Could Connecticut pay a private debt collector a percentage of state debts recovered?

Plain-English summary

In January 1993, Connecticut’s AG concluded that the Department of Administrative Services could use licensed private collection agencies on a contingent-fee basis for delinquent state accounts. The commissioner proposed paying an agency a set portion of money it actually recovered. The AG said that fee arrangement did not violate the prohibition on committing spending beyond a specific legislative appropriation, because the proposed fee came from recovered sums rather than the agency’s appropriated operating funds.

Another statute expressly allowed referral of debts to licensed consumer collection agencies after the department had tried to collect for six months and given the debtor advance notice. It did not specify how collectors were paid. The AG found legislative testimony contemplating contingent fees and concluded state law allowed the proposed payment method. He left the business choice whether to use such agencies with the commissioner.

State collection officials at the time

The opinion permitted a contingent-fee arrangement within the debt-referral statute’s conditions. It did not direct DAS to use private collectors.

Collection agencies and debtors at the time

The AG described referrals to licensed agencies after unsuccessful state collection efforts and the required debtor notice under the law then in force.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Could DAS pay a collector from the money it recovered?
A: Yes. The AG said a percentage-of-recovery fee was legally available under the statutes he reviewed.

Q: Did that fee violate the state agency appropriation limit?
A: The AG said no, because he treated it as coming from collected money, not spending beyond appropriated funds.

Q: Could any debt be sent out immediately?
A: No. The cited referral statute required unsuccessful state collection for six months and advance notice to the debtor before referral.

Background and statutory framework

Conn.Gen.Stat. § 4-100 barred commitments beyond an appropriation. Conn.Gen.Stat. § 4a-12(b) authorized certain debt referrals to licensed collection agencies. The AG read the latter statute’s silence on compensation in light of legislative history discussing contingent fees.

Citations and references

Statutes: Conn.Gen.Stat. § 4-100; Conn.Gen.Stat. § 4a-12(b).

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Opinion page: https://portal.ct.gov/ag/opinions/1993-formal-opinions/reginald-j-smith-department-of-administrative-services-1993002-formal-opinion-attorney-general-of-co

Original opinion text

Reginald J. Smith, Department of Administrative Services, 1993-002 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

January 13, 1993

Reginald J. Smith

Commissioner

Department of Administrative Services

165 Capitol Avenue

Hartford, Connecticut 06106

Dear Commissioner Smith:

You have requested a formal opinion from this office as to whether the Department of Administrative Service's ("DAS") use of private collection agencies on a contingency fee basis would be in violation of Conn.Gen.Stat. § 4-100 or any other section of the General Statutes of Connecticut. Based upon a review of the relevant statutes and their legislative history, we conclude that DAS is not prohibited from using private collection agencies on a contingency fee basis. Our reasoning is set forth below.

We understand from your letter that, in an attempt to increase State revenue, DAS has identified delinquent accounts due the State as a potential source of revenue. You propose that the State use private collection agencies to collect monies due the State in exchange for a set percentage of the monies they actually collect. However, you expressed the concern whether such a contingency fee arrangement violates Conn.Gen.Stat. § 4-100 since that statute prohibits an agency from spending in excess of its appropriation.

Conn.Gen.Stat. § 4-100 provides, in relevant part, as follows:

Whenever any specific appropriation of money has been made by the general assembly ... each agent, commissioner or executive officer of the state ... who wilfully authorizes or contracts for the expenditure of any money or the creation of any debt for any purpose in excess of the amount specifically appropriated for such purpose by the general assembly ... shall be fined not more than one thousand dollars or imprisoned in a community correctional center not more than one year or both.

In our view, this statute has no applicability to the particular situation posed in your request for opinion since, by its terms, it only applies where an agency spends in excess of its appropriated amounts. When an agency uses a private collection agency on a contingency fee basis, it is not using appropriated funds because the fee comes out of the collected monies, which monies otherwise would be lost to the State.

More importantly, the use of a private collection agency is specifically authorized by Conn.Gen.Stat. § 4a-12(b) which provides, in relevant part, as follows:

Any debt referred to the department of administrative services by a state agency, which the department is unable after due diligence to collect within six months of such referral may be referred by the commissioner to a consumer collection agency, licensed under section 42-127a, for collection, provided the debtor has been given at least thirty days' notice that the debt will be so referred.

Section 4a-12(b) does not specify exactly how the collection agency is to be paid. Where a statute is silent or ambiguous as to a particular issue, it is appropriate to examine its legislative history for guidance. Chrysler Corp. v. Maiocco, 209 Conn. 579, 592 (1989); Glastonbury Company v. Gillies, 209 Conn. 175, 181-83 (1988); State v. Champagne, 206 Conn. 421, 428 (1988). In addition, the Connecticut Supreme Court has ruled that "[a]lthough there is earlier authority to the contrary in recent years we have repeatedly approved references to testimony before legislative committees in order to shed light on legislative intent. This is fully consistent with the general principle of statutory construction that we look, in part, to the problem or issue which the legislature sought to resolve, and the purpose it sought to serve, in enacting a statute. Often that problem, issue or purpose is disclosed by reference to the testimony before a legislative committee." (citations omitted). State v. Magnano, 204 Conn. 259, 274 n. 8 (1987).

Concerning Section 4a-12(b), legislative testimony was given that "its only on a contingent basis that we have suggested this be referred to private collectors." Hearings on S.B.1116 Before the Joint Standing Committee on Government Administration and Policy, Jan. 1975 Reg.Sess., 188, 190 (1975) (Statement of Abraham Gordon, Esq., representative of The Connecticut Association of Collection Bureaus). Thus, the statute's legislative history indicates that a contingency fee arrangement was contemplated by the State Legislature.

In summary, the use of private collection agencies by the State on a contingent fee basis does not violate state law. Whether such private collection agencies will be used by the state is a business decision which must be made by the Commissioner of Administrative Services.

Very truly yours,

Richard Blumenthal

Attorney General

Jose O. Salinas

Assistant Attorney General

RB/JOS/aes

July 22, 1992

The Honorable Richard Blumenthal, Esquire

Attorney General

State of Connecticut

55 Elm Street

Hartford, CT 06106

Dear Mr. Blumenthal:

The Department of Administrative Services is attempting to do its part in increasing revenues to the State of Connecticut. Among the areas identified as potential sources of increased revenues are Delinquent Accounts due the State. A strategy that we are exploring to pursue these monies is the utilization of private collection agencies on a contingency fee basis. In other words, such firms would attempt to collect these monies due the State and would retain, as their fee, a set portion/percentage of the monies they actually collect.

This strategy is used frequently in the private sector. However, a question has arisen as to whether or not we, as a State agency, may utilize such a contingency fee arrangement in light of the fact that we receive a specific appropriation within the General Fund to cover our operating expenses each Fiscal Year. Section 4-100 of the Connecticut General Statutes prohibits an agency or its officers from spending in excess of its appropriation.

This letter will serve, therefore, to request a formal opinion from your office as to whether our use of contingency fee arrangements would be in violation of Section 4-100 or any other section(s) of the General Statutes.

Your review of and counsel in this matter would be appreciated. Should you or your staff have any questions in this regard, you may feel free to contact Mr. Richard M. Cosgrove, Jr., our Chief Administrative Officer, at 566-8337.

Thank you for your assistance.

Sincerely,

Reginald J. Smith

Commissioner