Tom Corbett: Lost Money and Missing Memory, Part 4

Posted by By at 10 October, at 11 : 56 AM Print

The Shakedown

Private Collection Agencies were living high on the hog at the Attorney General’s Office. Fee rates were sky high. Some agencies were simply collecting their fees after the AGO’s office did the legwork. Thomas Kimmett raised issues about employees of the collection agencies working onsite at the Financial Enforcement Section – a practice that ended in 2007.

The Financial Enforcement Section’s compensation fees were as high as 39% in the previous Republican administrations (there has never been a Democrat elected Attorney General). When Kimmett arrived, the rates were 19% for the initial assignment  and 29% for the second placement. Kimmett established new rates: 13% for first assignment and 21% for the second placement. The second placement occurs when the first effort does not succeed after six months.

Even with the reduced rates paid to collection agencies, Pennsylvania’s fee structure was among the highest in the country.

During Kimmett’s time at the Financial Enforcement Section’s Maryland paid private collection agencies 4.5% to 5.0%.  New Jersey switched to an hourly rate after the Director of Taxation (equivalent to PA’s Secretary of Revenue) and a top deputy had been indicted for taking bribes from collection agencies. The two former-employees were convicted of taking bribes on July 30, 2012 from the collection agency Collection Services, Inc.[1]

Kimmett found one collection agency Linebarger Goggan Blair & Sampson (“LGB&S”) secured a 25% commission rate. LGB&S, the collection agency tied to former Attorney General Leroy Zimmerman, had their contract amended to account for a 21% fee. Kimmett was told by Mike Roman, Deputy Attorney General who reported to Tom Corbett, “Leroy called. They’re getting 25%.” Although Kimmett never codified the change to 25%, he calculated that a four to five percent adjustment was about $2 to $3 million annually in the pocket of LGB&S  “without being in the contract.”[2]

Remember the Financial Service Section was started under former Attorney General Leroy Zimmerman. When the call came in on behalf LGB&S it was not from just a former Attorney General, it was from whom in 2010 Politics Magazine called one of the most influential Republicans in Pennsylvania. In essence the call was from the Republican Party machine and the man whose support Tom Corbett would need to become Governor. Mr. Zimmerman’s son-in-law – David Freed – is the current GOP candidate for Attorney General.

In his deposition, Kimmett observed that some collection agencies were receiving payments even though they had nothing to do with the collection, or they received payments from collections that arrived within 14 days of assignment – something prohibited by their contracts. He also contends that the collection agencies held onto their interest payments that they were contractually required to submit to the state.[3]

In May 2008 Kimmett discovered that the Department of Revenue had authorized a commission payment of almost $300,000 to  Linebarger Goggan Blair & Sampson or a debt that was collected when the OGA’s tax litigation department entered into a stipulation of settlement with the debtor to resolve ongoing litigation over the matter.[4]

The Private Collection Agencies were aware that they cannot work cases while on appeal and are not entitled to commissions for payments received as a result of litigation or a settlement of litigation.[5]

Kimmett opposed paying a commission to LGB&S. On May 23, 2008, Furlong emailed Kimmett to say that he concurred with Kimmett’s determination that the commission ought not be paid.[6] Roman informed Furlong that LGB&S, the PCA in line to receive the undeserved commission, was making a “threat” to go to the Attorney General if the debt was not paid.[7]

Furlong and Coyne created an explanation to justify the $300,000 payment to LGB&S.[8] Coyne forwarded the excuse to Roman.[9] Roman, a Deputy Attorney General who reported to Tom Corbett, instructed Kimmett to pay the commission.[10]

The collections log indicated that the  Linebarger Goggan Blair & Sampson was notified that the matter was in litigation. LGB&S knew that it would not be entitled to a commission if the matter(s) were resolved in litigation.[11]

Linebarger Goggan Blair & Sampson was not the only collection agency. The Financial Enforcement Section used a network of six or seven collection agencies. Many of the practices Kimmett discovered were in place for decades and have never been disturbed. When Rovelli interviewed Kimmett, he said, “We need you to look at the practice and procedure in the administrative side of Financial Enforcement, the side we hired you to manage. We want you to give us proposed solutions.”[12]

On April 13, 2011, Rock the Capital requested collection agency data from the Office of the Attorney General.

Please provide information about the caseload at the Financial Enforcement Section for fiscal years 2006, 2007, 2008, 2009 and 2010: Number of cases referred and handled for the year; amount of portfolio (collections owed) for the year; amount actually collected for the year; and number of cases resolved and closed (payments made) for the year.

Rock the Capital also requested:

Please provide the amount of money paid to the individual private collection agencies contracted to provides services for the Financial Enforcement Section for the following fiscal years: 20006; 2007; 2008; 2009; and 2010.

Some material was provided for fiscal years 2008, 2009 and 2010, after Mr. Kimmett was forced out of the Attorney Generals Office. A portion of the data was “redacted.”[13]

However, data Rock the Capital requested during Mr. Kimmett’s tenure were not available. “The amounts paid to collection agencies for fiscal years 2006 and 2007, and the amount of receivables collected by the Financial Enforcement Section for 2006, 2007 and 2008 are records this agency no longer has access to and we cannot re-create these records.”[14]

In contrast, amounts paid to collection agencies retained by the Pennsylvania Higher Education Assistance Agency (“PHEAA”) demonstrated a more effective rate of return.  PHEAA and American Education Services (“AES”) were also more responsive to Right to Know Requests than the Office of the Attorney General. PHEAA is also bound by the terms of federal contracts that mandate terms of engagement. Ultimately, success is judged by the amount of taxpayer dollars recovered.

