Negotiating Client Contracts in the New Regulatory World

Tim Bauer
President, the iA Institute

This article originally appeared on The Compliance Professionals Forum site.

Your sales person has just come into your office with a big smile on his/her face.  You just received a commitment from a new client. You should be smiling, but you’re not.  Why is that?

Because now you have to make certain the contract contains key provisions to protect your business.

It used to be that agreeing to the fee was the toughest part of any contract negotiation. Not so anymore! With new regulations and litigation trends, the thoughtful ARM executive needs to be certain that the contractual relationship provides some protections to the agency.

This article is not meant to be exhaustive nor to offer legal advice. You should still consult your attorney prior to executing any contracts.  However, I will offer just a few things to consider.

1)      NY DFS 

You would need to be in hibernation over the last 9 months not to have heard that the New York Department of Financial Services passed new regulations on November 14, 2014 governing debt collectors and debt buyers. Many of the rules are already in effect.  However, some debt verification, disclosure, and communication requirements will go into force on August 30, 2015.

These new rules are incredibly complicated.  In fact, so complicated that the DFS has issued 28 Frequently Asked Questions and Answers. Your contract with your client should address these new regulations.  Perhaps most importantly, your contract with your client should address the client’s ability to substantiate the debt and the “extinguishment” of the debt if substantiation is requested but cannot be provided.

2)      TCPA Concerns

The ARM industry is still reviewing its processes following the publication of the FCC Declaratory Ruling on the TCPA.  What we do know is that the ability of an ARM company to call a cell phone is going to be severely limited.  Any contract with a client should specifically address cell phones and, in a perfect world for a vendors, contain specific representations that a client has express written consent to call a cell number provided by a client and a representation that the client will immediately notify you if the consent is revoked.

3)      Mutual Indemnification Provisions

For years ARM companies have attempted to negotiate contracts to include mutual indemnifications provisions.  Unfortunately, for years those contractual provisions have been difficult (if not impossible) to obtain, particularly from larger, sophisticated clients.  The “take it or leave it’ attitude from those larger clients left agencies exposed.  Hopefully, the issues above will open the door for clients to be more reasonable with indemnification language going forward.

4)  Vendor Management 

Pay particular attention to contract requirements and provisions for vendor management.  As the industry changes and the CFPB provides additional guidance on this topic, what you are being asked to do or not do with your vendors can be an area of concern.

5)  Agency Policies 

Be sure to work with your internal compliance team or the people responsible for creating and implementing your company’s policies.  You need to review contract requirements against your policies to determine no conflicts are created.

6) Insurance Requirements 

Contracts need to be carefully reviewed to insure that the agency meets the requisite insurance requirements.  In the past 3-5 years the minimum insurance requirements have changed dramatically for many clients.

7) On-shore vs. Off-shore work efforts 

Many clients have provisions restricting the use of any off-shore personnel. This can be a problem for companies that may use off-shore or near shore transfer agents or Quality Assurance staff.

As noted above, these 7 items are not meant to be the only key contractual provisions.  However, these are issue that seem to be more prevalent in the past few years.