Consumer Bankruptcy Filings Top 100,000 for First Time Since 2005 Law Change
Published: November 20, 2008
October filings also reflect a 20 percent increase from September.

U.S. consumer bankruptcy filings increased 40 percent nationwide in October from the same period a year ago, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC) released Nov. 4, 2008.

The overall October consumer filing total of 106,266 also represented a 20 percent increase from September. Chapter 13 filings constituted 32.6 percent of all consumer cases in October, a slight decrease from September.

The October consumer filing total also represents the first time bankruptcies have topped 100,000 since the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect in October 2005. The 880,076 consumer filings through the first 10 months of 2008 (Jan. 1 – Oct. 31) have already eclipsed the filing total of 822,590 for all of last year.

“October's sharp spike in new consumer bankruptcies confirms the severe financial stress on household budgets caused by high debts, flat incomes, and declining home values,” said ABI Executive Director Samuel J. Gerdano. “We expect the 2008 numbers to be the highest since the new bankruptcy law went into effect in 2005.”

For more information, visit the ABI Web site.

USPS Amends Move Update Standards
Published: November 20, 2008
Postal Service increases frequency of Move Update processing requirements for mailers wishing to receive discounts.

The United States Postal Service (USPS) Move Update Standards provide mailers with discounted mailing rates if the mailer certifies the addresses included in the mailing have been updated to the addresses provided to the USPS via customer change-of-address forms. Recently, these standards were amended to increase the minimum frequency of Move Update processing from 185 days to 95 days prior to the date of mailing and to extend the standards to include all Standard Mail. The regulations were effective Nov. 23, 2008, however, compliance is not required unless the mailer wishes to participate in order to obtain certain discounts on mailings.

The Move Update program was instituted in 1997 to provide methods for mailers to reduce the number of mail pieces that require forwarding, return or discard through the periodic matching of a mailer's address records with USPS customer-filed change-of-address orders. The program aims to reduce wastes of time, effort and money for mailers and the USPS which occur as a result of undeliverable-as-addressed (UAA) mail.

The revised standard requires all addresses on mailings, receiving pre-sorted or automation discounts for First Class or Standard Mail, to undergo name and address correction within 95 days of the mailing. The standard applies to each address and not to a specific list or mailing. Mailers must use a USPS-approved method for updating addresses. These include:

• ACS or OneCode ACS;
• NCOALink – 48 or 18 months;
• FASTforward MLOCR;
• Appropriate Ancillary Service Endorsement; and
• Alternative methods (only if authorized by the National Customer Support Center).

Once the address has been updated using one of the aforementioned approved methods, the mailer must certify the names and address on each mail piece have been updated on the postage statement submitted in order to receive the mailing discounts.

A debt collector may find Move Update beneficial as it reduces mailing costs and may also enhance operations by improving address accuracy, timeliness and deliverability of collection notices. However, it is important to note that some of the approved methods require the disclosure of the mailer's address list, which may potentially violate third-party disclosure prohibitions under the Fair Debt Collection Practices Act (FDCPA). Collection agencies with such concerns can comply with the Move Update requirements by using on-piece ancillary service endorsements or international FASTforward matching, as neither requires the mailing list to be provided to a third party.

Further information on these standards may be obtained at the USPS Web site.

Hospitals Report Bad Debt Percentages of 7 Percent to 10 Percent
Published: November 17, 2008
Nearly half of surveyed administrators say their hospitals have experienced a 6 percent to 10 percent increase in uninsured and underinsured patients since early 2007.

Ninety-seven percent of hospital administrators representing 22 hospitals in 15 states said they are seeing a rise in the uninsured and underinsured populations, resulting in increased bad debt and the further straining of charity programs, according to an Oct. 9, 2008, TransUnion press release. Nearly half of the survey respondents experienced a 6 percent to 10 percent increase in the uninsured and underinsured population since the beginning of 2007 with another 28 percent observing an increase of 11 percent to 20 percent.

More than 40 percent of respondents indicated they have bad debt percentages between 7 percent and 10 percent.

