Attorneys Christina McAlpin Taylor, Melissa Tulis, and Rachel Rogers discuss dealing with debt management companies – the risks and challenges they pose from the point of view of a collections attorney.
Christina McAlpin Taylor is a partner at the Raleigh-based law firm of Smith Debnam and a member of the firm’s Creditors’ Rights and Collections practice group. An accomplished attorney known for handling a large volume of cases with precision and grace, she represents a wide range of businesses through all stages of creditor representation, including pre-suit collection efforts, lawsuits, judgments, and executions. In her practice group, she actively leads approximately 75 employees, including two attorney associates, in addition to managing the leadership development of five direct reports. In 2016, she was named to the 25 Most Influential Women in Collections by Collection Advisor Magazine. Christina was named to the 2020 class of East Carolina University’s 40 Under Forty Leadership Awards. In 2021, she was appointed to serve a four-year term on the East Carolina University (ECU) Women’s Roundtable Board of Directors.
Melissa Tulis is an associate in the firm’s Creditors’ Rights and Collections practice group, representing a broad range of businesses in North and South Carolina through all stages of the collection litigation process, including pre-suit collection efforts, lawsuits, judgments, and executions.
Melissa Tulis:
Hello and welcome to the podcast series, Creditor’s Corner Legal Talk,presented by Smith Devon Attorneys at Law,where we explore a range of legal topics impacting businesses and private individuals.So be sure to hit subscribe so you never miss an episode.My name is Melissa Tulis Smith, and I’m an attorney in the firm’s Creditors rights section.I will be your moderator today.Today’s topic is dealing with debt management companies, and we’ll talk about what debt management companies, DMCs for short, are and the risks and challenges they pose from the point of view of a collection attorney.Before we begin, I want to note that information provided in this podcast does not and is not intended to constitute legal advice.Instead, any and all information shared is for general informational purposes only.Listeners should contact their attorney to obtain advice with respect to any particular legal matter.With that out of the way, let’s turn our attention to this week’s topic with us today.We have two guests.We have Rachel Rogers and Christina Mcalfen Taylor.
Christina Taylor:
Hey, everybody, thanks for joining us.
Melissa Tulis:
Hello.
Rachel Rogers:
Hello.
Melissa Tulis:
Both are attorneys in our firm’s retail collections section.So with that out of the way, let’s go ahead and kick off our discussion.First off, can one of you briefly explain what a debt management company, or DMC, is and how it works?
Christina Taylor:
Yeah, I’d be happy to talk about that for a minute.And Rachel, if I forget anything you want to add on, feel free to do so.A debt management company is a company that often deals with consumers and debtors when they have multiple debts that are delinquent.And these debt management companies help them to do just that manage their debt.Often we have consumers who have not one, two,or three debts, but sometimes as many as five different debts.And I believe these debt management companies explained to them that they’ll work with them to try to get these debts resolved with the creditors, either before suit or during suit.And we’re going to talk in a few minutes about what that means as a collections attorney.But that’s pretty much what a debt management company is.They help the consumer to manage their debts.
Melissa Tulis:
So why are DMC’s attractive options for debtors?
Christina Taylor:
Good question.I’m not sure.
Rachel Rogers:
I think, like Christina said,it helps them manage it.And if they’re one of those consumers that has about five different debts out there, this allows them to make one payment a month to one company instead of trying to deal with keeping up with monthly payments to five different creditors at a time.So that makes it a little bit easier for them to manage.And I also think that in the perspective, from this perspective of the debtor, they think that these companies will take some of that burden and stress off of them, and so that’s why it’s attractive to them.
Christina Taylor:
Yeah, I agree with everything you said.I think that they advertise themselves as being able to help them maybe make better settlements that they wouldn’t be able to do on their own.And a lot of times, like we said, these consumers have multiple debts, and so it probably feels like an easy way.Rachel’s point about making one payment is really valid.It probably feels helpful that they’re like,okay, I can pay $1,000 a month to this one company, and they’re going to take care of everything, rather than having to reach out to three or four or potentially five different creditors.So I think you’re exactly right in your experiences.
Melissa Tulis:
Can DMCs be helpful to debtors?
