How a Small Business Became the “Debt Collection Wal-Mart”


Some of the companies that take advantage of the student loan business have names that you have never heard of unless you are behind on your loan.

NCO Financial Systems was once a family business founded in 1926 in the suburbs of Philadelphia to collect all kinds of bad debt. Like many other small collection agencies, NCO got involved in student loan collection in 1996, when it landed its first contract with the US Department of Education. It was the same year that Congress privatized Sallie Mae.

NCO went public that year and grew rapidly by acquiring other debt collectors, becoming what an admiring Merrill Lynch analyst called the “Debt Collection Wal-Mart.” In 2004, JPMorgan Chase’s private equity arm, One Equity Partners, privately owned NCO.

The company has been viewed favorably by Wall Street for its technological expertise in debtor tracking. But according to complaints filed by the Federal Trade Commission and 19 state attorneys general, NCO also resorted to a practice that debt collectors have used for centuries – instilling fear.

If they’re behind on a student loan or other debt, borrowers have heard about NCO – over and over again, often the same day, sometimes at home, sometimes at work, the FTC billed in 2013.

You may have been harassed by NCO even though you never got your student loan. In 2007, Jesse Kennedy of Lawrenceville, Ga. Briefly considered borrowing money to pay for an auto repair school and completed loan documents co-signed by his father. But he says he never completed the loan application and received no money.

Six years later, Kennedy was contacted by an NCO affiliate and told him he owed $ 58,000 on a student loan. He disputed the debt, but the $ 58,000 loan appeared on his credit report, damaging his credit rating and preventing him from getting a mortgage to buy a house.

Then he and his father were hit with a lawsuit from an entity they had never heard of – National Collegiate Student Loan Trust – which claimed to own his unpaid loan. In court, the trust argued that Kennedy and his father had deposited $ 30,000 in loan proceeds at a bank in Birmingham, Alabama.

But as the Kennedys showed in court, neither Jesse nor his father had such an account, and after filing documents accusing fraud, the trust dropped the lawsuit. The Kennedys strike back at the trust for violating federal fair credit reporting law.

The case highlights another frustrating aspect of student loans for many borrowers. As the Kennedy dispute unfolded, it was unclear who actually owned the alleged loan at issue.

This is a common problem for many borrowers due to the Byzantine complexity of the industry.

Loan documents can be named after a bank, but the loan can be insured by the federal government, with the bank simply acting as the issuer. Or the loan could indeed belong to that bank with no connection to the federal government. In other cases, the loan may bear the name of a bank but belong to a third party to which the bank has assigned the loan. If that sounds like the kind of financial instrument that helped fuel the mortgage meltdown, that’s because it is.

Like the financial industry, which bundled mortgages together and sold them like bonds, banks and other financial interests also packaged private student loans and sold them to investors. This has been a lucrative subset of the industry for the companies doing the bundling, one of which created the trust that Jesse Kennedy pursued.

Practices such as those encountered by Kennedy caused problems for NCOs with federal and state authorities.

Since 2004, NCO and its subsidiaries have paid approximately $ 6.9 million in penalties and settlements after being accused of improper debt collection practices, records show. In 2013, the company – then known as Expert Global Solutions – paid the the biggest fine ever by the FTC in a debt collection case: $ 3.2 million.

The FTC complaint accused the company of repeatedly using “false, deceptive or deceptive” tactics to try to collect loans, including calling loan holders several times a day, calling them at work. and calling their bosses.

In a statement released after the fine was imposed, the company said it had cooperated with the FTC’s investigation and “already implemented systems and procedures to help resolve their issues.”

The company continues to interest investors. Its owner, One Equity Partners, sold half of the company’s interest to two other private equity firms in 2014. Later that year, all of its collection business, including student loans, went into effect. been sold to another private equity firm in Beverly Hills, California. Earlier this month, Expert Global Solutions was acquired by Alorica, a customer service company based in Irvine, California.

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