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Debt Collection: Something Different This Way Comes

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By some estimates, more than a third of the adult population in the US is going to come in contact with a debt collector at some point. If you have never had to deal with debt collector before, your only exposure to the industry could be from the media, and perhaps by way of this hilarious anecdote about debt buying from John Oliver. Or, you may have tuned in to random soundbites on the nightly news promoting wariness about debt collection scams that flare up.

Count yourself lucky if you have missed out on financial setbacks and have not had to contend with collection issues. Count yourself luckier still if your contact with the legitimate collection side of the debt and credit industry was only in the last couple years.

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You are the luckiest if you first come in contact with a debt collector in the near future, say 12 or more months from now. I say this with confidence because the wild west days of debt collection are over. Some people just have yet to catch up with this fact.

Whats different about debt collectors today.

I’ve discussed much needed changes in the debt collection marketplace in the past, but you may be surprised (I still am somewhat) that we are fast entering a time where debt collection is highly civilized (said with a lilt in my voice from Old Spice commercials).

Because of rules and law changes at the state level, and also due to CFPB investigation and enforcement actions against banks and debt collectors, there is much that has changed over the last few years in the debt collections landscape. I want to touch on some of the most dramatic developments that have already influenced collections first, then wade into what debt collections may look like as soon as next year.

Debt collectors made changes in some of the following ways:

  • Starting with the recession, and record credit card default rates, debt collectors at banks and at the larger third party agencies took on a “we are here to help the customer” tone. This stood in stark contrast to the more normal stern sounding, stress the customer out – your full balance is do right now – debt collection tone that existed prior. Record default rates are no longer, but the change in tone of debt collectors largely stuck.
  • Legitimate debt collectors are far more compliant with existing rules and laws than ever before. Things like not calling before 8 am or after 9 pm, or the frequent calls to family and neighbors under the auspices of “locating the consumer” (when they already confirmed your address and talked to you on your phone 3 days ago) happen only seldom, and when they do, it is likelier today you are dealing with a blatant collection scam (I have another article coming next week about the rash of scams I am seeing of late).
  • Banks are putting collections agencies they work with under much higher scrutiny and auditing them stringently. You really have to have your ducks in a row as an agency to get accounts from anyone other than small local creditors and service providers. This has cleansed some of the questionable actors from dialing for dollars all by itself.
  • Banks have to follow new OCC guidance about who they may sell accounts to (transferring the legal rights to unpaid debts is quite normal since the 1990’s). This guidance from a primary regulator like the OCC has been compounded by federal regulatory action by the CFPB against major banks, debt collectors, and debt buyers. The affect of this has been less debt for sale, though that market may be thawing. More on this development below. But suffice to say that the John Oliver video I linked to above would have been much more applicable, say 6 years ago, than today. While I laughed throughout the video, most of the concerns it raised are already managed by state and federal regulators in just the last few years, and will be even more so in the months ahead. While buying a portfolio of really old, out of statute to sue in court medical bills is unfortunately still possible, you would not be able to buy fresh default credit card debt how Oliver did.

Debt collectors and new realities.

There are only a few states with what I would consider excellent consumer protections from certain debt collector practices. California recently enacted the Fair Debt Buying Practices Act, and New York is getting serious about how collectors interact with its residents. There are several states considering legislation to further protect people from questionable collection practices. Regulators have already made meaningful impacts by issuing new guidance to banks, and through existing and pending enforcement actions.

Regulatory actions from the CFPB against the largest credit card issuers, debt buyers, and a large collection law firm, set beside new bank guidance by the OCC regarding how banks sell or place debt for collection, have combined to give somewhat clearer visibility of more formal changes to come that bring a national impact with them.

Fair collection practices for collectors.

Some existing actions prevent the sale of debts that cannot be properly documented to the standard a court may set, or that have been part of a bankruptcy filing. Other actions prevent how or when someone will be sued by a debt collector.

