Topic: Why a JDB is NOT a Factoring Company

[E. Normis Debtor]

And you base that on what?

[Flyingifr]

I base it on the difference between a JDB's operations and the operations ofe very other Factoring Company in the trade. See for yourself:

21st Capital Corp: http://www.21stcapital.com/
Creative Capital Corp: http://www.ccassociates.com/

(from their web site - a definition of Factoring)

What is Factoring?
Factoring is the time honored and increasingly utilized financial tool that speeds up the cash flow a company has available. To do this, factors purchase your credit-worthy accounts receivable at a small discount and convert your invoices (sales) into immediate cash. Partnering with a factoring company can relieve the working capital problem that slow paying customers create.

Please read the bolded parts =- that is the key difference between a factor and a JDB.

Sovereign Funding Corp: http://www.sovereignfunding.com/
Universal Funding: http://www.universalfunding.com/moreabout.html

There are plenty more, but the common thread is:

1. The debt must be recent, not in default and
2. The discount is small, not 98%.

If it doesn't look like a duck, act like a duck or quack like a duck, it's not a duck.

[Rottweiler]

Defaulted, charged-off accounts are NOT "credit-worthy" by definition.  JDBs do not deal in credit worthy accounts...not their business.

[E. Normis Debtor]

Come on, cite an authority of some kind. Those are definitions provided by the company defining their own business, and would no more hold up in court than this announcement by an SEC registered securities dealer claiming Asset is a Factoring Company when announcing their IPO:

http://www.ipohome.com/marketwatch/iponews2.asp?article=3192

Why does the SEC, which is much more restrictive than someone like the FTC, allow Asset, a public company, to continue to promote themselves as a factoring company?

Why do the CRA's put JDB's and Factoring companies in the same classification for reporting purposes?

This will be like our disagreement on whether or not it is a violation to call a cell phone knowing the consumer will incur a charge.  Absent case law on the matter, we have differing opinions.

[ilovemydogs]

Defaulted, charged-off accounts are NOT "credit-worthy" by definition.  JDBs do not deal in credit worthy accounts...not their business.

I have been searching for TR's post on when is a FACTORING account NOT a Factoring account.
It was a wealth of info and my lawyer used it on UNIFUND  which was reporting as such, and we won.
Rotty, you probably know where to find it?
Thanks
ilmd

[E. Normis Debtor]

ILMD, what was the case number and I'll look it up.

[Flyingifr]

Come on, cite an authority of some kind. Those are definitions provided by the company defining their own business, and would no more hold up in court than this announcement by an SEC registered securities dealer claiming Asset is a Factoring Company when announcing their IPO:

http://www.ipohome.com/marketwatch/iponews2.asp?article=3192

Why does the SEC, which is much more restrictive than someone like the FTC, allow Asset, a public company, to continue to promote themselves as a factoring company?

Why do the CRA's put JDB's and Factoring companies in the same classification for reporting purposes?

This will be like our disagreement on whether or not it is a violation to call a cell phone knowing the consumer will incur a charge.  Absent case law on the matter, we have differing opinions.

Norm-

The definition of a factoring Company is not something that Government is involved in. The definition is something that evolved as an Industry Standard. AA could call themselves an Ice Cream Factory for all I care, but they aren't. The adage "You can call yourself a Giraffe, but you still need the Giraffe Herd to accept you as a Giraffe" is what I am pointing out here. I am not aware of any litigation commenced to get a judicial definition of a Factoring Company as opposed to a Junk Debt Buyer, but if some were to happen I am convinced the Courts would rely heavily on Accepted Industry Practice, which AA just doesn't meet.

[stargazer0725]

All:

Would the IRS be considered an authority on the subject?  Taken from their website about Factoring Companies…

http://www.irs.gov/businesses/article/0,,id=159770,00.html

“A factor is a specialized financial intermediary who purchases accounts receivable at a discount. Under a factoring agreement a company sells or assigns its accounts receivable to a factor in exchange for a cash advance. The factor typically charges interest on the advance plus a commission. The price paid for the receivables is discounted from their face amount to take into account the likelihood of uncollectibility of some of the receivables.”

And then, the IRS tells us (on nearly every tax return) what the definition of Accounts Receivable is comprised of (here’s the definition for Form 990)…

Form 990 Line 47. Accounts Receivable

"Enter the total accounts receivable (reduced by the allowance for doubtful accounts) from the sale of goods and/or the performance of services. Report claims against vendors or refundable deposits with suppliers or others here, if not significant in amount. Otherwise, report them on line 58, Other assets. Report any receivables due from officers, directors, trustees, or key employees on line 50. Report receivables (including loans and advances) due from other employees on line 51a."

