oversight

Verbal Complaints Against Private Collection Agencies

Published by the Department of Education, Office of Inspector General on 2013-05-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                        UNITED STATES DEPARTMENT OF EDUCATION
                              OFFICE OF INSPECTOR GENERAL

                                                                                                  AUDIT SERVICES


                                                     May 8, 2013


FINAL ALERT MEMORANDUM

To:               James W. Runcie
                  Chief Operating Officer
                  Federal Student Aid

From:             Patrick J. Howard /s/
                  Assistant Inspector General for Audit

Subject:          Verbal Complaints Against Private Collection Agencies
                  Control Number ED-OIG/L06M0012

The purpose of this final alert memorandum is to inform you of our concerns regarding Federal
Student Aid’s (FSA) lack of enforcement of a contract requirement that Private Collection
Agencies (PCAs) report verbal complaints from borrowers to FSA.

We became aware of this issue during our audit of the Handling of Borrower Complaints Against
PCAs (ED-OIG/A06M0012), which covers October 1, 2009, through September 30, 2012.
During our site visits to three PCAs, Pioneer Credit Recovery, Performant Financial Corporation,
and NCO Financial Systems, Inc., we learned that none of the PCAs reported verbal complaints
to FSA even though they each received verbal complaints. Prior to our site visit, Performant
Financial Corporation was in the process of developing procedures for reporting verbal
complaints.

The U.S. Department of Education (Department) contracts with 22 PCAs. The current contracts
between PCAs and the Department state that each of the contractors will adhere to all complaint
procedures required by the Department.

The PCA Procedures Manual dated July 12, 2012, specifies the procedures PCAs must follow
when a PCA receives a complaint from a borrower; whether the complaint is verbal or written,
the PCA will:

        •    suspend collection activity on the account,
        •    forward a copy of the complaint to the Atlanta Regional office within
             1 business day via internal mail form, and then
        •    forward a response, including collector’s notes, regarding the
             complaint to the Atlanta Regional Office within 5 business days of
             receipt via internal mail form.
   The Department of Education’s mission is to promote student achievement and preparation for global competitiveness by
                               fostering educational excellence and ensuring equal access.
Final Alert Memorandum
ED-OIG/L06M0012                                                                     Page 2 of 5

Although each PCA visited had a slightly different process for addressing verbal complaints,
according to the three PCAs, they did not consider verbal complaints to be actual complaints
because they believed they had been able to “appease” the borrower and defuse the complaints.
In addition, none of the PCAs tracked or reported verbal complaints. Unless a borrower
followed up on a verbal complaint by submitting a written complaint, FSA was not notified of
the verbal complaint or whether the complaint was resolved. As a result, FSA is unaware of the
number or severity of verbal complaints that are filed by borrowers against PCAs and how these
complaints are resolved.

We recommend that the Chief Operating Officer for FSA:

1.1    Begin enforcing the contract requirement that PCAs submit verbal complaints to FSA.

1.2    Develop a quality assurance program to verify that FSA is receiving all verbal
       complaints.

FSA Response
We provided a draft of this alert memorandum to FSA for comment. FSA stated that it shares
the concerns identified in this alert memorandum and is committed to taking steps to address our
recommendations. In its response dated April 10, 2013, FSA provided a series of corrective
actions.

For Recommendation 1.1, FSA will:
   • provide more specific guidance and customer-related criteria in the contract concerning
       the types of activities that fall within the definition of a complaint,
   • expand the PCA Procedures Manual definition of unacceptable PCA behavior, and
   • initiate a series of progressive disciplinary or administrative actions against offending
       PCAs.

For Recommendation 1.2, FSA will:
    • add a provision in the PCA Procedures Manual to require PCAs to develop internal
       controls around identifying and reporting all verbal complaints,
    • require PCAs to submit internal controls for verbal complaints for review and approval,
    • require PCAs to report detailed information on all verbal complaints received on a
       monthly basis,
    • increase the number of reviews of random phone calls to assist in corroborating
       suspected complaints, and
    • increase the number of reviews of random phone calls to identify verbal complaints
       received by a PCA and whether the PCA has reported the complaint and taken
       appropriate action to resolve the complaint.

FSA believes it can successfully implement a more controlled monitoring environment around
verbal complaints within 45 days.

In addition, FSA provided comments on the body of the draft alert memorandum regarding the
definition of a complaint. According to FSA, any system for collecting and evaluating verbal
Final Alert Memorandum
ED-OIG/L06M0012                                                                     Page 3 of 5

complaints received by PCAs will be limited to “complaints” as defined in the PCA Procedures
Manual that fall under the following three parameters:

   1. Ensure that all attempts to collect on an account are fair and reasonable and do not
      involve harassment, intimidation, or false or misleading representation.
   2. Unnecessary communication concerning the existence of any debt information will not be
      given to persons other than the borrower or borrower’s attorney.
   3. Requests for information from third parties must be supported by borrower authorization.

FSA does not expect PCAs to report verbal complaints that fall outside of these parameters.
Specifically, FSA does not believe that borrower issues and misunderstandings related to
program requirements and not to PCA activities should be included in the definition of
complaints against PCAs.

We included FSA’s response in its entirety as an attachment to this memorandum.

