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Casting a Wide Net |
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I These
statements were not whimsy. Rather, they were based on a written opinion
by the Insurance Commissioners Office, as well as a legal opinion of the
State Attorney General. The RCK issue arose when two check service
companies attempted registration with the North Carolina Department of
Insurance, the state department tasked with regulating consumer protection
and collection licensing in North Carolina. CrossCheck, Inc., in a
response to the state, made an argument that RCK was little more than a
redeposit function which has never before been considered a
“collection” event. North Carolina regulators flatly rejected this
argument. In a March 1, 2000 letter to CrossCheck from Nancy C. Renn,
Government Accounts Auditor, the state office noted that an RCK
transaction is
a collection event in North Carolina, subject to state licensing. Ms.
Renn noted “. . . electronic check represent[ment]
program would bring [RCK] within the definition of a collection agency and
does not appear to satisfy any of the exceptions set out in N.C.G.S.
58-70-15.” She went on to say “. . . electronic check representment
program requires a collection agency permit under N.C.G.S. 58-70-1.” Following
the publication of our story, Mike Herd, an Electronic Check Council
representative, issued this letter in an attempt to dispel the concerns
raised in our story. Subject:
Re-Presented Check Several
recent news articles have conveyed some extremely inaccurate information
about the Re-Presented Check transaction. These articles were based on two
letters written by an official with the North Carolina Department of
Insurance, which regulates certain debt collection practices in that
state. Contrary
to the articles, the North Carolina letters actually regard the sale of
debt and not specifically the RCK transaction. In North Carolina, the sale
of debt is a regulated activity— the company to which the debt is being
sold must be licensed as a collection agency. The letters merely state
this point for the record. The
letters do not constitute any new regulation or interpretation of existing
regulation. They do not impose any new regulation or requirement on
collection activities by merchants or their financial institutions. Nor do
they in any way differentiate between collection by paper or electronic
means. The letters simply explain existing North Carolina regulations to
certain parties. NACHA
will continue to monitor this situation and speak with news organizations
to promote accurate reporting on this topic. Mike Herd NACHA Needless
to say, NACHA believes our reporting to be inaccurate. They seem to be
suggesting to organizations that may be subject to the impact of failing
to register, that RCK activities are not collection activities, and that
this is somehow all a big misunderstanding. Considering
that CrossCheck does not collect the debts of others in any part of its
business, but rather collects only for itself, and further, that in the
same letter that North Carolina pronounces the requirement that RCK is
a collection process requiring licensing, the state also noted: “After
extensive gathering of the details of the operations of CrossCheck by this
office and the office of the NC Attorney General, The Department of
Insurance has now received and reviewed the Attorney General’s legal
opinion provided regarding the collection agency license requirements as
they pertain to CrossCheck. With
regard to CrossCheck’s check authorization program in its current
configuration, CrossCheck, is, pursuant to North Carolina General Statues
58-70-15 (10), exempt from the definition of a collection agency.” NACHA’s
suggestion that North Carolina’s “legal opinion” is based on the
purchase of debt, when in the paper collection world the state had already
pronounced CrossCheck to be exempt from licensing, is completely
ludicrous. The
following comments from J.J. Kieley, Vice President of Consumer Relations
and Legal Affairs for CrossCheck, Inc., and the person who has been
attempting to argue with the state of North Carolina concerning the RCK
licensing issues, provides further illumination: “North
Carolina’s definition of a collection agency is quite broad. This
broadness has given rise to a question about whether those who operate an
Electronic Check Representment (RCK) and those who sell merchant access to
such a program are required to be licensed as a collection agency under
North Carolina law. Because of this
broadness, I recently asked that the State of North Carolina clarify its
position on the code section that defines what a collection agency is.
This clarification was necessary to determine whether an RCK program
operated by a third party, but provided to CrossCheck’s ISO’s to sell
to merchants, is required to be licensed. Based on the obvious importance
of this question, both parties exchanged a significant amount of
information and detail relating to RCK. Under North
Carolina General Statutes (NCGS) section 58-70-15 a collection agency is
defined as ‘All persons, firms and associations directly or indirectly
engaged in soliciting . . . delinquent claims of any kind owed or due to
be owed . . . the solicited person, firm, corporation, or association; and
all persons, firms, corporations or associations directly or indirectly
engaged in asserting, enforcing, or prosecuting those claims.’ This definition
creates two prongs, and you are a collection agency, required to be
licensed, if you do either of the following: 1) solicit delinquent claims
or accounts from the original holder, or 2) attempt to collect those
delinquent claims. Needless to say this definition casts a very wide net
as to who and what is required to be licensed as a collection agency in
North Carolina. In my
correspondence I argued against the application of either prong of section
58-70-15 to this RCK program. In a nutshell, I argued that while a
solicitation is being made on delinquent claims, i.e. returned checks, the
solicitation is to assist in the speed and effectiveness in processing
returned checks and should be analogous to a bank’s redepositing of a
check. Further, I argued that the mere electronic representment of a check
should not be considered an “attempt to collect.” Unfortunately the
State of North Carolina did not accept either of my arguments and
determined that a program we do not operate (the program is contracted
through eFunds), falls under one or both of the prongs of this statute and
should be licensed as a collection agency. Instead they stated,
‘Electronic Check Representment program would fall within the definition
of a collection agency and does not appear to satisfy any exemptions.’ What was of
significant interest to me was what the State did not say in their
response. I specifically asked whether a sales representative selling an
RCK program would be required to be licensed under this section. The basis
of my concern was that the use of the words ‘direct or indirect
solicitation’ could mean that a salesperson is subject to licensing if
they had an RCK contract in their bag of tricks. Under the first prong of
the statute it could be construed that a salesperson could be considered
directly or indirectly soliciting delinquent claims from a holder by
signing up a merchant with an RCK program. Further, the State did not say
whether they considered the electronic representment of a previously
dishonored check an attempt to collect a delinquent claim. Another point of
interest is that my argument used an analogy that an RCK processor should
be likened to a bank redepositing checks for merchants. This logic was
doomed to fail from the beginning as banks are granted a specific
exemption from licensing as a collection agency, while RCK companies and
the salespersons that sell their products are not. Section 58-70-15 in defining a collection agency
casts a wide net over who is required to be licensed, unless they fall
under certain exemptions granted under subsection 10 of 58-70-15. This net
appears to catch both those who are selling an RCK program to a holder and
those who are processing the dishonored checks that were solicited from
that account holder. The salesman can be caught under the
‘solicitation’ prong and the processor is caught under the ‘attempts
to collect’ prong. The
only question that remains is: Will the state of North Carolina narrow
their definition of a collection agency to exclude RCK programs and those
who sell them, or will they start bringing in their licensing net and haul
in all caught in it?
© Copyright 2000; The Green Sheet, Inc. |