Last week the CFPB announced an upcoming July 28th field hearing about a required small business impact study regarding proposed debt collection rules. We should get to see more details about those proposed rules for the first time in nearly 2 years.

Here is a wish list of a sort that I hope to see changed nationally, and with all players, when it comes to debt collection.

Debt documentation.

Similar to the provision of the FDBPA in California I mentioned above, we need every flavor of debt collector (whether banks collecting post charge off, a collection agency, collection attorney, or debt buyer) to provide every consumer making payments an accurate accounting of how those payments are being applied.

It is ridiculous the trouble people express to me about making payments to a law firm or collection agency, and sometimes for years, without any invoicing and billing system to reflect the amount remaining owed. They try in vain to get some kind of accountability and get nowhere, and that is because it is often not required. It is shameful we have gone as long as we have without this fundamental math being readily provided.

I believe legitimate collections over payment installments would actually increase the more the consumer could see what is left owing. And the debt collection industry as a whole would gain a huge bump in credibility if accurate payment invoicing were the norm.

And while we are on the subject of debt documentation, it should be required that all debt collectors (banks too) are required to send consumers an outline of what they are agreeing to accept as payments, or settlement in full, prior to the consumer remitting the first monthly payment, or full settlement amount, on charged off debts. This practice became widely adapted by the entire industry during the recession, but there are still notable exceptions. Synchrony, a huge branded credit card issuer, still messes with consumer confidence by delaying documentation,  and Portfolio Recovery Associates, the second largest debt buyer in the nation, appears to think its okay too.

If I am the OCC I would want to know why Synchrony values this practice. And if I was thinking about selling debt to a debt buyer like PRA, I would think twice until they got this ridiculous “no soup for you” policy in line with what they partly already have to do for newly purchased debt in California.

Post charge off interest.

Just because you can does not mean you should. Banks charging default interest when accounts go bad is part of the carrot/stick principle of lending. It is also part of the “what the crap… how is making an un-payable debt more un-payable going to help you collect” question I have had for years.

If the IRS is not going to treat an amount as income if cancelled or forgiven, than why have post charge off interest at all? Someone with a huge data set please run the numbers and show me the meaningful benefit when you measure balance accretion on the 1/5 of the accounts that go more than 90 days late (that will ever be collected on), against the safety and soundness principles of our banking system, and the confidence of consumers and the public dealing with collections.

Is that return a benefit to lending practices as a whole? Is there more to be gained by eliminating post charge off interest from accruing? My guess is NO to the former, and YES to the latter.

Bank and creditor notifications.

Some early indications from recent regulatory action is that large credit card issuers are sending what many call a “Goodbye Letter”. This is the bank notifying a former customer – that could not keep up required minimum payments – that their account has been assigned or sold, and who to.

These types of consumer notices will help a percentage of people – who are still trying to actively manage their financial setbacks – to know who is legitimately collecting, and to be prepared for future communication and resolution efforts.

I imagine better lettering to consumers will help everyone in the collection life cycle. I hope this becomes a required practice.

Attorney fair collection rules carve out.

Please… for all that is good and gracious… do not carve out attorneys from new rules designed to protect consumers. Attorney collection abuses are no different than any other debt collector. In many cases it can be worse, as judgments lend credibility to bad practices and the impression that bad acts and practices are court sanctioned.

I have participated in regulatory changes at the federal level. Attorneys were provided some limited carve outs from consumer protection in debt relief. That door left ajar created 100’s of millions of dollars of consumer abuse (that we know about so far).

According to Jared Strauss, a former debt collector for attorney and non attorney agencies “If attorney’s are carved out – regular collection agencies could largely cease to exist”. Jared has keen insights into debt collector behavior, such as how debt collectors look at your credit, and why debt validation letters can cause trouble. I share his concerns.

The abuse we have seen in legal collections is not limited to the court procedural stuff, such as running collection mills with attorneys supposedly supervising thousands of cases a month, affidavit and notary chicanery, or the foundation lacking to prove a claim once it is brought.

