March 22, 2001
STATE REGULATION OF PRIVATE CHILD SUPPORT COLLECTION AGENCIES
By: Helga Niesz, Principal Analyst
You asked (1) if any Connecticut agency currently regulates private child support collection agencies and (2) if other states regulate them, restrict what they can charge, or have other protections for their customers.
No Connecticut state agency currently licenses or regulates private child support collection agencies. Their charges are also not limited. But if they engage in deceptive or unfair practices, the Connecticut Unfair Trade Practices Act (CUTPA) applies to them, as it does to other businesses.
We are aware of three states (Arkansas, Illinois, and Washington) that license and, to some extent, regulate these private agencies. Arkansas and Illinois expressly regulate them and require them to be licensed by including them in their state fair debt collection laws. Arkansas also limits the maximum fees they can charge to 50% of the amount actually collected, but Illinois and Washington do not. While Illinois includes them in its debt collection law, it exempts them from some of the requirements that other debt collection agencies must observe when dealing with debtors. Washington debt collection statute does not specifically refer to private child collection agencies, but a 1981 state appeals court decision held that the law applies to them.
Designated state agencies are the primary collectors of court-ordered child support. In Connecticut, these are the Department of Social Services' Bureau of Child Support Enforcement (BCSE), the Judicial Department's Support Enforcement Services unit, and the Office of the Attorney General. Private attorneys who represent the person owed the child support may also collect it. The BCSE does administrative enforcement, including wage withholding, lien placement, credit reporting, lottery offset, income tax refund withholding, and civil arrest. Support Enforcement Services does court-based enforcement, including automated enforcement, wage withholding in established cases, contempt, criminal actions, and account audits.
An individual can also contract with a private child support collection agency to collect money from someone who has violated a court order by not paying the required child support. These private agencies are not licensed or regulated by any state agency. Their charges are also not limited. But if they engage in deceptive or unfair practices, CUTPA applies to them, as it does to other businesses. CUTPA (CGS § 42-110a) prohibits various unfair methods of competition and deceptive acts or practices. It covers both sales of property and services. It applies to the advertising, sale, lease, or offer for sale or lease of any services or property, or anything else of value, with a number of exceptions (Conn. Agencies Reg. § 42-110b).
HB 6701, An Act Concerning Enhancements to the Child Support Enforcement System, currently being considered by the Human Services Committee, would include private agencies in the state fair debt collection act. By so doing, the bill requires them to be licensed and regulated by the Banking Department. It further limits their maximum charges to 20% of the amount actually collected and prohibits them from charging for support payments collected through the efforts of a government agency. The bill requires private agencies to enter into a written agreement with the customer, which must specify in bold type that child support collection services are offered by the state for a nominal fee. The customer can terminate the agreement at any time.
The federal Fair Debt Collection Practices Act, which generally covers collection agencies and lawyers, does not cover people or agencies engaged in collection of child support. The debt collection laws in most
states do not specifically refer to child support collectors, but some may define debt collectors broadly enough so that their activities could fall within the definition.
State debt collection laws usually set standards for licensing collection agencies. Some may also prohibit abusive practices and provide a right of action for consumers, prohibit unethical practices in the agencies' dealings with debtors, and authorize an administrative agency to issue licenses and regulations.
At least three states, Arkansas, Illinois, and Washington have references to child support collection companies in their statutes, regulations, or supporting case law.
Arkansas statute specifically requires that a child support collection agency not operating under IV-D (in other words, not a government agency) (1) be licensed as a collection agency by the State Board of Collection Agencies and (2) is subject to the state debt collection law. Like other collection agencies, a private child support collection agency is prohibited from charging more than 50% of the amount they actually collected (A.C.A. § 17-24-102).
Illinois' debt collection law is broad enough to cover activities of child support collection agencies and specifically requires that they be licensed. It does not limit their charges.
But a separate provision allows them to engage in practices that may be prohibited in other debt collection situations. Specifically, the law states that they are not restricted:
1. in the frequency of contact with an obligor who is in arrears, whether by phone, mail, or other means;
2. from contacting the employer of such an obligor;
3. from publishing or threatening to publish a list of such obligors;
4. from disclosing or threatening to disclose an arrearage that the obligor disputes, but for which a verified notice of delinquency has been served under child support laws; or
5. from engaging in conduct that would not cause a reasonable person mental or physical illness (225 I.L.C.S. 425/2.04 (2000)).
This law defines “obligor” as an individual who owes a duty to make periodic payments for child support under a court order. “Arrearage” means the total amount of an obligor's unpaid child support obligations.
Washington's debt collection statute does not specifically include child support collectors, but a state appellate court in 1981 decided it does apply to such agencies' collection practices (WSA § 19.16.250, Ulberg v. Seattle Bonded, Inc. 626 P. 2d 522 (1981). In the case, the court also held that collection agencies can be held liable under the state consumer protection act. The debt collection law requires licensing and prohibits certain actions but does not limit fees (WSA § 19.86.090).