No more service on a handshake

Until recently, many attorneys and the process servers they depend on have done business based solely on handshakes, making it one of the few aspects of modern life untouched by contracts.

That once casual relationship has become increasingly complicated and strained in the wake of a federal Consumer Financial Protection Bureau bulletin that announced new policies and procedures for debt collection.

Since then, a growing number of creditors and their attorneys have demanded that process servers sign written contracts before they continue doing business together. Some servers are crying foul, and it’s easy to understand why. Creditors and attorneys hold all the cards because it’s easy for them to find someone else willing to sign a contract and get paid, which leaves process servers little choice but to accept the new terms of employment.

One of the largest debt collection law firms in the Carolinas, Raleigh, North Carolina-based Smith Debnam, which represents retailers and commercial lenders throughout the country, has jumped on the contract bandwagon. The firm’s managing partner, Jerry Myers, said his clients began pushing for the contracts shortly after the CFPB’s debt collection bulletin was released two years ago.

The bulletin contains a single reference to a contract between debt collectors and their service providers, such as process servers. It states that a creditor is to include “in its contracts with its service providers clear expectations about compliance with federal consumer financial laws as well as appropriate and enforceable consequences for violating any compliance-related responsibilities.”

However, the bulletin does not explicitly state that the contracts are required.

“Because the CFPB is issuing demands without specificity the creditors are left to figure out what it means,” Myers said. “They’re coming up with their own sets of criteria, which they pass along to lawyers who pass them along to process servers.”

Another big player in the local debt collections arena, Richardson Plowden in Columbia, also has reportedly joined the expanding list of law firms that have switched over from oral agreements and handshakes to contracts. Nelson Weston, a shareholder at the firm, declined to discuss the issue.

Myers, meanwhile, said his firm has experienced “a little bit of pushback” from process servers, which typically occurs when he’s dealing with some of his more demanding creditor clients who want process servers to wear GPS tracking devices to confirm their whereabouts during the delivery process.

The CFPB bulletin states that creditors must “establish internal controls and on-going monitoring to determine whether its service providers are complying with federal consumer financial law.”

But the GPS devices are so expensive – quality units cost about $2,000 – that some of the smaller process servers cannot afford to sign the contracts even if they wanted to and end up losing work to larger firms.

Smith Debnam has already been forced to cut ties with some process servers that the firm had done business with in the past. “We’ve had to migrate toward the ones who have more sophistication,” Myers said.

“I think all of this hubbub grows out of a couple of bad actors in Manhattan who were doing sewer service,” he added, referring to a 2009 scandal involving New York process service firms that lied about effectuating service in tens of thousands of cases. “That painted the industry with a broad brush.”

‘Pretty lousy way to compensate’

Jeremy Whitesell of Skidmore Investigations in Fort Mill, which operates in South Carolina and North Carolina, said he’s yet to come face-to-face with a creditors’ contract, though he acknowledged that it’s only a matter of time before he does.

Whitesell seemed unsure about what he’d do when that day comes. He was especially concerned about the GPS requirement, saying that the devices, which determine a user’s location by pinging off cell phone towers, could malfunction, especially when you’re serving papers deep in the mountains or out in rural spots.

He questioned the need for GPS and contracts in general, asserting that process servers live and die by their reputations. Companies that lie about serving someone or fail to complete jobs don’t last very long.

And then there’s the extra cost of equipping process servers with the devices. Whitesell said he’d have to raise his prices substantially in order to make a job in which the creditor or its attorney demanded GPS tracking worth his time.

“I think it’s a pretty lousy way to compensate for the gutter service,” he added, “but if they’re [the creditors] willing to pay for it, that’s fine.”

William Fletcher, vice president of the N.C. Association of Professional Process Servers, took a harder line on the contracts.

“It hasn’t happened to me yet, but if an attorney called me up and asked me to sign a contract I’d probably refer him to someone else,” he said. “It [having a contract] would just delay the process.”

But Shawn Condrey of Falcon Express Services in Charleston didn’t think the contracts were such a big deal. He also had not been asked to sign one, but he said the trend has sparked discussion on online forums for process servers.

“I think the majority of process servers are trying to protest, but without losing clients,” he said. “Nobody wants to be locked into anything. But this is a business where everybody’s bidding for the same work. You run the risk that the other guy is willing to sign the contract.”

Before the contracts and GPS tracking became fashionable, Condrey said, his process servers were already snapping photos of the locations where they’d served papers. The images include GPS coordinates and are dated and time stamped.

“I don’t think it’s a horrible request. It just makes you accountable,” he said of GPS. “As an industry, we’re moving in that direction.”

All aboard the CFPB train

Issues related to service of process tend to have a greater affect on states with more populous cities, so the trend has not yet affected the industry in the Carolinas the way it has in New York City, for example. But other states have grappling with the issue for a while. Michigan Lawyers Weekly recently reported that the state’s process servers association had drafted a model contract for its members to use with attorneys. It also had advised process servers to consult with an attorney before signing any agreement.

Last year, the Michigan Creditors’ Bar Association began warning process servers about the CFPB’s new policies, according to Lori Frank, a creditors’ attorney in Southfield, Michigan.

“We told them, ‘Here’s the train, and it’s coming down the track, so get ready,’ ” she said.

Michigan Lawyers Weekly reporter Traci R. Gentilozzi contributed to this report.

Follow Phillip Bantz on Twitter @SCLWBantz