If you forward debt collection matters to law firms, it is critical to have a well-documented Legal Forwarding Agreement. There have been several reports in which clients have had experiences where they lost a significant amount of money due to the lack of details in their forwarding agreement. Some instances reported in the past were:1. Errors in remitting 2. Billing errors 3. Suits not being filed timely 4. Slow reporting 5. Unauthorized payment and settlement arrangements
Most recently and more significantly, a third-party collection agency reported that they lost a client due to the poor performance of the law firms they use for litigation. The client felt that the firms were not adhering to their expectations. I asked a representative of the agency if they had a detailed legal forwarding agreement with the law firms, and he admitted that is an area where they need some help.
Are you in danger of losing money because you forward claims without a comprehensive Legal Forwarding Agreement?
We can help! At The National List, we’ve seen dozens of Legal Forwarding Agreements prepared by creditors, collection agencies and debt buyers, some detailed and some lacking in essential elements. When writing this blog, I called on a friend and industry veteran, Carol Jodrey, for some advice. At this time, she is providing consulting services for law firms and clients in areas including: process, compliance, audit, performance, operations and collections. If you are in need of consulting services in any one of these areas, you can contact Carol at firstname.lastname@example.org.
We know that comprehensive Legal Forwarding Agreements include, but are not limited to, the following sections and details:
- Duties / work standards – Many agreements advise the firm of the following expectations with regards to handling forwarded accounts:
- How and when to acknowledge receipt of placements.
- When to send a demand or validation letter.
- Collection efforts the firm should take prior to filing suit (e.g., number of calls to make).
- What criteria must be met before filing suit.
- How and when to request documentation necessary to commence suit.
- When to commence legal action.
- What post-judgment remedies should be executed and when.
- What settlement and payment arrangement authority the firm has.
Years ago, claims were forwarded to lawyers for litigation purposes only. Therefore, work standards were not as common in legal forwarding agreements. Today, many law firms engage in pre-litigation practices, which give the consumer an opportunity to make arrangements to avoid a law suit. It is a good idea to include your expectations pre- and post-suit in your legal forwarding agreement.
- Reporting Requirements – Advise the firm how and when they should report the status of each claim. Many clients ask for a report on all accounts weekly or monthly. Some ask the law firm to report on specific action items. Many clients either use an electronic system, such as YouveGotClaims, or they include a sample spreadsheet showing the format in which the law firm should report. For tracking purposes, it is best to request that all law firms report in the same manner.
- Include all cost authorizations. Most agreements state that all costs require prior authorization.
- Advise the firm when and how they should bill you for costs. For consistency purposes, many clients include a cost authorization form for lawyers to use.
- Define the law firm’s compensation. In the debt collection industry, most firms are paid on a contingency fee. The most common rate we see is 25%.
- Advise whether or not the firm should gross remit or net remit. Most clients allow the firm to net remit.
- Advise how and when the law firm should remit payments.
- Most agreements require the law firm to reimburse the client for court costs expended out of the first monies collected. After the subtraction of the court costs, the attorney can take their commission, as set forth in the fee schedule provided to the attorney.
- Advise how payments should be allocated and posted. Prior to any commissions earned, debtor payments should be credited to any outstanding court costs.
- With each remittance, require the firm to send a remittance statement that should include: dollars collected, commissions, amount remitted, claim name and claim dollars.
- Insurance Coverage – Many clients require law firms provide them with proof of insurance. The National List of Attorneys gathers insurance documentation on behalf of our clients from our law firm members upon request. However, in order to do so, you must require the firms carry specific insurance coverage in your legal fee agreement. Commonly requested insurance coverage includes:
- Professional Liability – Malpractice
- Crime and Fidelity coverage
- Commercial General Liability
- Audits – It is important to include language in the agreement that reserves your right to audit the firm’s records that pertain to your claims.
With a more detailed agreement, the consistency in performance will improve among the firms in your legal network. This will make your network more manageable and more acceptable to your clients. If you are going to prepare a legal agreement pertaining to the assignment of your collection matters with a law firm, you may want to start by reviewing the NARCA model contract found on www.nationallist.com under Legal Resources. Always have either the in-house counsel review your draft and approve of the language, or hire an attorney to review the document to ensure your rights are protected.
By Beverly Unrath