Rock the Capital received data for PHEAA collections for the fiscal years 2008, 2009 and 2010. The data are for defaulted student loans that are defined as ones at least 270 days delinquent. The material was received in June 2011.

PHEAA did not initially provide RTC with any information relating to the number of outside third parties used. However, the agency supplied Rock the Capital with collection vendors used since FY 2008.[15]

PHEAA stated, “While about half of the inventory is with outside   collection agencies, PHEAA tends to collect about 1/3d of the total collections vs. 2/3rds by the collection agencies.”[16]

PHEAA does not pay commissions on amounts for payments received within 10 days of placement to contractor; amounts received by contractor more than 30 days after account has been closed and returned to PHEAA; amounts that overpay the note placed with contractor for collection; accounts placed in error; and, amounts paid on an account not assigned to contractor.

Remember, PHEAA’s agents are collecting debt for outstanding student loans. Most students do not have access to an advocate, attorney, financial or lobbyist. Students do not get to settle for pennies on the dollars, but the financial shadow that follows students after school can amount to a Scarlet “credit” Letter.

The Office of Attorney General is charged with collecting revenues from tax scofflaws. Many of these outstanding debts are to corporations and entities that are connected to powerful interests, as are the agencies contracted to collect them. Is the lesson for young Pennsylvanians to pay off your student loans now, so you can default on your business taxes later in life?

 

[[1]]New Jersey Attorney General Jeffery Chiesa said in a press release, “This verdict lets the taxpayers of New Jersey know that we’re not going to tolerate government officials who break the law and use their offices for their own selfish interests, rather than strictly serving the public’s interest as equipped … we need to eliminate this type of corruption from government.”

Photo by wallyg

Footnotes    (↵ returns to text)
  1. Burman Deposition, Exhibit 28 at 281:20-285:17
  2. Exhibit 9, Roman Deposition at 340:5-342:7; Ex. 7  & Rovelli Deposition at 379:16-380:14 and Exhibit 44 at  Ex. 15.
  3. Exhibit 57, Coyne Deposition at Ex. 25.
  4. Bellaman Deposition, Exhibit 18 at 536:5-15, 537:13-21.
  5. Exhibit 57, Coyne Deposition, Ex. 25.
  6. Coyne Deposition, Exhibit 23 at 276:12-279:14 & Exhibit 58, Coyne Deposition  Ex. 26 at 2.
  7. Exhibit 58, Coyne Deposition at Ex. 26.
  8. Exhibit 59, Coyne Deposition at Ex. 28.
  9. Exhibit 60: August 8, 2008 E-mail from Robert Coyne to Michael Roman.
  10. Ex. 18 (Bellaman Dep.) 533:8-540:2; Ex. 61 (Bellaman Dep. Ex. 28).
  11. Rovelli Deposition, pp. 140-141.

    FES has contracted with the following PCAs: Linebarger Goggan Blair & Sampson (“LGB&S”); Penn Credit Corporation (“Penn Credit”); AllianceOne; NCO Group (“NCO”); Diversified Collection Services, Inc.; Kadent; Unifund; and Pioneer Credit Recovery, Inc. (  Ex. 12 (Def. Tom Corbett’s Resp. Pl’s First Set Interrogs. at 13-15.)

  12. Office of Attorney General, Robert A. Mulle, Chief Deputy Attorney General, Right to Know officer, May 11, 2011.
  13. PHEAA Correspondence to Rock the Capital, August 31, 2012.

    The beginning inventory for 2008 was $890,212,122; total collections were $514,678,903.

    Beginning inventory in 2009 was $1,138,835,201; total collections, $604,925,469.

    Beginning inventory for 2010 was $1,373,927,135; total collection was $884,815,703.

    PHEAA also pays additional fees to third parties: default loan rehabilitation payoffs, 9% of balance funded for first placements and 9.5% of balance funded for second and other placements; William D. Ford Federal Direct Loan Program Consolidation, 33% of collection costs are retained by PHEAA.

  14. PHEAA Correspondence to Rock the Capital, September 27, 2012.

    Collections vendors used since FY: 2008 include Account Control Technology, Diversified Collections Services (DCS is also known as Performant), GC Services, NCO Financial Systems and Windham and Associates.  Regional Adjustment Bureau is no longer under contract to AES or PHEAA.

  15. PHEAA Correspondence to Rock the Capital, September 27, 2012.

    The fee schedule (at least as of June 2011) was a commission rate of 16% on direct cash payments collected by a contractor from defaulted student loan borrowers.

    Currently, “Rehab commission to collection agencies is calculated by 9% of the balance of the loan is purchased by participating lender (rehab funding. If it is with collection agency for the 2nd time or more, the fee may be 9.5%…Fees can not exceed 18.5% of the balance due (principal/interest) at the time of consolidation.”

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