Christina Taylor:
I think so.They can be at times.I mean, we have some debt consolidation companies that’s another term we use for debt management companies that we have good,friendly, professional relationships with.So from time to time before suits been filed,if these debt management companies call us and want to work at a settlement, sometimes they’re better able to explain to the consumer the debt or payment plan and maybe to help them be more reliable and paying back that debt from time to time, they can be helpful.
Melissa Tulis:
So let’s talk about when a DMC does not successfully resolve a debt before a lawsuit is filed by the creditor, what is the DMC’s role once that account is in active litigation?
Rachel Rogers:
I haven’t had as much experience with the DMC’s in active litigation, but I do know that they can play a role in active litigation if they have attorneys that are licensed in North Carolina,which is also something that we’ll talk about during this episode.
Christina Taylor:
Yeah, Rachel just said is most important.Really, the debt management company has no role once the lawsuit filed unless they in fact have an attorney who is licensed in the state where the lawsuit has been filed.And that gets a little bit tricky because a lot of these debt management companies are national debt management companies, so they handle cases anywhere from North Carolina to Virginia to New York to California,potentially all 50 states, and they don’t always have a licensed attorney who’s actually helping.And that certainly makes me nervous as a plaintiff attorney to think, did the step management company promise them that they would help in court or help them to respond to pleadings?And it puts us in a bit of an awkward position, and so that’s something we’ll go into more detail about.But your question about once lawsuit has been filed, it’s really important to check that debt consolidation company or that debt management company has a licensed attorney in the state where the suit has been filed.
Melissa Tulis:
So what if the debt management company does not have an attorney license in that state, but wants to try to play a role once the lawsuit is filed?What can the collection attorney do?
Christina Taylor:
Yeah, that’s really something we really don’t like dealing with.And I feel bad because of course, we have the same end goal, which is to help the consumer resolve these accounts.But once we have filed a lawsuit, there’s really not a role that that debt management company can play.And I certainly don’t want to help anybody with the unauthorized practice of law.So it’s important that you verify, like I said before, that that debt management company actually has a licensed attorney in the state where the lawsuit was filed.Because what we find happening a lot is these debt management companies have some attorney that’s licensed maybe in California, for example, and they’ve tried to help resolve the case.For whatever reason, the case isn’t resolved.So we filed a lawsuit on behalf of our client,and now that licensed California attorney will call, or one of their staff members will call,and it puts us in an awkward position because I’m like, I understand your license, but you’re not licensed in North Carolina.I really can’t help you with this.Or they’re certainly not going to file pleading on behalf of the defendant because they’re not licensed to file pleading.So they’re just a third party at that point.So you have to work through those, and that can be awkward.But I feel like we have an obligation to make sure we’re not helping with unauthorized practice of law.And that’s often what I tell them.I’m sorry, unless you have somebody licensed in North Carolina, I really have to treat you as a third party.
Melissa Tulis:
I understand the concern for the collection attorney is not assisting in the unauthorized practice of law.Can one of you define what practicing law is and maybe give some example of what is or is not practicing law?
Rachel Rogers:
Yeah, for sure.Practicing law.There’s a couple of definitions that are in the North Carolina statutes.It’s performing any legal services for another person firm or corporation with or without compensation, like Christina mentioned,preparing court documents, any sort of pleadings, assisting in legal work, or even simply advising another person firm or corporation about their legal rights.
Christina Taylor:
Yeah, sorry, that real quickly.The layperson would probably say, and I agree with it, like practicing law is just that once the lawsuit has been filed, anything related to it.And the problem that we see most often is we have a quick hearing coming up on behalf of our plaintiff, and this consumer thinks that they have this step management company that’s going to help them.And in fact, they don’t have a licensed south attorney, so they can’t go to court and argue on behalf of the defendant.And that is important.That would be practicing law to go before a judge and present yourself as an attorney when in fact you’re not licensed in that state to practice law.
Rachel Rogers:
And that is what happens a lot with those consumers.They show up to the hearings, and their understanding is that the debt consolidation company is helping them and representing them.So it puts them in a bad spot because they don’t have anyone there to advocate for them.
Christina Taylor:
Yeah, and we always feel really bad about that because you get there and that consumer shows up, and they’ll sometimes even say that, oh, I’m waiting on my attorney.I’m like, well, who’s your attorney?And they list somebody.I’m like, oh, I don’t think they’re licensed in North Carolina.And they’re like, oh, I didn’t know that.And that can be really awkward.But we’re just transparent with the judge.And we usually tell the judge, hey, Mr. Smith,or whoever the consumer is thought that they’re represented if they need to have this matter continued one time so they can seek North Carolina Council or try to work something else out.We’re, of course, accommodating to that because we’re empathetic to the situation.
