Earlier this year insideARM published two separate stories on the 2000 and 2002 Federal Trade Commission (FTC) Opinion Letters regarding first party outsourcing.
The first article, published on July 29th, discussed the 986 words that have guided first party outsourcing for 15 years. In that first article we explained that Richard deMayo sought and obtained an opinion letter from the FTC regarding first party outsourcing.
The second article, published on August 10th, explained that, two years after issuing the first opinion letter, the FTC issued a second, longer opinion. That article addressed the 1517 words that have guided the first party outsourcing industry for the past 13 years. The FTC added additional color and detail to their original opinion. But, not too much additional detail. They only added 531 words.
The deMayo opinion letter was the last official opinion ever issued by the FTC on this topic. The two letters were the only guidance the industry has ever received on how an ARM company had to act when doing first party outsourcing.
Last week I had the opportunity to sit down with Mr. deMayo to discuss those letters. The following are excerpts from that interview:
insideARM: Richard: Thank you for taking the time to meet with me. The first question I would like to ask you is this: What prompted your request for an opinion letter from the FTC in the first place? Was it a potential client project?
Richard deMayo: OK, it was this… back in 1998 or 1999 I had somehow found out that local hospitals were using first party collectors from collection agencies in their business operations and that disturbed me for two reasons. The first was the fact that the collectors weren’t giving the requisite FDCPA (Miranda) notices. Second, they were also representing themselves to be employees of the hospital. You have to remember that back in 1998 or 1999 first party outsourcing was primarily a feature of healthcare collections. I don’t believe there were other creditors doing any first party outsourcing back then.
The practice bothered me for two reasons. One, from a competitive standpoint I didn’t think that was fair. There is a big difference between first party and third party collections. First party collectors had a lot of advantages over third party collectors (And we didn’t even do hospital collections at the time.) Second, and this may sound odd, I didn’t think it was fair to the consumer who wasn’t being given any notices of their rights under the FDCPA. So that is what led to my request.
insideARM: What was the initial FTC reaction to your request? How long did it take to get a response? Were there any face-to-face meetings or conference calls between you and the FTC prior to issuance of the first letter?
Richard deMayo: I really don’t recall any specific FTC reaction. I haven’t really gone back and dug through my old files, but I do remember working with Tom Kane from the FTC. I don’t recall a whole lot of back and forth. I also don’t remember any specific face-to-face meetings about my inquiry. I had met him at some industry conference and ran into him several times after that at other industry events. I really only dealt with Tom. I remember him being very professional and a pleasure to work with. There may have been a phone call or two, but nothing that I recall as significant. But, the short answer is that about all I remember is I wrote with a question and got an answer to that question. Without going into storage and looking at my old files I am not even certain when I sent the first request. But, I don’t think that it took a long time for him to get back to me. To be perfectly candid, I thought it was a long-shot for them to even respond to me. They just didn’t issue many opinion letters and I don’t believe they issued any more after they issued their second letter to me.
insideARM: Do you know what happened in the two-year period between the first letter and the second letter that prompted the FTC to issue the second letter?
Richard deMayo: I don’t know this for certain, but I suspect the answer is that Mr. Kane and the FTC got a lot of phone calls and inquiries about that first letter. I was happy with the first response. But, I also think it is good that they issued the second letter. That one was a bit more definitive. I thought both responses were good and both were correct.
insideARM: After you got the first letter, did you then start marketing first party services?
Richard deMayo: No, no….that was never my intention. I never wanted to do first party collections. I just wanted a clear mark on what was/is first party and what was/is third party. I could see that first party outsourcing had the potential to grow and I didn’t want to see the first party players seep over into the third party world. My request was actually a “defensive” maneuver. I wanted the rules spelled out more clearly. I didn’t want third party collectors acting as first party collectors without some additional guidance.
insideARM: Did you ever have any idea or inkling that 15 years later the two letters you received would be used by so many companies as a guide for how to do first party outsourcing and that they would be the only guidance ever issued on the subject?
Richard deMayo: Well, I have to say I’m not really surprised. That was really the purpose of my inquiry. I asked for clarification and….they gave it. I am also not surprised that first party outsourcing is such a big part of the industry these days. You could see it coming back then.
insideARM: After reading the two opinions, do you think that the FTC suggested that the creditor needed to have a person “on-site” at the agency to exercise control and supervision over the agency and their staff? Or did the FTC suggest even a tighter relationship to establish a “defacto employee” status?
Richard deMayo: I don’t think the FTC was requiring a creditor to have someone on-site, though it might be a really good idea from the creditor perspective. I always thought that the whole letter was “suggesting” not requiring behavior needed to do first party outsourcing. From a creditor perspective having an employee of the creditor on-site full-time might reduce risk, but I don’t think it is required. It is all about reducing risk. I never felt that the agency staff had to receive paychecks from the creditor. But I did think that the agency employees needed to be trained in the same manner as the credit grantor’s employees. They needed to be trained to act just like the creditor’s own employees.
insideARM: Richard, thank you again for your time. You left the ARM industry shortly after these letters were issued. We have 2 last questions: 1) What are you doing these days? 2) Do you miss the ARM industry?
Richard deMayo: I am retired. I love to fish. My wife and I both got our pilots license. We split our time between our home in Atlanta and our home at the beach. We fly ourselves back and forth. I miss a lot about the ARM industry. I miss the people. I had a great partnership with Doug Wallace for over 20 years. We had great employees that helped us build a nice business and then sell that business. I still keep in touch with many of them. We were also fortunate that we had terrific clients that taught us a lot. The ARM industry has great people in it, from clients to competitors.
It is absolutely amazing that the 13- and 15-year old “deMayo Opinion” letters are still the only guidance ever given by a regulatory body on first party outsourcing. Equally amazing is that the catalyst behind those letters, Richard deMayo, had the resolve and fortitude to ask for the opinions. The ARM industry owes him a debt of gratitude.
The deMayo opinions will be one of the topics covered in insideARM’s inaugural First Party Outsourcing Summit, October 12-14 in Minneapolis. Click here for additional details on the Summit.