Part One of a Three Part Series on First Party Outsourcing

On May 1, 2000 the Federal Trade Commission (FTC) issued an Opinion Letter to Mr. Richard deMayo in response to his request for a staff opinion regarding the Fair Debt Collection Practices Act (“FDCPA”).

deMayo’s question, while lengthy and multi-layered, was quite simple. He asked the FTC the following:

“Whether employees of a collection agency are covered by the FDCPA when they attempt to collect debts by contacting consumers under the following circumstances. The collection agency begins to collect the accounts when they are two, three, or four payments past due, but when the creditor has not yet charged the accounts off. The collection agency’s employees (“agency employees”) use the name of the creditor, rather than the name of the agency, when calling or writing to consumers about the accounts. The agency employees are located at the office of the agency, and the agency controls the practices and procedures that the agency’s employees follow in collecting the accounts. You ask whether the FDCPA covers such agency employees (a) when the accounts being collected are “delinquent and not considered in default” by the creditor and (b) when the accounts “are considered in default by the creditor.”

The total opinion document was 1132 words. The question from Mr. deMayo was 146 words. The FTC’s response was 986 words. For the last fifteen years those 986 word have been the only guidance available to the industry on how to do what is now universally known as “First Party Outsourcing.”

For the past fifteen years lawyers have artfully drafted agreements that address such things as whether the accounts being worked are “in default” and whether the employees of an agency working the business are “de facto” employees of the creditor. Client “supervision” of the employees was dictated and outlined in those agreements. Often the contract would require that those same employees be segregated from the rest of the company and/or working in isolated space. Numerous other contractual provisions in First Party Outsourcing service agreements all have their genesis in deMayo.

The deMayo opinion still drives the industry. Unfortunately, in today’s environment, 986 words are not enough. More direction would be helpful.

Times have changed. The FTC remains, but the Consumer Financial Protection Bureau (CFPB) has assumed much of the FTC’s former responsibilities. If you log onto the FTC website today it is impossible to find any reference to the deMayo Opinion letter. Likewise, if you search the CFPB website, there is no reference to deMayo there either.

First Party work is a growing segment of the ARM business. What does this all mean? In addition to the deMayo guidance that has disappeared, you’ve now got a host of other matters to consider (both legal and business) - here are just a few:

  • As a collection agency, what does it take to do first party work and should you make the investment?
  • What do clients look for when they are evaluating outsource partners?
  • How do you recruit, hire, and train a large number of employees at once?
  • What are the new regulatory requirements associated with first party collections?
  • What is the latest scorecard model for monitoring and comparing performance of outsource partners?
  • How do the client and the agency partner to ensure the most effective QA program?
  • What are the unique labor and employment issues associated with first party work?


Editor’s Note: In October, insideARM will be hosting the first-ever conference focused exclusively on these and other First Party Outsourcing challenges. Discussion of the deMayo opinion will be the opening session. Other sessions will address the issues noted above.


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