Other key survey findings include: • Nearly 68 percent of survey respondents are concerned with how their state or local political landscape is changing, particularly as it relates to charity reporting or community benefit. • Nearly 79 percent of respondents said they are concerned that Consumer Directed Healthcare Plans (CDHPs) will increase their bad debt within the next two years. • When ranking business objectives in order of importance, 43 percent of respondents said increasing collections at the time of service and post discharges were their number one objective, followed by improving operational efficiencies at 21 percent and decreasing bad debt at 18 percent.

The findings were gathered from a survey administered by TransUnion in conjunction with its Healthcare Users Group Conference.

This article is provided as a service of ACA International's Healthcare Services Program.

Recent FTC Settlement with Bear Stearns/EMC Mortgage Affects the Credit and Collection Industry
Published: November 10, 2008
Companies agreed to pay $28 million to settle unlawful practices charges. FTC alleged they are debt collectors under the FDCPA because they acquired, sold and serviced large loan volumes.

In a recent settlement with the Federal Trade Commission (FTC), Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation, agreed to pay $28 million to settle FTC charges that they engaged in unlawful practices in servicing consumers' home mortgage loans.

The FTC alleged Bear Stearns and its subsidiary misrepresented amounts that borrowers owed, charged unauthorized fees, and engaged in unlawful and abusive collection practices. Notably, the FTC specifically alleged EMC Mortgage and Bear Stearns are debt collectors under the Fair Debt Collection Practices Act (FDCPA), in part, because in exercising their role in the secondary market for residential mortgage loans they acquired, sold and serviced large loan volumes.

The complaint asserted they violated the FDCPA by: (1) failing to meaningfully disclose their identity when placing telephone calls; (2) making excessive and threatening telephone calls; (3) falsely representing the character, amount or legal status of the debt by attempting to collect amounts not authorized under the loan agreement such as interest, fees and other expenses; (4) using deceptive means to collect a debt; and (5) failing to send a validation notice to consumers containing the amount of the debt and the consumer's right to dispute the debt and request verification.

The complaint also asserted violations of the Fair Credit Reporting Act, the Truth in Lending Act and the Federal Trade Commission Act.

According to the settlement agreement, Bear Stearns and EMC are required to pay $28 million to redress consumers injured by the alleged illegal practices. The defendants are also barred from future law violations and must implement new restrictions and requirements on their business practices. Those new requirements include implementing a data integrity program and coordinating a third-party assessment of the program every two years, conducting an internal audit to ensure compliance with the settlement and providing the FTC with certain consumer account information.

In particular, the data integrity program must be “reasonably designed to ensure the accuracy and completeness of data and other information that EMC obtains about consumers' loan accounts, prior to servicing such accounts.”

The requirement in the settlement agreement that the defendants implement a comprehensive data integrity program affects third-party debt collectors and asset buyers because the settlement expresses the FTC's concern with the accuracy and integrity of consumer account information transmitted throughout the industry, especially with respect to verification of consumer information prior to initiating collection efforts, accurate reporting of information to consumer reporting agencies, verification of chain of title during the purchase and sale of accounts receivable, and compliance with other applicable federal data security laws and regulations.

The FTC's complaint, the settlement between Bear Stearns/EMC and the FTC, and the FTC's press release discussing the recent settlement are available on the FTC's Web site.

Massachusetts Issues Data Security Regulations

Compliance with new Standards for the Protection of Personal Information of Residents of the Commonwealth is required by Jan. 1, 2009.

Massachusetts' Office of Consumer Affairs and Business Regulation (OCABR) recently released Standards for the Protection of Personal Information of Residents of the Commonwealth, as required under the state's identity theft prevention law of 2007. These regulations establish a stringent standard for businesses to protect and secure a Massachusetts resident's personal information. Compliance with these regulations is required by Jan. 1, 2009.

The regulations require any person who “owns, licenses, stores or maintains personal information” about a Massachusetts resident to “develop, implement, maintain and monitor a comprehensive, written information security program” to protect a Massachusetts resident's personal information. Personal information is defined as a combination of the Massachusetts resident's name plus one other data element such as a Social Security number or a financial, credit or debit account number. The regulations apply to personal information in any form, including electronic, paper, visual and audio.

