state or federal child support laws,
Taking enforcement action not authorized by law,
Misrepresenting themselves as a government agency,
Using a name other than the registered name,
Falsely representing the nature of child support activities in which they are authorized to engage, or
Falsely representing oral or written communication as coming from an attorney.

The law includes procedures for revoking registration of a company that doesn’t comply, and for resolving complaints against a company. It also includes provisions for civil actions against a private child support collector.

Washington

(RCW §19.16.250, §19.86.090, Ulberg v. Seattle Bonded, Inc. 626 P. 2d 522 (1981)

Washington has case law establishing that child support collection agencies are subject to the state’s debt collection and consumer protection statutes. Those statutes do not limit fees but do require licensing for debt collectors.

West Virginia

(W. Va. Code, §48-1-307)

West Virginia joins those states that passed legislation in 2001 regulating private child support collection agencies. It prohibits child support payments collected by the state from being redirected to a private collection company, and prohibits companies from charging a fee for any payments collected by the state. The law also prohibits collectors from:

engaging in the practice of law, unless they are attorneys licensed in West Virginia,
collecting money by threat or coercion, including use or threat of violence,
accusing or threatening to accuse a person of fraud, crime or conduct that would subject them to ridicule or contempt of society,
falsely accusing or threatening to accuse a person of willful refusal to pay a claim, including falsely reporting them to a credit agency,
threatening that nonpayment will lead to arrest or other judicial sanction without also disclosing that such action requires a court order,
using profane, obscene or other abusive language,
placing telephone calls without disclosing their identity and with intent to harass the person,
unreasonably publicizing information about the obligor including communicating with employers except through legal action, disclosing information to relatives or family members except through legal action, or publishing a list of “deadbeat parents,”
using a name other than the true name of the business,
falsely informing an obligor that they have something of value in order to discover more information about the person,
failing to disclose the name of the obligee on whose behalf they are collecting support,
falsely representing the nature of the claim or amount of the claim against the obligor,
stating or implying that they represent a governmental entity, or using any documentation that simulates or represents a governmental or court document.

The law also limits interest or fees collected on payments to 10 percent of the principal of the debt, which can be charged to the obligor or obligee, and directs companies to communicate with an obligor’s attorney when the obligor has retained one. It requires the collection company to provide the state IV-D agency with an accounting every 60 days of money collected and forwarded to the obligee. The law allows the obligee to cancel a contract with the collector upon 30 days’ notice, and directs contracts to include written notice of the right of cancellation.

The West Virginia law also establishes civil liability for collection companies, and creates a misdemeanor crime for those violating the provisions, with fines of $1,000 to $5,000 per incident.

Current Proposals

Three states have introduce bills during the 2006 session that would change their regulation of private child support enforcement companies: California, Colorado & Indiana

California

2005 California SB 896

The California bill requires contracts to contain the following:

An explanation of the fees
A statement that the fees are set by the company and not the state
An explanation of the nature of services to be provided
The expected duration of the contract, stated as either a length of time or an amount to be collected
Provisions for canceling the contract Contact information for the private child support collector
A statement that the private collection agency is not a government entity and that government entities in California provide collection services for free
A statement that the private child support collector does not collect support assigned to the state or county due to the receipt of Cal WORKS or TANF
A statement that the private child support collector will not retain fees from collections made by the obligee or other A statement that the private child support collection agency will not require or request that an obligee cease or refrain from pursuing services through a government entity
A notice that the private child support must retain case files 4.33 years after the expiration of the contract. The obligee may, prior to the disposal, retrieve the nonconfidential portions of the files.
A notice of cancellation

The bill gives the obligee the right to cancel the contract within 15 business days of signing the contract or receiving a blank notice of cancellation form; or if the collector commits a material violation. It also prohibits the private child support collector from taking support assigned to the state. This bill does not include a limit on the amount a collector is paid for services rendered.

The collector must also provide the obligee with the following information:

the name and any other identifying information of any obligor who made child support payments
the amount of support collected
the date on which each amount was received
the date on which each amount received was sent to the obligee
the amount of payment sent to the obligee
the source of payment collected and the actions taken by the collector that resulted in payment
the amount and percentage of each payment kept by the collector as its fee
This information is required to be available by mail, telephone or via secure internet access.

The bill includes provisions for obligee access to records.

