Collection Agency Exec. Rebuts Negative Press

Time magazine and others in the press have recently issued critical reports about private collection agencies collecting child support payments. These reports have suggested that these private agencies are enriching themselves and not serving the needs of their clients. Jim Durham, President and founder of National Child Support, takes exception to the facts presented, and has written a white paper in rebuttal. In this paper, he describes a GAO report that supports his position and contends that the originators of much of the misinformation in the press are themselves serving self-interests.

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Rebuttal of Negative Press about Private Collection Agencies Collecting Child Support

By James L. Durham, President and founder of National Child Support

It continues to amaze me that reporters in the national press are still failing to investigate the invalid hype and rhetoric they is being spread (by parties who stand to gain from this misinformation), regarding the tremendous benefits provided by private collection agencies (PCAs).

The following information should help any reader begin to understand the drastic problem of child support defaults in America, the urgent role private collection agencies (PCAs) play in helping families and the hurdles our industry is working hard to overcome.

As President and Founder of National Child Support (NCS), beginning business in 1992, I have been proud to have NCS provide collection services to both government child support offices as well as private custodial parents. NCS has represented nearly a dozen-government child support collection offices under contract over these years and we represent private custodial parents in jurisdictions where we do not currently have government contracts. NCS has collected millions of dollars for thousands of custodial parents. Please see our WebSite at: www.nationalchildsupport.com. NCS is one of the oldest and most well respected companies in private child support collection. Thus, the reader can understand and gage the substantive nature of the following information.

In early 2001, some negative “sensationalism” stories began to surface regarding how PCAs interfaced with parents seeking private child support options. These “sensationalism” stories caused the U.S. Senate to instruct the General Accounting Office (GAO) to launch a formal investigation. The GAO thus did a full-blown investigation on the issue. As a PCA owner, I am proud to report that nowhere in the GAO report do you find the first shred of evidence or even any mention of any PCA impropriety! The GAO spent numerous months working on this with NCS and other national PCA companies. If these problems “really” existed, they would be documented in the GAO report.

In reality the GAO report found that PCAs were urgently needed. The highlights of this report are:

• With Government collections efforts falling further and further behind, private collection companies are urgently needed to help parents. According to the OCSE Annual Report to Congress (FY 2000 data), government offices in FY 2000, only made a collection (of some amount) in 41.6 percent of the 17.4 million cases in its caseload. This means 59% of the parents received nothing. In terms of support dollars collected out of what was owed in current and past years support, in FY 2000 the program collected just 19 percent ($20 billion) out of the $107 billion in support owed in that year. Keep in mind that, according to Census Bureau and OCSE data, only about 63 percent of child support eligible families are in the government program. That means there are a lot more families owed child support than the amounts government figures represent. All of this points to the tremendous unmet need that exists for child support enforcement.
• The amount in default has grown from 45 billion to 89 billion dollars in the last four years. This number only includes cases that State child support agencies are actively pursuing. It does not include cases that have been closed by the government. Government offices close millions of cases annually (according to the OCSE Annual Report to Congress) because they cannot locate the defaulting parent. The arrearages due on these cases do not get counted, nor do the cases where a parent with custody has never “signed up” with a government office for service. From studies NCS has performed, we believe the actual dollar figures in default to be closer to 300 billion versus the 89 billion reported.
• Overall, the percentage of what is being collected (versus what is owing) continues to decrease.
• 92 % of parents hire collection agencies because of their “frustration” with the lack of service they receive with government offices.
• Private companies are much more diligent than government offices and use numerous additional (and more effective) techniques to collect the back support.
• Private collection companies work only the oldest and “toughest” cases. These include the “self-employed” defaulters, or the defaulters who run across State lines.
• Many of these parents have no where else to turn. If a child is over 18 years of age, half of the government offices in America will not even accept a parent’s case.
• The balances worked by collection agencies are over 7 times as large, versus what government offices work.
• The private collection agencies can be much more effective if barriers would be removed. These barriers are restrictive State laws that have been passed, government offices that refuse cooperation and disobey a custodial parent’s direct instructions and confusing policies and procedures. The GAO strongly recommends this be changed so that more private collection companies can begin to help with the problem.
• One of the largest problems is locating the defaulter. The report found that private collection agencies use much more effective tools. The report also found that private collection companies should be given access to locate data that is already authorized to be given to the custodial parent of his/her agent. Essentially, that it does not make a difference whether a parent is going through a government of private office, that the parents and their agents are already allowed access to data, forms use etc.
• The ability for a private collection agency to use authorized “income withholding forms” needs to be clarified so that more child support can be collected.
• Accurate “balance due” data should be supplied to the private collection agency as agent to the custodial parent. Sadly, many times this data is withheld.