OIG Response
We consider FSA’s comments to be responsive to our concerns and FSA’s proposed corrective
actions to resolve our recommendations. As FSA finalizes its corrective actions for the
resolution process, we note that the PCA Procedures Manual currently has no definition of what
constitutes a complaint against a PCA. The three parameters that FSA discussed do not provide
sufficient guidance on what constitutes a complaint.

Administrative Matters
Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System.

Alert memorandums issued by the Office of Inspector General will be made available to
members of the press and the general public to the extent information contained in the
memorandums is not subject to exemptions in the Freedom of Information Act (5 U.S.C. § 552).

We conducted our work in accordance with the Office of Inspector General quality standards for
alert memorandums.

For further information, please contact Keith M. Maddox, Regional Inspector General for Audit
at (214) 661-9540.

Attachment

cc: Susan Szabo, Chief Business Operations Officer, FSA
Phillip Rosenfelt, Acting General Counsel, Office of the General Counsel
John Kane, Deputy Director, Business Operations, FSA
Bradley Bumgarner, Executive Business Advisor, Mission Procurement Division/Acquisitions,
FSA
John Ramsey, Contracting Officer, Mission Procurement Division/Acquisitions, FSA
Dawn Dawson, Audit Liaison Officer, FSA
Final Alert Memorandum
ED-OIG/L06M0012                                                                            Page 4 of 5

                                             Attachment

                         UNITED STATES DEPARTMENT OF EDUCATION
                                                 Federal Student Aid


                                                  April 10, 2013

TO:             Keith M. Maddox
                Regional Inspector General for Audit
                Office of Inspector General


FROM:           James Manning /s/
                for James W. Runcie
                Chief Operating Officer

SUBJECT: Draft Alert Memorandum, – “Verbal Complaints against Private Collection
Agencies,” Control Number ED-OIG/L06M0012

Thank you for providing us with an opportunity to respond to the Office of Inspector General’s
(OIG) concerns expressed in the draft alert memorandum regarding the process for collecting
and evaluating verbal complaints received by Private Collection Agencies (PCAs). Federal
Student Aid’s (FSA) management shares these concerns and is committed to taking steps to
address the recommendations included in the memorandum.

More specifically, FSA will address the OIG’s recommended corrective actions as follows:

Recommendation 1.1: Begin enforcing the contract requirement that PCAs submit verbal
complaints to FSA.

Response to Recommendation 1.1: FSA will provide more specific guidance and customer-
related criteria in the contract concerning the types of activities that fall within the definition of a
complaint. FSA will also expand the PCA Procedures Manual’s definition of unacceptable PCA
behavior in attempting to collect a debt and increase the number of phone calls it reviews (see
below) to help determine if a PCA is submitting all verbal complaints. If FSA determines that a
PCA is not reporting all of its verbal complaints, FSA will initiate a series of progressive
disciplinary or administrative actions against the offending PCA(s) which will include warning
notices, recalling or limiting transfer of accounts, or suspension or termination from the
contract.

Recommendation 1.2: Develop a quality assurance program to verify that all verbal complaints
are being received.

Response to Recommendation 1.2: FSA is adding a provision in the PCA Procedures Manual
that covers borrower complaints to require the PCAs to develop internal controls around the
identification and reporting of all verbal complaints. These internal controls must be submitted
to FSA for review and approval.
Final Alert Memorandum
ED-OIG/L06M0012                                                                      Page 5 of 5

FSA will require each PCA to report to FSA all verbal complaints it receives on a monthly basis.
This reporting will include detailed information regarding each complaint, including:

   1)   the borrower name and account number,
   2)   the date the complaint was received,
   3)   the name and title of the representative who received the complaint,
   4)   the nature of the complaint,
   5)   the date the complaint was resolved,
   6)   the name and title of the individual who resolved the complaint,
   7)   any actions the PCA has taken to resolve the complaint, and
   8)   the PCAs assessment of the validity of the complaint.

FSA will increase the number of phone calls it reviews for each PCA to assist in corroborating
any suspected complaints. This will be accomplished by listening to recordings (or samples) of
the verbal complaints reported. FSA will also increase the number of random phone calls it
reviews for the express purpose of identifying verbal complaints a PCA has received and
whether or not the PCA has reported the complaint and taken appropriate action to resolve the
complaint.

FSA believes it can successfully implement a more controlled monitoring environment around
verbal complaints within 45 days. This will include implementing the changes discussed above,
addressing any PCA misunderstandings about what constitutes a verbal complaint, and clarifying
acceptable debt collection behavior.

In closing, we should note that any system for collecting and evaluating verbal complaints
received by PCAs will be limited to “complaints” as defined in the PCA Procedures Manual.
The manual defines complaints as items falling under the following three parameters:

   1. Ensure that all attempts to collect on an account are fair and reasonable and do not
      involve harassment, intimidation, or false or misleading representation.

   2. Unnecessary communication concerning the existence of any such debt information will
      not be given to persons other than the borrower or the borrower’s attorney.

   3. Requests for information from third parties must be supported by borrower authorization.

FSA does not expect PCAs to report verbal complaints that fall outside these parameters. Many
borrower issues and misunderstandings do not relate to PCA activities, but rather to program
requirements such Administrative Wage Garnishment or Treasury Offset. FSA does not believe
these issues are appropriate for inclusion in the definition of PCA complaints.

Thank you again for the opportunity to comment on your draft alert memorandum.


cc: W. Christian Vierling, Director, Student Financial Assistance Advisory Team