DCL-02-35, Federal Guidance on Private Collection Agencies

DCL-02-35

DATE:December 04, 2002

TO: ALL STATE IV-D DIRECTORS

RE: Federal Guidance on Private Collection Agencies

Dear Colleague:

As you may know, in March of this year, the U.S. General Accounting Office (GAO) issued a report on the practices of child support private collection agencies (PCAs) and state child support enforcement (IV-D) agencies. The GAO studied the number and kind of entities that can collect child support and compared the experiences, collection practices, enforcement tools, and access to information sources of PCAs and IV-D agencies.

Among other things, the GAO found that:

caseloads of PCAs were significantly lower than those of IV-D agencies, and the average amount of child support owed, per case, was much higher (primarily because PCAs exercise discretion when accepting cases);
private firms charged their clients fees that averaged 29 percent of the child support collected, and half of the private firms charged additional fees;
private firms and state agencies reported similar collection rates (about 60 percent of their cases), but their information sources and collection practices differed;
state agencies provide services to anyone requesting them, regardless of income, free to all customers who receive cash assistance, Medicaid coverage, or foster care payments. For other customers, the state agencies either charged no fee or only nominal fees.

Since the release of the GAO report, the Office of Child Support Enforcement (OCSE) has received numerous inquiries and suggestions from state IV-D directors, employers, non-profit organizations, and PCAs about the challenges posed by the interaction of IV-D agencies and the PCA community. Given the significant interest in this issue, in the attachments to this DCL, OCSE is pleased to provide additional federal guidance on a number of concerns arising from the IV-D/PCA relationship.

First, AT-02-04 clarifies the policies and procedures that states should follow for providing locate services through the Federal Parent Locator Service (FPLS) to persons who qualify as an "agent of the child" for child support purposes. Among other things, we explain that a PCA may qualify as "agent of a child" for purposes of requesting FPLS locate services from a IV-D agency, provided that it has a valid agreement that meets any state statutory or regulatory requirements for acting as an agent. Any such requests must be directed to a State Parent Locator Service, in accordance with the applicable Federal regulations at 45 CFR 303.70.

Additionally, in PIQ-02-02, we respond to a number of questions regarding whether, consistent with federal law and policy, a state may honor a custodial parent's request to have a State Disbursement Unit (SDU) send the custodial parent's child support payments to him/her at a non-residential address, such as that of a PCA. The PIQ unequivocally reaffirms the principle that we announced ten years ago in PIQ-92-13, wherein we stated that "[n]othing in federal law precludes States from sending child support payments to an entity requested by a custodial parent if authorization to do so has been obtained. Such practices would be governed by State law."

Despite PIQ-92-13, some states have refused to send payments to a custodial parent at the address of an attorney or a PCA because they believe that doing so would violate one or more federal authorities governing the distribution, disbursement, or payment of collections due to the custodial parent. We believe that much of this confusion results from an incomplete understanding of the statutory and regulatory provisions regarding disbursement, which we clarify in PIQ 02-02.

OCSE strongly believes that improved customer service, including greater responsiveness to the reasonable needs and desires of the custodial parents that we serve, is vital to the continued support for and success of the IV-D program. In our view, it is good customer service and good public policy for a state to send child support payments to the custodial parent at the address that he/she requests. No one is in a better position to determine where the custodial parent should receive child support payments than the custodial parent him/herself.

We do not believe that sending a custodial parent's payments to a non-residential address provided by the custodial parent injects states into the private contractual arrangements of their IV-D and non-IV-D customers. And, of course, a custodial parent remains free to change his/her address whenever he/she deems it appropriate to do so.

In this way, we reaffirm our commitment to the principles of family-friendliness and customer service that we espoused in PIQ 92-13: ". . . the choice whether to pursue support enforcement with a public or private entity rests with the custodial parent. Our concern is that she make an informed choice, with full knowledge of the fees levied by the private entity and any other pertinent considerations."

In the interest of promoting informed parental choice, we are also issuing IM-02-09, which includes federal consumer protection guidance that state IV-D agencies may wish to tailor to the needs of their customers and provide via brochure or some other document through their IV-D offices. We are aware of a number of concerns expressed by IV-D agencies, advocates, and the media about questionable practices by some PCAs. Although states have the authority to regulate PCA practices, OCSE has a strong interest, as expressed in PIQ-92-13, in ensuring that our customers exercise their right to choose a PCA as freely and intelligently as possible. The consumer protection guidance in IM-02-09 should help states and other interested parties better educate parents so that they can decide what is in the best interests of their children.

IM-02-09 also contains a number of effective practices reported by states as promoting a cooperative and productive working relationship between IV-D agencies and PCAs.

Finally, IM-02-09 includes a number of sample letters and forms that states have found helpful in honoring custodial parents' requests to have payments sent to them at the address of a PCA.

The challenges that increased private sector participation in the child support arena present are many - protecting client privacy, ensuring the accuracy and correct use of data, preventing unnecessary duplication of efforts, protecting custodial and noncustodial parents' rights and interests. With your continued cooperation and dedication to our customers, I am confident that we can work together to achieve our common goal of ensuring that children and their families get the support that they need and deserve.

Sincerely,

Sherri Z. Heller, Ed.D.
Commissioner

Office of Child Support Enforcement

Attachments

cc: Federal Regional Administrators
Federal Regional CSE Program Managers