Melissa Tulis:
So can you speak to some of the risks to the creditor or the collection attorney if they do negotiate with a non attorney or an attorney that’s not licensed in that state?
Christina Taylor:
Well, there’s a couple of different risks, and because we are collection attorneys and we’re dealing with debt that is owed, the FDCPA might apply.And we don’t want to violate the FDCPA by speaking to a third party that we don’t have authorization to speak with.This debt management company becomes like a third party if they’re not a licensed attorney in the state where the suit was filed.So that’s our biggest concern, is I don’t want to violate the Ftcpa, another concern that we don’t have complete clear guidance on, but we’re starting to see a little bit more of it.And, Rachel, you can correct me if I’m wrong,but is related to what we keep saying,unauthorized practice of law.If we help this person out, there is potential that we are being unethical or helping somebody that we know is not licensed in the state to practice law.And that’s tough, but that’s just the truth.And I certainly care a lot about my law license, but again, I’m empathetic to these consumers.So it’s a gray line that we have to be careful, but we’re just transparent with the consumer and explaining, hey, unfortunately,there’s not an attorney here to represent you,so you’re a pro sale litigant, or you have to give us authorization to speak to this third party, which they often will do.But again, that management company could not represent them in court.
Melissa Tulis:
So let’s say you’re working with a DMC, and they say, don’t worry, we’ve got a North Carolina licensed attorney.His name is Joe Smith, but you’re going to work with us.I’m a non attorney.I’m a paralegal or a legal assistant, and I’m going to help negotiate.But don’t worry, joe Smith, North Carolina licensed attorney, is supervising me.Is that okay?What are the rules surrounding that situation?
Rachel Rogers:
I think in those situations,it’s important to think about what the subject matter of the correspondence in communication is.Of course, staff members can exchange communications regarding certain things.But if it’s anything that’s getting near the definition of a practice of law, then it has to be within that definition of the North Carolina license attorney.And so even though they say they have a Joe Smith, that Joe Smith has to be the one doing the practice of law in North Carolina, like we stated before.
Christina Taylor:
Yeah, and it does get tricky because I’ve had different discussions with these debt management companies.What I’ll often do is if they say, joe Smith is the attorney who’s working with our debt management company, he’s licensed in North Carolina, I’ll do a quick check with the bar to see that they are in fact an active,licensed North Carolina attorney.If they are, I’ll typically call or send an email to that attorney and just say, hey, are you associated or working for working with this debt management company?And the office say, oh yeah, I forgot about that, because I don’t know what type of arrangement they work out with these debt management companies, but once they give me that confirmation that they do, I’ll then ask them like, hey, are you supervising, whoever it may be, Melissa Smith, to work on this case?And if like, oh, yeah, we are.I might be a little bit more comfortable than speaking with that staff member, because we do need to consider it like we do often.Sometimes I can’t take a call, so I might ask my paralegal to return the call, or I have another staff member who’s reaching out to help resolve the case.I’m supervising the staff member, so that’s okay.So if you can feel get yourself comfortable with the position that this is a licensed source town attorney and they are supervising the staff, then it probably is okay to speak with some of the other staff members.That’s a less conservative approach, but it’s certainly something you can consider.The most conservative approach would just be,I’m sorry, I’m only dealing with the North County licensed attorney.And that assert, of course, is okay too, but you will probably get some pushback from that debt management company.
Melissa Tulis:
So in your experience, have you ever encountered situations where you felt like the staff you were corresponding with was not actually properly supervised by the licensed attorney or any red flags of that situation?
Christina Taylor:
Yes, certainly that happens more often than not, unfortunately.And like I said, I’ve not ever had the chance to have anybody be transparent with me about how they get somebody in Rich, for example, to agree to be the attorney representing these consumers, but not really knowing anything about the case.And I guess that’s an issue that they’ll have to deal with when the bar grievance comes, but it certainly feels awkward.So that has come up from time to time.
Rachel Rogers:
Yeah, I think some of the staff members sometimes get some pushback with these companies that are hesitant to give a name of North Carolina attorney when they are asked.So that’s somewhat of a red flag that there might not be proper supervision.