They almost always use the term "doubtful accounts", but I've also seen "bad debt" as a substitute on rare occasion.  So the question would be...  Are IRS regs considered a defining authority in court since it is a government entity?

[ilovemydogs]

ILMD, what was the case number and I'll look it up.

What I meant was Rotty could find the TR post on the subject.
ILMD

[Flyingifr]

All:

Would the IRS be considered an authority on the subject?  Taken from their website about Factoring Companies…

http://www.irs.gov/businesses/article/0,,id=159770,00.html

“A factor is a specialized financial intermediary who purchases accounts receivable at a discount. Under a factoring agreement a company sells or assigns its accounts receivable to a factor in exchange for a cash advance. The factor typically charges interest on the advance plus a commission. The price paid for the receivables is discounted from their face amount to take into account the likelihood of uncollectibility of some of the receivables.”

And then, the IRS tells us (on nearly every tax return) what the definition of Accounts Receivable is comprised of (here’s the definition for Form 990)…

Form 990 Line 47. Accounts Receivable

"Enter the total accounts receivable (reduced by the allowance for doubtful accounts) from the sale of goods and/or the performance of services. Report claims against vendors or refundable deposits with suppliers or others here, if not significant in amount. Otherwise, report them on line 58, Other assets. Report any receivables due from officers, directors, trustees, or key employees on line 50. Report receivables (including loans and advances) due from other employees on line 51a."

They almost always use the term "doubtful accounts", but I've also seen "bad debt" as a substitute on rare occasion.  So the question would be...  Are IRS regs considered a defining authority in court since it is a government entity?

IRS pronouncements only carry weight in Tax Court, and the IRS definition of Factoring Company is close to Industry Standard.

[hannah]

I have all of TowerRat's AoC factoring thread if someone wants to pm me their email addy.
The thread is also in Enigma's files but something must be wrong with the server or the link as I can't connect. http://datafiles.dyndns.org:9090/FIles/ is what I had bookmarked for those files but, alas, it is not working for me. (Enigma, please update this link, please...)

[E. Normis Debtor]

Norm-

The definition of a factoring Company is not something that Government is involved in. The definition is something that evolved as an Industry Standard........I am convinced the Courts would rely heavily on Accepted Industry Practice, which AA just doesn't meet.

Ok, let's follow that logic.

We're talking about a credit report listing an account as factored, or a JDB being a factoring company.

As I'm sure you know, the Consumer Data Industry Association is an international trade association representing the consumer credit, mortgage reporting, employment and tenant screening and collection service industries. They also provide legislative assistance and a lobbying function to its members, and works with all of the CRA's to establish standards for the consumer reporting industry.  I would think a court would give more weight to the fact that the reporting industry itself recognizes a JDB as a factoring company.

From the CDIA's reporting guidelines:

Glossary of Terms:

Factoring Company:  See Debt Purchaser.

GENERAL REPORTING GUIDELINES
A Third Party Collection Agency is a company or individual who specializes in collecting
outstanding debts for other businesses or individuals. A Debt Purchaser/Factoring
Company is a company or individual who purchases accounts with the intent of collecting
debts owed.

3. Account Type Codes (Base Segment, Field 9)
• 0C — Debt Purchaser (a/k/a Factoring Company)

[hannah]

Simply because a company creates a new reporting software and the CRA's say it is ok to use and the company's makers claim that it is FCRA compliant does not make it FCRA compliant or make it 100% accurate. The reason JDB's use the factoring company notation is not because they don't have a choice, but because it makes the debt appear to be a more recent default than it actually is which lowers the FICO. The term factor has to do with financing and nothing to do with accounts that are defaulted on and charged-off. When an OC charges off an account it is no longer an accounts receiveable and thus cannot be a factored account according to my DD who is a CPA/auditor.

[E. Normis Debtor]

When an OC charges off an account it is no longer an accounts receiveable and thus cannot be a factored account according to my DD who is a CPA/auditor.

That's good enough for me. I'll be filing a class action against those scumbags next week.

[hannah]

When an OC charges off an account it is no longer an accounts receiveable and thus cannot be a factored account according to my DD who is a CPA/auditor.

That's good enough for me. I'll be filing a class action against those scumbags next week.

And someone should. Just because an association for all those types of companies says Metro 2 reporting is ok, where did the government approve it? The companies don't have to get government approval to use a certain software, they just have to report to the CRA's 100% accurately to be FCRA compliant and if Metro 2 doesn't differentiate between a factorer and a debt buyer, that doesn't make Metro 2 100% FCRA compliant.

If a public corporation is reporting assets to it's stockholders (which include account receivables) and includes defaulted charged-off debts, they could be fined by the SEC for falsifying their actual worth, again another example of a defaulted charged-off debt not being an account receivable and thus not being an account that can be factored.

Flying, you are a CPA, jump in anytime.