Board narrowly rejects proposal to exempt some collection agencies from trust-account requirement

The Tennessee Collection Service Board debated and ultimately rejected a proposal to let staff exempt certain licensees from the state statute that currently requires all licensed collection agencies to maintain a fiduciary (trust) account.

Executive Director Jen Binkley told the board the agency has seen applicants—including debt buyers and first‑party service providers—that argue the trust-account requirement is burdensome when they never receive or hold client funds. She said staff’s recommendation would limit the requirement to licensees who actually receive client payments and would require a formal attestation for any license application that omits a trust account.

“Under that model, any payments made by debtors are sent directly to the creditor and never pass through the collection agency’s possession or control,” Binkley said, explaining why staff proposed an exemption for those companies that do not receive client funds.

Chair Chip Hillman expressed concern about weakening license standards while preserving licensure: “If we say to anyone, you have to have a collection license, why do we want to relax any of the standards related to that license?” he asked. Legal counsel Joe Wharton described the statute and rule definitions the board applies and said the board must be careful to stay within its jurisdiction.

Board discussion focused on two types of applicants: (1) debt buyers that purchase delinquent accounts and collect for their own account, and (2) service providers that collect in the creditor’s name and remit funds to the creditor without ever controlling client funds. Wharton said the statutory definition of “collection service” generally covers parties that purchase delinquent accounts for collection or that perform affirmative collection actions on indebtedness.

Jason Hill moved that the board accept staff’s recommendation to allow staff to exempt certain companies from the trust-account requirement (with required attestation); Laurie Headwind seconded. A roll-call resulted in a tie, and legal counsel advised that a tie vote means the motion did not pass.

Several members stressed consumer-protection rationales for the trust-account requirement. One member noted the board sees agencies that are “out of trust,” misallocating client funds, and argued a trust account is an essential safeguard.

With the exemption motion defeated, the board left the statutory trust-account requirement in place for now. Members said they may revisit the issue at a future meeting after additional review and possible drafting of language to address the specific circumstances raised by applicants.

The motion’s failure leaves current practice intact: licensees continue to be required to maintain a trust account unless the board formally amends its rules or statute.