Could Your Collection Law Firm or Agency Be Fined $250,000?

On February 17th, reported that action was taken by the Minnesota Commerce Department against 49 debt collection agencies nationwide for failing to properly screen employees and employing known felons. Their parent company was ordered to overhaul its employee screening process and pay $250,000 in civil penalties.

This action raises important questions for everyone in the collection industry:

  • What due diligence are collection agencies and collection law firms required to do before hiring collectors?
  • Are there federal laws and state laws governing hiring practices?
  • Is a background check on potential collectors required or even advisable nationwide?

Due diligence needed for hiring collectors:

Because the company in question was cited for failure to do the following, it seems wise to include them in your hiring “due diligence” practices:

  • Establish adequate procedures to follow when screening individual debt collector applicants.
  • Check with your local Department of Commerce to determine if submitting applications to the Commissioner for registration is required and what they consider “adequate procedures.”
  • Do not hire debt collectors who have criminal backgrounds that include felonies.
  • Notify the Department of Commerce when registered debt collectors are fired for reasons that are in whole or in part violations of state law, including alleged FDCPA violations such as: a) third party disclosure; b) vulgar language; c) calling and swearing at debtors; d) failing background checks, and e) other harassing behavior.

In an article on, Andrew Vess, recruiter for Wells Fargo & Co. Financial pointed out, “There are some pretty savvy interviewees out there. [Don’t rely on] the gut-feel and always perform the due diligence.” In the same article, Howard Hunter, owner of Glendale-based Select Information Services Inc., points to U.S. Department of Commerce reports stating that omissions or incorrect credential qualifications occur 20 percent of the time during hiring.

Federal and State Laws:

The author of a Kaplan Group article, Reputable Debt Collection Agencies Screen Collectors, says, “There are laws regulating the hiring practices of retail agencies (i.e., agencies that collect from individuals). Debt collection agencies are required by law to not hire criminals, and they are required to conduct background checks for all new hires which must then be submitted to state regulators. Reputable agencies will never knowingly hire a criminal or a person with a questionable past. While not regulated the same as retail agencies, commercial debt collection agencies that collect exclusively from businesses still must be diligent in their hiring practices.”

Additional research by The National List determined that laws regulating hiring practices are at the State and not the Federal level. The National List recommends that you become thoroughly familiar with Federal Laws, such as the FDCPA, and with any state or local laws in the jurisdictions where you are collecting.

Background Checks and Reliable Vendors:

The Kaplan Group article continues, “Background checks of all collector applicants should be normal operating procedure at agencies. Sensitive financial information is always part of the collection process, especially if there is a personal guarantee attached to a business’ debt. As part of the background check, the agencies should call several of the collector applicant’s references. Talking to prior employers often will raise a red flag if any previous problems exist.”

An executive of Nationwide Screening Services told The National List that it is usually not a violation of a state law but a breach of contract that gets agencies in trouble. Background checks are contractually required as part of the hiring process by all large financial institutions. They regularly audit their collection organizations to make sure that the background checks are on file. It’s not enough to just say they ran one. “Even small law firms and agencies should spend the $50 to do it, whether it’s a requirement or not. They should want to know if they are about to hire a felon.”

The National List recommends that you check with Alliance ACA sponsored by ACA International, and with other reliable industry vendor sources to locate reputable and affordable background check services appropriate to your business.

Categories: Business Relationships, NL Insider

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