Employees that man the phones for debt collection attorneys are some of the most egregious offenders when speaking to consumers.

Beware the unintended consequences.

Fair collection rules for banks.

I have called out some of the best banks out there for how much of an improved debt collection environment they created for their card members and customers for unsecured accounts. Much of those changes came as a result of the recession. And like I mentioned above, the changes have largely stuck. But as can be seen from consent orders between the CFPB and banks, there is reason to extend fair debt collection rules to credit issuers.

If credit card originators were subject to debt collection rules it may lead to some banks assessing the benefits to internal collections. They may opt to outsource all collections after 90 day defaults. Some banks who are not selling debt, like American Express and Discover, may start to look at the benefits of that type of recovery. Maybe Wells Fargo will sell debts instead. If collectors there blatantly lie to me, what can the consumer expect?

Compliance and legal costs at originators, set beside expectations on recovery from post charge off collections, may create a more robust collection space. And that space may soon be filled with nothing but meaningfully regulated entities, rather than years past where we are left to point to the cleanest dirty shirt.

The changes I know would benefit consumers and the collection industry alike are not limited to those above. There are many nuanced things to come that I will cover in greater detail here and on the Debtbytes video channel.

 

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Recognize and Review a Debt Collector

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Complaints about debt collectors number in the ginormous every year. The volume is somewhat understandable. I mean… how many other professions do you spend nearly all of your time trying to get someone to do something they cannot or will not do? Let’s face it, getting people to pay bills they likely can no longer afford is not all smiles and niceties.

I started out my debt and credit career because I got angry after a friend shared with me what a debt collector said on the phone. This led to me researching debt collection consumer protections, that then led to my helping my friend settle that bill with a debt collector, and for much less than what was owed. That was more than 20 years ago.

I have helped people settle many thousands of debts since then. In that time I have seen debt collection complaints increase dramatically. There is little that a person can share with me about what a legitimate debt collector may have said or done (in an effort to get paid) that would shock me. Some of the full on scam debt collectors can still surprise me a little with how brazen they can be.

How many people complain about pleasant debt collectors?

You do not often hear anyone talk about a pleasant experience with debt collectors. It is just not news worthy. How many people are going to read an article titled “Woman resolved an old bill by calling a debt collector with excellent communication skills”? How many people writing about personal finance topics would bother to write the article?

I am in somewhat of a unique position to write about other peoples experiences with debt collectors. The vast majority of my work with consumers has been teaching people to deal with debt collectors on their own. That means picking up collection calls and calling to speak with debt collectors themselves.

People often share a bit of nervous reluctance about talking with debt collectors, especially if they had a negative experience in the past, or read about collection drama online. But after sucking it up and calling, the overwhelming feedback from the people I work with tends to be how surprisingly easy it was to speak with debt collectors.

Admittedly, there are some things that set people up for success when speaking to a debt collector. I am usually working with people who are trying to resolve old unpaid bills. And most people I help have a realistic expectation about the potential outcome when resolving their accounts in collection. Talking to debt collectors when seeking a realistic solution is going to be different than when trying to avoid the debt all together.

Debt collector recognition and review.

There is no doubt that debt collectors behave badly. And they get all the press. When you do see something positive in the media about a debt collector, it is often a public relations puff piece (usually around the holidays). But the purpose of this post is to point out the fact that there are nice debt collectors too. By nice I mean they are easy to communicate with, and do not come across as if they are in a confrontation with you about your debt. A pleasant debt collector is still all about the business of collecting, so do not misunderstand their cordial tone. They still have a job to do, and that job is not to look after your best interests. That is still your job. But helping you understand how you can reach common ground (within your ability) to resolve unpaid bills, while maintaining professionalism and a pleasant tone, is what I view as an established metric worthy of recognizing.

I invite all readers to post in the comments below about any positives you experienced when dealing with a debt collector. You are invited to share the name of the debt collector, the collection agency they work for, and even their direct phone number and extension.

I will start this list off with a debt collector recognition and review of my own. I should set the situation up a little first.