Christina Taylor:
Certainly.I feel like if they have a license or an attorney, they should be proud and quick to tell you who that is.
Melissa Tulis:
So what would you say the best way is to handle a situation where you feel like a non attorney is engaging in unauthorized practice of law?
Christina Taylor:
I think being transparent and saying just that like, hey, you’re making me nervous.My license is important to me.I can’t help you with unauthorized practice of law.You really got to get me a name of the North Carolina attorney who’s handling this case.
Melissa Tulis:
Would you say there’s any risk to the debt or defendant when they’re working with one of these debt management companies while it’s in active litigation?
Christina Taylor:
The risk is it’s not really a risk to them.But I think we feel bad.We’re empathetic to the situation that they thought that they had hired somebody who was an attorney, and in fact, it turns out they’re not.They’re just a third party that has authorization to settle the debt.So I certainly am empathetic to that and feel bad.And like we said, when we get to court and that’s brought up in front of the judge, we’re quick to let the judge know that so they’re aware of the situation.And you’ll probably get that too, in a few minutes.But there’s been a lot more pushback on situations like that where the judges and other people are actually buying grievances at the bar, which is probably the right thing to do.
Melissa Tulis:
Yeah. So it sounds like debt management companies, what they are is okay,but the problem is that a lot of consumers think that they are signing up for something that they’re not getting.They think they’re getting a licensed attorney that can defend them in court.And that’s not what it is a lot of the time.Not all of the time, but a lot of the time.So have any debt management companies or similar companies gotten themselves into trouble in North Carolina by engaging in the unauthorized practice of law?
Christina Taylor:
Yes, I think there have been some.And I think and Rachel.Maybe you’re more familiar than me.But there is at least one case where potentially they did say they had a North County licensed attorney.And there was.In fact.A true North County licensed attorney.But that North County licensed attorney was not engaged at all in the cases and did not know what was going on legally or non legally related to the cases.I believe a grievance was filed against that entity.And maybe even that individual attorney has had I don’t know if they got their bar suspended or if there was any type of repercussions.But there has been some attention drawn to these debt management companies.And some of them.I don’t think any longer.Are in business as the debt management company.At least as they were titled before.
Rachel Rogers:
Yeah, I think that there’s been some unraveling and you can see in some recent calendar calls there are defendants that are scrambling because they have no idea where their attorney went because I think there have been some licenses that have been revoked.And so at the end of the day, it really is unfortunate for the consumer because all the hardship is falling on them when these attorneys get caught up in the debt management company unauthorized practice of law.So like Christina said, we’re always empathetic to that and make sure to point it out to the judge if we know that they’ve been attempting to work with one of the debt collection companies.
Christina Taylor:
Yes. Rachel or Melissa,either of you recall?I think that maybe there was even I think there are damages awarded that had to be paid back to some of the consumers related to this.Does that sound right?
Rachel Rogers:
Yeah, I think you’re correct.
Christina Taylor:
Hopefully they’ll get some restitution from this one particular debt management company that really wasn’t following the rules properly.Like we said, we’re empathetic to that situation.That’s terrible.If these consumers are trying to do the right thing and are paying to the step management company and trying to get this resolved and instead of getting things resolved, they’re in a worse position than they were before.So we’re certainly empathetic to that and want to work with those consumers.
Melissa Tulis:
Yeah, and backing off of what you mentioned earlier, I think this particular entity got into trouble because the unauthorized practice of law is multifaceted.There’s both non attorneys engaging in the practice of law and then there’s also situations where an attorney, a legitimate North Carolina attorneys name and bar number is put on several documents as purportedly being the supervising attorney for that case.And it’s just not happening in actuality that that attorney is or even has the capacity to be involved in and to supervise that many people in that many cases.And then it turns into, unfortunately,consumers not getting what they think they’re getting.And like Rachel said, showing up in court confused, thinking their attorney is going to be there and not realizing that they’re not coming.Which of course puts us in an awkward situation because we’re not trying to hide the ball.And we do have the same goal of resolving the case, which is just made difficult, but sometimes by this third party’s involvement being a barrier to us and the consumer.And I’ll add one issue I’ve noticed has been that when a debt management company gets involved, they typically, along with that power of attorney that they send over, they also send over a cease and desist, which blocks our ability to have any direct contact with the consumer.Can either of you speak to any difficulties that that arrangement has created?