The collector is prohibited from:

collecting or attempting to collect child support by means of any conduct that is prohibited of a debt collector,
misstating the amount of the fee that may be paid for the collector’s performance and the identity of the person who is obligated to pay that fee
making a false representation of the amount of child support to be collected
asking any party other than the obligor to pay the support obligation, unless that party is legally responsible for the payment or the obligor

The bill establishes procedures for pursuing damages and sets penalties.

Colorado

2006 Colorado HB 1066

The Colorado bill requires private child support collection companies to abide by the Colorado Fair Debt Collection Practices Act and prohibits them from engaging in any fraudulent, unfair, deceptive or misleading practice while soliciting an obligee to enter into a contract, including:

Imposing a fee for any payment collected through the efforts of a federal, state or county agency
Designating a current child support payment as arrears, interest or other amount owed
Intercepting or redirecting any current support or arrears paid to the obligee if payment is to be made through a central payment registry
Intercepting, redirecting, or collecting any amount owed to a government agency
Sending income-withholding orders to an entity unless the collector is authorized by state law

The Colorado bill allows private collectors to collect current support. The fee must be based on an hourly rate for services performed that result in a collection. Fees for arrears must be based on the amount of arrears collected and must not exceed thirty percent. The collector may not charge any other fee or may not deduct or reserve from current child support any amount owed by the obligee.

This bill requires private child support enforcement contracts to include:

A clear and accurate statement of current child support owed and the amount of support arrears, including any associated interest, late payment fee or other cost authorized by law that is to be collected
A clear description of the services that may be provided
A description and schedule of the fees that will be charged
A good faith estimate of the total fee amount
A description of the monthly accounting method
A blank copy of the monthly accounting form
Contact information for the collector and any agents
A statement that allows an obligee to cancel the contract at anytime, but requires the obligee to pay for child support arrears subsequently received as a result of the collection agency’s efforts

Contracts may NOT include:

A mandatory arbitrating clause that limits the rights of a person to seek judicial relief for a claim arising under the contract
A clause that requires the obligee to change the payee or redirect child support payments that would otherwise be payable to the obligee or another entity
A clause that requires the obligee to close or not open a child support case with certain entities
A clause that requires the obligee to waive his or her rights to review and consent to any modification of the contract

The Administrator of the Uniform Consumer Credit Code must promulgate rules and create notices to carry out this Act. Notices provided to obligees must include:

Notification that child support services are offered through various government services and the amounts charged for those services
A statement that the collector cannot require a government child support collection service to send payments to any person but the obligee
A statement that the collector will not provide legal advice or act as legal counsel for the obligee
A statement related to the rights of the obligee
A statement that the obligee may have the contract reviewed by an attorney and that the obligee may cancel the contract at any time

A private child support collector must provide an accurate accounting to the obligee each month, and also must provide the obligee with any requested information within five business days of the request.

Within five days of contacting an obligor, the collector shall send him or her a written notice containing the following information:

The name of the obligee
A statement of the amount of child support arrears and current child support owed
A statement that the collector assumes the amount due is correct
A statement allowing the obligor to dispute the existence or amount of child support obligation within thirty days after the receipt of the notice
A statement that the collector will verify the amount due if an obligor disputes the existence or amount of child support obligation. The collector will mail a copy of the verification or judgment to the obligor.
A statement that the arrears balance doe not include any amount owed to another entity

The bill includes provisions for obligees to cancel contracts and specifies that the n obligee will not have an obligation if he or she cancels the contract within thirty days of signing; or
within 12 months if the collector has failed to collect two thousand dollars or at least twenty percent of the total amount of any arrears or interest.

Indiana

2006 Indiana HB 1163

The Indiana bill directs a private child support collector to describe the terms and conditions of a proposed collection agreement in a written contract; including: the cost for the collection of delinquent child support; all fees, charges, and costs, including administrative and application fees; the right of the obligee to cancel the contract at any time. It prohibits a private child support collector from imposing a charge or a fee for cancellation of a contract.

A private child support collector may not impose a charge or fee, including costs, for the collection of delinquent child support that exceeds 25 percent of the support actually collected or that is collected by the obligee or another entity.

The bill requires a private child support collector to provide the following information to an obligee if the information is requested:

The source of each payment received from the obligor
The form of each payment received from the obligor
The amount and percentage that is deducted from each payment
The amount of delinquent child support owed by the obligor

It requires that a proposed plan for payment be provided in writing and approved by the obligee before the payment plan can be executed. The plan must also compute the amount of time needed to pay the total amount of delinquent child support and must be provided in the written contract. It states that if a private child support collector violates these requirements, the collector commits a Class A infraction.