NCS believes that every child deserves to be supported and we strive to provide the highest level of client service possible to the parents and children who count on us for their child support. The release of the GAO report was very timely. I was pleased to see that the GAO’s investigation found that private collection agencies “play an important role for parents who have trouble collecting upon the difficult types of interstate, self employed and older child support cases”. The GAO report made a strong recommendation for improved collaboration and communication between Government offices and private companies. I could not agree more.

I, and several other of my fellow private child support collection agency colleagues, attended a meeting in April of this year sponsored by the Federal Office of Child Support Enforcement (OCSE) hosted by Director Dr. Sherri Heller, where the GAO report and these problems were discussed. In attendance at this meeting were a number of State Child Support Directors, as well as several industry detractors. During this meeting in April with Dr. Heller, the detractors were very threatening towards Dr. Heller, HHS and the current Bush administration regarding HHS supporting the GAO recommendations. To the point to where they were being disruptive. The detractors made it very clear they were very unhappy with the GAO investigation’s results, and made threats of negative publicity towards PCAs and HHS that are sadly now being realized. In reality, these latest stories are a weak attempt to discount the fact that the GAO report in reality proves (to be lies) all of the negative rhetoric these PCA detractors have spread for years (and are continuing to spread)! The GAO report is the detractor’s worst fear realized. It tells the truth about the billions of dollars that is owed to the nation’s children and clarifies that collection agencies are desperately needed.

The GAO’s recommendations (that were enhanced and clarified in April’s meeting) are:

Access for PCAs to the Federal Parent Locator System (FPLS) and new hiring reporting as a parent’s agent. The only question is how they can get access to it. This was one of the key suggestions of the GAO (that parents and PCAs get immediate access to this information to increase collections). Interestingly enough, in one of the news stories, a State bureaucrat (worried about her job because PCAs are so successful when her office is not) stated she was worried PCAs would “sell the data”. Naturally, PCAs would be forbidden to do so. Let me put the shoe on the other foot. How do we know her State isn’t selling the data right now? PCAs would be under the same restrictions and the data would be protected in the same way it currently is.

Corrected procedures and direct HHS authorization for PCAs to be able to issue Direct Income Withholding (DIW) garnishments directly to employers. This was one of the key suggestions of the GAO as well (to increase collections).

A firm formal policy from HHS that all State and County CSEA offices are “mandated” to follow the direct instructions of parents who formally advise the CSEA to “redirect” payments to a PCA, and that these instructions from parents must be obeyed.

A firm formal policy from HHS that all State and County CSEA offices are “mandated” to follow the direct instructions of parents who formally advise the CSEA to provide an accurate payment history or statement of arrears to a PCA, and these instructions from parents must be obeyed. Dr. Heller pointed out that if we had accurate data, we would certainly have less “inaccurate” withholding orders issued by PCAs.

There are important regulatory and constitutional issues at stake with the above four issues.

Yet with all of this overwhelming evidence from a from a non-biased non-political GAO report that PCAs are a “good thing”, reporters in the recent stories continue to fail to investigate the outlandish statements made by the PCA detractors.

Why? Is sensationalism that important versus investigating the truth?

Our detractors, at the meeting in April and on their websites, make wild statements of boorish behavior by PCAs. Who are these companies doing these things? None of the industry officials I have ever met do any of these things mentioned. Where is the tangible evidence and proof? It would only be responsible journalism for these reporters to make these detractors “prove” their wild statements. Instead, the detractors like to “fan the flames” of controversy just to get their name in the press so they can sell memberships to their organizations. NCS has never “rip anybody off” or “stolen money”. We create a revenue stream where, for an average of 7 years, there wasn’t one before we became involved. The only option our clients have otherwise is to lay thousands of dollars out up front with attorneys with no promise of success. If PCAs do not collect, we do not get paid. Parents who hire us have no risk.

It is no secret that PCAs are required to “route” payments through government offices. That is where the payment is ordered to be sent by the court. But just because the payment “routed” through the government office does not mean the PCA did not work the case. This is the main issue in some of the negative stories. The average parent who come to a private company for help has not been paid in 7 years and is owed over $20,000.00. However, on most of the cases we work, a government office will start working the case (after years of letting the case just lie dormant). The government does not want to look bad so they work a case just because the PCA started working it. So, in reality, the PCA efforts are serving the parent in a roundabout fashion. If a PCA works a case, they deserve to be paid.