The regulations apply to any entity, regardless of the entity's location, that owns, licenses, stores or maintains a Massachusetts resident's personal information. The program may be tailored according to various characteristics of the company, including its size and the amount of data it stores. However, the regulations provide 12 elements that must be included in any program. Specifically, the regulations require:

• Designation of employee(s) to maintain the program;
• Identification of foreseeable internal and external security risks;
• Development of employee security policies;
• Imposition of disciplinary measures for violations of the program;
• Prevention of terminated employees' access to personal information;
• Verification of a service provider's internal protection of personal information;
• Limitation on amount of personal information collected to only information necessary to accomplish the purpose for which it was collected;
• Identification of personal information maintained;
• Creation of physical access restrictions to personal information;
• Regular monitoring and upgrading of the program as necessary;
• Review of the scope of security measures annually, or as needed; and
• Documentation of responsive actions taken with any breach.

The regulations also require particular security measures for a company that electronically stores or transmits personal information. At minimum, a company must:

• Secure user authentication protocols;
• Secure access control measures;
• Encrypt all personal information that travels across public networks or is transmitted wirelessly;
• Monitor systems for unauthorized use;
• Encrypt all personal information stored on laptops or portable devices;
• Utilize an up-to-date firewall system;
• Use current system security agent software; and
• Educate employees on use of computer security system.

The regulations mandated compliance by January 1, 2009. However, on November 14, 2008, the OCABR issued a press release extending the deadline for compliance in order to provide flexibility to businesses that may be experiencing financial challenges due to national and international economic conditions. As a result:

• The general compliance deadline for the regulations was extended to May 1, 2009, consistent with the FTC's Red Flag Rules effective date, which requires financial institutions and creditors to develop and implement written identity theft prevention programs. OCABR noted this allows businesses addressing the FTC requirements to implement the state regulations at the same time.
• The deadlines for contractually binding third-party service providers to protect personal information has also been extended to May 1, 2009, and the deadline for requiring written certification from such parties has been extended to January 1, 2010. OCABR stated the tiered deadline will ensure proper consumer protection and facilitate implementation without overburdening small businesses during difficult economic times.
• The deadline for encrypting laptops was also extended to May 1, 2009, and the deadline requiring encryption of other portable devices has been extended to January 1, 2010. OCABR noted more reported data breaches related to laptops and laptops are more easily encrypted than other portable devices.

These regulations, coupled with Massachusetts' data security and document destruction laws, are the most comprehensive set of security laws enacted in any state thus far. The impact of the regulations will be seen throughout the United States, as any person maintaining personal information of a Massachusetts resident is required to comply by creating and implementing a comprehensive, written information security program. A collector required to establish a program may wish to speak with her own counsel or a qualified Members' Attorney Program (MAP) attorney for assistance in tailoring the program to the needs of the agency.

View these regulations.

This article is provided as a service of ACA International's Legal and Government Affairs Department.

U.K. Identity Fraud Cases Increase Nearly 50 Percent
Published: October 30, 2008
New figures show an increase in the number of new cases of identity fraud being reported in the United Kingdom..

January 2008 to June 2008 saw more than 3,700 identity fraud victims seek help from Experian's Victims of Fraud team in the United Kingdom, according to analysis from the global information services company. This represents a 46 percent increase compared to the 2,570 cases reported during the same period in 2007.

Of the cases reported during the first of half of 2008, nearly 60 percent of people discovered that their identity had been stolen when they checked their credit report. Experian's analysis suggests that savvy consumers are not only increasingly managing their credit information online, but are also using services to alert them to suspicious entries on their report that could suggest fraudulent activity has taken place.

Analysis of data from the cases reported in the first half of 2008 also reveals the most common forms of identity fraud. Forwarding address fraud—where a fraudster redirects the victim's post to a drop address that he/she then visits to collect mail—was the most common form of fraud; 37 percent of cases were victims of this method, compared to 32 percent in 2007. Present address fraud, the most common method in 2007 (39 percent), dropped to 30 percent in 2008.

Those renting—either privately or from local authorities—are at high risk of identity fraud. People living in rented accommodation are more likely to share mailboxes and tend to move house more frequently than homeowners. This provides fraudsters with more of an opportunity to misuse credit histories that have not been updated.

This article is provided as a service of ACA's Creditors International Division.