Christina Taylor:
Yeah, that certainly is another obstacle.A lot of times the consumers don’t even know that the debt management company has put that cease and desist on their file.And so they will start reaching out and we can’t be back in touch with them because of that.And that makes it very difficult, obviously,to settle the case or to communicate with the consumer.So that is frustrating too and it seems that happens often.It seems like you said, most of the time that comes together, here’s the cease and desist and we’re the debt management company that’s going through representing them, and that can be very frustrating.
Melissa Tulis:
Any other final thoughts,insights, horror stories about working with debt management companies?
Christina Taylor:
No. Rather than a horse story, I do want to point out that there are some debt management companies that do a really good job.You know, they call us as soon as the consumer gets the demand letter, long before seats filed, and they immediately will acknowledge that, hey, I want to get this resolved quickly before you have to move forward with a lawsuit.What can we do to get this resolved?Those are the good stories where we get these resolved because we certainly don’t want to have to file a lawsuit and we would prefer to work that out.So please know that there are some debt management companies that do the right thing,and they also do the right thing when they’ll say, you know what, we’re not going to be able to sell this case.I’m not licensed in the state.We’ll sign a consent judgment.We’ll get this resolved, get that to the consumer, wrap this up.Maybe at a later date we can call you back and try to work this out.So sometimes that works out well.So that’s frustrating part is what you mentioned a few minutes ago, which is we get a cease and desist, we can’t get in touch with the debt management company.They’re not really a licensed attorney.There’s a hearing coming up.It’s very frustrating.Or the consumer shows up at the hearing, wants to talk to the debt management company, they can’t get them on the phone.That can be really frustrating.But there are times when it works out okay too.So you just have to be careful and of course follow the ethical rules.And if you have questions, you can certainly reach out to the bar and they’re happy to sometimes help with that.And you certainly can reach out to any of us talk through that as well.
Melissa Tulis:
Yeah, and I would echo that in my experience that they’re not all bad,they’re not all good.I can think of several consumer attorneys I work with management companies who zealously advocate for their clients and do a great job of it.They’re very good at not taking on too many clients that they can’t represent each of them to the best of their abilities.So it’s certainly not a blanket rule.But we also know that the north carolina Bar has cracked down on some of these companies in the past couple of years as being something that is not beneficial to their proportion of clients.So it wants to always be aware of who we’re talking to and what their status is with regard to the account and what their status is with regard to being an attorney or no attorney that’s being supervised by an attorney.Any other final thoughts?
Christina Taylor:
I was going to say, just like your mom and dad probably told you, when in doubt, don’t.If you’re hesitant, take a deep breath.Think about it.Reach out to a mentor.That’s true about always practicing law.That’s true about everyday life.If you’re in doubt, take a minute to pause.Your gut is probably right.You asked about red flags before, if you’re like.This is a little funny.Let me check on this.Certainly step back and take a look from the outside.Or reach out to a colleague or a mentor who can help you out.Or reach out to the Bar exam.They’re great at helping out to answer questions like this.
Melissa Tulis:
Well, I want to thank Christina and Rachel for participating today and let me take their brains about debt management companies.And I also want to thank the audience for tuning in today.I’m going to invite listeners who may have any questions on this topic or other topics related to this topic to email or contact us.I’m going to go ahead and give my email address and phone number should any listener wants to reach out.My email address is mtulis@smithnumlaw.com,and my direct line is 919-250-2103.I’ll turn it over to Rachel and Christina to get their contact information as well.
Rachel Rogers:
All right, my email address is R. Rogers Rogers@smithdevnamlaw.com, and my direct number is 919-250-2155.
Christina Taylor:
Thank you, Rachel.And again.My name is Christina Taylor.My email address is long.It’s my maiden name, just like everybody else on this call.Cmcalpin@smithdebnamlaw.com.And that’s C-N-C-A-L-P as in Peter I n@smithdebnamlaw.com.My direct dial is 919-250-2131.
Melissa Tulis:
Let y’all know to check out some of our other episodes on related topics.Things kind of interesting one on student loans lately.So lots of relevant and timely topics to check out on this podcast.And lastly, please subscribe.Thank you all for listening and stay well.You.
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