Friends and family are well aware of the work I do. I get referrals from them for consults all the time. Even though I currently focus most of my time on publishing, I still actively work some files and accounts where I know the outcome is better reached by me communicating with the debt collector. That is what happened with a referral from a few weeks ago.

An elderly woman with a fixed income and no assets owed over $10,000.00 to one of the larger credit card banks. She had no ability to pay with additional medical expenses. Her account had been placed with an outside third party collection agency. Here is how that went.

Global Credit and Collection Corp.

The agency that was collecting the unpaid credit card was Global Credit and Collection Corp. The name of the debt collector that assisted me was Rohina Pasani.

When I negotiate bills for another person I need written or verbal authorization. I have forms for that with CRN letterhead that I have used for many years. This file was a personal referral, so I sent forms in to Global Credit and Collection that just contained my personal information and no company identifiers. And initially I did not mention I worked in the debt and credit industry to Ms. Pasani, just that I was helping someone I know. I am pointing this out so that readers know I was not given any different treatment than you might receive.

Rohina Pasani is a consummate debt collection professional. She recognized the account holders commitment to having maintained her account for so long, and immediately understood the financial situation required some concessions if the debt were to be resolved. I generally have a target amount of money to pay in order to resolve a debt before I call a debt collector. That target was reached, and there was no trouble getting the settlement agreement documented and sent to me. There was no trouble with getting the time needed (a couple of weeks) for the money to be available to pay the amount agreed to.

Once the agreement with Global Credit and Collection was reached and everything put in motion with the payment, I did mention I had experience in the debt and credit space, but only in passing when thanking Ms. Pasani for helping resolve the account.

I have only truly had one debt collector conversation that I hung up from thinking “I could have gone my whole life without having made that call”. On the flip side, the majority of people I have communicated with to resolve debts have not left an indelible impression. Rohina Pasani is an exception.

I wanted to write this post to recognize Ms. Pasani, and also to have an article up that I can send people to in order to share their own story. If you have a positive debt collection experience to share, and would like to recognize a debt collector, you are welcome to share in the comments below.

How will contacting a collection agency restart credit reporting or time limits to sue?

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Dear Michael: “My daughter has medical bills from 2008 when an emergency situation arose and she was not covered under insurance. She recently checked her credit report and contacted the collection sites to see if they were really hers. If you contact the collection agency does this restart the ‘7.5’ years on your credit report? Would it make any difference to see when the last contact or mail was sent to her? What if she didn’t live there anymore and the mail was returned to sender?”

That 7 and one half year credit reporting time frame is never really restarted unless an account is brought completely current. When a debt stops being paid, or perhaps in the case of a medical bill that never saw a payment, that then appears as a derogatory on your credit reports, is when the credit reporting clock starts ticking. Calling debt collection agencies and lenders about a debt does not change anything about credit reporting.

I do see people confuse restarting credit reporting limits with how calling or sending letters to debt collectors might restart the time limit to be legitimately sued for collection. I am going to post more than you were potentially asking about, because I do not think I have a dedicated post about how verbal or written acknowledgment of a debt can reset the time collectors must follow in order to file legitimate lawsuits.

Acknowledging or reconfirming a debt passed your state time limits to sue.

There are state specific laws that govern when your debt can be “reset” for the purposes of suing you in court in order to get a judgment and expand their options to force payment. This is commonly referred to as acknowledging your debt, or reconfirming it. More often than not this happens with a debt collection agency or debt buyer.

Most state laws speak only to reconfirming your debts and resetting the SOL to sue when you submit a written acknowledgment of the debt, or remit a partial payment (no matter how small). When in doubt about this issue, you will want to speak to someone with experience in consumer law and how your state courts have ruled on this issue in the past.

There are places online you can read about only negotiating with debt collectors in writing. And I think, over time, people have blurred the line of what debt collectors can legitimately do to sue, with credit reporting limitations.