None of these facts came out in any news reports. Only limited negative stories and innuendo. One reporter even attacked the GAO as being biased. As most readers are aware, the GAO is non-political and neutral. Sensationalism sells. I simply believe that the facts should be told.

In several stories detractors reference “volumes of complaints”, “some as thick as telephone books”. Yet during the meeting in April, no actual complaints were provided. PCAs collect tens of millions of dollars annually. In any industry there will always be some complaints. But where are these huge volumes of complaints? Are they real? Are they legitimate complaints, or just clients of PCAs that are trying to “beat the PCA out of its fee” once the PCA got the money flowing (this happens about 5% of the time). These reporters should make these detractors (who they love to quote in their stories) prove their claims of “volumes” of complaints and their statements of “predatory” tactics by PCAs. PCA industry officials are clueless as to why no reporters are bothering to investigate the facts. I was told recently that in some states for every actual complaint filed against a PCA there are 3,000 complaints filed against the government CSEA offices. Why is this never mentioned anywhere by the reporters?

All NCS and other PCAs want is for the real truth to be told.

One of the key questions I am asked constantly is: “Why not work exclusively for government offices?”

NCS spend over 2 million dollars over a 6 year period heavily marketing State CSEA offices for their child support collection business. The State CSEA offices simply are simply not interested. The more money they have in default the more funding they receive and the more employees they can hire to swell their bureaucracy. The fact that States would not hire us has forced NCS into representing parents directly. The bottom line is that National Child Support and companies like us are in the business of collecting child support for children. With an estimated 300 billion owed, millions of parents have this problem. The parents who desire our services have a constitutional right to collect their child support. Yet many State CSEAs, as validated by the GAO report, put hurdles in the way of parents in their attempt to use a collection agent. This fact needs to come out for the nation’s readers to learn about. Yet the press has also suppressed this fact.

Collecting child support is tough work. However, instead of concentrating on collecting child support, the State CSEA offices find other things to concentrate on. I continually read, from many child support offices, about “politically and socially correct” initiatives that are non-collection related. During the last 10 years, I have seen a number of these “socially correct” ideas introduced by numerous states, regarding fixing the child support problem. Ideas like “responsible fatherhood initiatives” or “amnesty programs” (I have probably seen a dozen different versions). There is nothing wrong with thoughts like these. Who knows? Maybe in the future some of these ideas might even show some results. What this proves however is that the thought process on fixing the multi-billion dollar child support problem is not really focused where it should be. It is all well and fine to talk about preventive initiatives. But what about the estimated several hundred billion dollars “already” owed to the nation’s children in unpaid child support? Or what about the similar billions already owed to the nation’s Tax Payers (who already shelled out billions in child support funding in the form of welfare dollars – the child support is still owing, not to the parent but to pay the tax payers back)?

These ideas fail to focus on the central problem (and obvious solution). These billions in child support defaults exist now, and the amount of child support in default worsens every year (by over 10 billion dollars – source Annual Report to Congress). All the “feel good” programs in the world will not fix the problem and get these billions back to the children (and back to the taxpayers).

But good old-fashioned debt collection will!

The child support program is over 25 years old. Has the child support program learned anything at all in the last 25 years? If so, then why does the program continue to run over 10 billion dollars negative in its collections a year? As well, much of the money that is counted as “collections” at State offices would have come in anyway. The only reason it shows up as “collections” is because the State child support agencies handle disbursement (besides trying to collect on defaulters) for payers who never miss payments. I always wondered if these constant monies that come in without effort were removed, how much money would actually be “collected”? Studies published by OCSE in the past have shown that for every three tax dollars spent one is collected. I wonder if you took a way the “constant” money from payers who never miss if the “three to one” ratio would hold up. It could be the States spend more money than they actually collect. If the child support offices have learned anything in the last 25 years, it is how to manipulate the system to maintain their own existence.

For years, I have traveled the country visiting nearly half of the States promoting the ability and desire of private debt collectors to work in a partnership with State Government Child Support to jointly combat child support defaults.

Sadly, to the detriment of the nation’s taxpayers and children, there have been very few takers. From marketing studies performed, NCS estimates that the State child support offices use professional debt collectors on less than 1% of all seriously defaulted child support cases.

State Government Child Support officials have not hidden the fact that they are fearful or disdainful of private child support collectors. In many instances, attempts to market collection services are met with open hostility. The simple reason why is “jobs”.

