Arrow Fiancial / Sallie mae Pays Record Civil Penalty

For Immediate Release: November 28, 2005
Sallie Mae entity pays record civil penalty; will design compliance plan

(St. Paul) - A year-long Minnesota Department of Commerce investigation into the practices of a collection agency owned by Sallie Mae has resulted in the largest civil penalty ever imposed against a collection agency licensed in Minnesota. Minnesota Commerce Commissioner Glenn Wilson announced today that arrow financial services LLC of Niles, IL has paid $125,000 and will design and implement a compliance program within 60 days.

"The laws regulating collection practices in Minnesota are intended to protect consumers and we expect full compliance from collection agencies that do business here," said Commissioner Wilson. "This company says it provides courteous and professional service, but they missed the mark. The violations are serious and we cannot and will not tolerate this type of activity in Minnesota. That's why a comprehensive compliance plan is part of the consent order."

The compliance program will be reviewed and approved by the department and must include:

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Designation of a compliance officer in charge of all regulatory compliance matters. The compliance officer shall report directly to the President and Board of Directors.
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A training program for all of Arrow's debt collectors registered in Minnesota to specifically include the Fair Debt Collection Practices Act and Minnesota debt collection laws.
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Arrow's Minnesota registered debt collectors must sign a statement wherein the debt collector acknowledges that they have completed training and that the training included debt collection law.
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Arrow will establish written policies and procedures for screening debt collector applicants prior to submitting registrations. The system will include a criminal background check.

Arrow is a part of Sallie Mae, a company that primarily provides federal and private student loans. Sallie Mae was originally created as a government-sponsored entity, but terminated corporate ties to the federal government in 2004. In addition to student loan debt, Arrow collects credit card, utility, telecommunication, retail and automotive debts.

The Department of Commerce investigation alleged that Arrow and/or its collectors engaged in more than 15 violations of Minnesota law, including:

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Withdrawing money electronically from a debtor's checking account without authorization and after two separate requests by the debtor to stop. Arrow also collected more money than the creditor had authorized.
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Continuing to contact debtors at their places of employment after receiving notification to stop. In one case, a debtor sent 5 letters (3 certified) and 3 emails that specifically stated that the debtor's employer prohibited phone calls at work. Arrow also falsely told a debtor that such requests had to be in writing.
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Disclosing a debtor's information to a third party - in this case, a co-worker at the debtor's place of employment was told about the debt and Arrow's attempt to collect.
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Failing to establish procedures when screening collector applicants prior to submitting to the commissioner for registration as required by law. In one case, Arrow submitted a debt collector registration to the department that included documentation that showed the applicant did not qualify for licensure due to a recent felony conviction. Arrow also allowed an unlicensed debt collector to contact a Minnesota debtor prior to receiving a debt collector license.
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Failing to respond to the department's request for information, failing to provide responses from individual debt collectors and failing to provide copies of the debtor work logs. Arrow failed to respond to initial contact letters and certified letters from the department requesting responses to several complaints in violation of Minnesota law.

Since January 1, 2003, the Minnesota Department of Commerce has taken 33 enforcement actions and imposed $309,500 in civil penalties against collection agencies and debt collectors.

In 2004, Alliance One Receivables Management Inc. of Pennsylvania paid a $70,000 civil penalty for alleged violations of state collections law. Alliance allegedly allowed their collectors to provide false information to consumers in an effort to collect debts. In one complaint, a consumer was wrongly told that payment could not be made by mail, but only by phone through an electronic funds transfer. The complainants were told that a late fee would be added if they did not pay electronically. In addition, Alliance allegedly violated Minnesota law by employing unlicensed debt collectors, not properly disclosing their licensing status on written documents sent to consumers, and failing to respond the Department of Commerce in a timely manner.

The Minnesota Department of Commerce licenses and regulates collection agencies and debt collectors operating in the state. The Department also regulates insurance, real estate, state chartered banking and other industries.

Consumers with complaints or questions about the conduct of collection agencies or debt collectors may call the Minnesota Department of Commerce at (651) 296-2488 or toll free, 800-657-3602.

Additional background for media

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In Minnesota, collection agencies must be licensed and individual debt collectors must be registered with the Department of Commerce.

Collection agency

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879 licensed to conduct business in Minnesota
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Defined as a business that collects, for others, bills or other indebtedness from debtors who have not paid an account to a creditor.
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Collection Agencies also include "letter service" companies that supply creditors with form letters directing debtors to make payments to the creditor.

Debt Collector

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30,961 registered in Minnesota
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Defined as a person employed by a Collection Agency to collect bills or other indebtedness from debtors who have not paid an account to a creditor.
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Collection agencies and the debt collectors that work for them must abide by Minnesota law when attempting to collect a debt owed by a Minnesota resident. It is also a violation of Minnesota law when a collection agency violates the federal Fair Debt Collection Practices Act, which is enforced by the Federal Trade Commission. In part, the federal law prohibits collectors from:
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Contacting debtors at inconvenient times or places, such as before 8am or after 9pm.
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Contacting debtors at work if the collector knows the employer disapproves.
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Contacting a debtor if he or she writes a letter to the collector telling them to stop making contact. Sending such a letter to a collector does not eliminate the debt and the collector or the original creditor could still sue the debtor.
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Debt collectors may not harass a debtor by using threats of violence or using obscene or profane language.
Collectors are required to:
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Contact an attorney representing a debtor.
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Send a written notice indicating the amount of money owed, the name of the creditor, and what action to take if there is a dispute about the debt.
Collectors may:
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Contact other people - but only to find out where a debtor lives, a phone number, and place of employment. Collectors usually are prohibited from contacting such third parties more than once. In most cases, the collector may not tell anyone that a debtor owes money.
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Consumers with complaints or questions about the conduct of collection agencies or debt collectors may call the Minnesota Department of Commerce at (651) 296-2488 or toll free, 800-657-3602.