The bureaucrats running the State Child Support offices have no intention of reducing staff, reducing costs or of relinquishing any control. Why should they? There is no pressure to do so. Even if they collect half as much one-year compared to the prior year, no one notices. No one gets reprimanded or fired. There is no accountability. Older cases are “written off” or closed (there is even a federal Regulation that allows it). That is why the amounts of child support in defaulted that are quoted in Congressional Reports are always so severely understated. They do not count the old closed cases. However, in most of the U.S. there is no statute of limitation. Most all of this old money therefor is still legally collectible! But the States just do not want to pursue it because they have so many fresh cases coming in. So they write it off to make their statistics look better.

Such self-serving policies do not make common or financial sense for the nation or its children.

To top it off, funding penalties for poor performance are virtually non-existent or are rarely enforced against State child support offices. As long as the child support system rewards inefficiency by pouring more money into an ever-downward spiraling problem, the children and taxpayers will continue to suffer.

It has been a well-established fact for years, in virtually all industries, that private industry outperforms the Government. It could never be truer in the child support collection industry. Child support collection agents work on a contingency basis. No collection – No fee. There is no risk for the taxpayer. When the Government employs a private child support collection agent, the Government pays the collection agent’s fee. Most excitedly, under the Federal Funding Structure, States can make up to a 32 cents on the dollar “profit” on every dollar collected, if they were to “outsource” delinquent child support cases to professional collection agents. The taxpayers would make money and the children would get paid! NCS has provided such “audited” studies to State officials. You would think such a wonderful concept would be immediately and enthusiastically embraced.

However, such an idea is a scary thought to the Bureaucrats who have no desire to change or to give up any control. By refusing such wonderful tools (that would help children that would make money for their States), they put personal agendas ahead of the well being of children.

I am often asked, “Isn’t there a model in place that State child support could follow that would yield results?”

Sure there is. All you have to look at is the student loan collection industry. Twenty five years ago when I first got into the collection industry, the government was collecting virtually all defaulted student loans. When collection agencies began attempt to provide services to this industry, there was massive Government resistance (for the same Bureaucracy reasons). But over time common sense took over. It was quickly proven that the Government had no business collecting student loans. Private industry can do it better and cheaper. Now days, nearly 100% of all student loan defaults are collected by private debt collectors.

What turned this around was a Federal Law that “makes the defaulter pay the collection agency fee”. Billions of dollars were saved as defaulters soon realized that if they did not pay on time they would pay a substantial penalty. Additional billions of dollars were saved in collection agency fees, as the “defaulter” paid for the cost of collection.

There is a very serious public policy question I would strongly encourage all readers to consider: “If making a defaulter pay a collection agency fee was needed to fix the student loan problem, and if using collection agencies is good enough for the Colleges and Universities of America, shouldn’t it be good enough for America’s children? Do not America’s families deserve the same quality collection service a student loan gets”?

The bottom line is this. Either the government needs to get serious about child support defaults, or it needs to quit wasting the Tax Payers dollars and get out of the business like it did about student loan defaults. The solution is to “empower” custodial parents to collect their own child support by giving these parents the ability to make the defaulter (who caused the problem in the first place) pay for the entire cost of the collection (when the parent chooses to hire a collection agent or attorney). Many parents are turning to private attorneys and collection agents today, as a last resort. The defaulters should pay these collection charges, just like they do on other types of debts. As well, the GAO recommendations should be adhered to immediately.

Collection Penalties cut student loan defaults in half. Imagine how they would work for child support defaults.

I believe the GAO report validating there are tens of billions of dollars owed to the nation’s children and further validating the need for urgent assistance from the private sector (and for the States to stop putting hurdles in the way of parents trying to collect) should be the facts that need to be reported by responsible journalists. Not the unproven uninvestigated rhetoric that is being spread.

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James L. Durham, President and Founder of NATIONAL CHILD SUPPORT (NCS), brings more than 25 years of collection experience to the table in the fight against child support defaults. Specializing in the forceful collection of uncooperative cases as a private collection agent, Jim has been involved with the successful prosecution of more than 300,000 cases in his career. Jim is a board certified debt collector with the American Collectors Association (ACA). He is also a long-standing member of the Commercial Law League of America. Jim was recently appointed to the ACA’s Government Services Program. He is heavily involved with child support legislation, presents national seminar presentations on child support, participates in radio and television news and talk shows and also performs and coordinates “on-site training” of child support government staffs. He can be contacted at:

National Child Support
j_durham@nationalchildsupport.com
11260 Cornell Park # 706
Cincinnati, Ohio 45242
800-736-6272 ext: 211