Sending debt collectors only written offers to pay a reduced lump sum to settle debts has long been bad advice, as those written offers to pay can mistakenly reset the SOL to be sued. Negotiating on the phone is preferred, followed by any written agreement being sent by the debt collector, and not you. Are there exceptions to this? Absolutely there are, but this is enough of a concern to suggest phone calls over written communication with collection agencies.

Now… your daughter was only calling to verify the debt on her credit report was hers. That’s great because:

1. She did this over the phone.

2. She was trying to validate the debt as hers, not admit to the debt.

There are stark differences, and consumer rights you avail yourself, when disputing or requesting validation of a debt from a collection agency compared to what can be considered a creditors rights when you reconfirm or re-acknowledge a debt. You also have the right to dispute off of your credit reports any incorrect and out of date information .

Should you be concerned about restarting your debts?

There are different camps people fall into when it comes to communicating with debt collectors. Some folks preach how you should never communicate with debt collectors; others say only communicate in writing; and never admit the debt. Because most of my debt and credit career has consisted of helping people understand their options for resolving debt, and often with a collection agency, I have a different take.

I believe people should communicate with debt collectors when there is a goal to achieve. Here are some different goals I know people want to achieve when it comes to collection agencies.

  • You want to stay under the radar until the debt passes the SOL to be sued in your state.
  • You want to communicate, or not, if it serves the purpose of limiting your risks of being sued.
  • You want to resolve a collection agency debt so that your credit reports can be updated to show a paid collection.
  • You want phone calls and letter form collectors to stop.
  • You want to make sure a debt is yours, or that the amount owed is correct.
  • You want to be certain you would be dealing with the right debt collector.

If you do not have a purpose to communicate with a debt collector, you are often better off just biding your time until you can either no longer be sued, or the derogatory item is removed from your credit reports.

It is helpful that some states have passed laws that require debt collectors to clearly disclose that your states limitation on whether they can sue you has passed. And some larger debt collection agencies have settled with regulators to disclose expired lawsuit limits to all consumers they try to collect from, regardless of state of residence. I do hope that national law changes currently being contemplated include, at the least, the disclosure about your debt being time barred from being sued.

Lastly, I should point out that while derogatory credit reporting from unpaid credit cards and medical bills may not be reset from phone calls or letters you send, if you can still be sued for a debt, a judgment will create a new negative entry about the same debt, and that will cause fresh damage, and generally for a whole new 7 year period.

Based on the 2008 dates for when the medical debts were created, they should be deleted off of her credit reports soon. Post the dates you see the collection agencies are reporting for these accounts in the comments below. I may have more feedback based on what you share.

Anyone with questions or concerns about what collection agencies can do to mess with your credit reports, or how collectors view you as a potential lawsuit target, is welcome to post in the comments below for feedback.

Want to Settle Discover Credit Card Sending Dispute and Debt Validation

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This post was inspired by my comment exchange with a site reader about negotiating a settlement with a Discover credit card that is now in the hands of a collections law firm. My comment would have been too lengthy a reply on the page the discussion originated, and this is also something that is not all that topical to the Debt Relief Program Intro page. What follows is food for thought not just with Discover Card, but with creditors like Citibank, American Express, Capital One, etc.

For context, you should read the comment string with Jay about settling with Discover.

From the other page Jay said: “I have a Discover card owe $5200 on it. I was communicating with Discover via mail, and offered to settle for 25%. I called Discover and they said my account has been sent to an attorney.”

Resolving Discover credit card debt after months of not paying.

If you want to settle a Discover debt, and have a plan and the means to do so, sending them form letters offering a deal is not the best way to go about it. Yes, there are websites full of anonymous posters who promote sending letters for this, that, and the other thing. There are merits to, and strategic goals that can be accomplished with these letters. Using them effectively is situational though. But the promoters of their use rarely dig deep enough to learn about someone’s goals and financial situation to compare alternatives. And readers of these sites often fail to volunteer the particulars of their goals and finances in order to receive more useful feedback. In fact, most people reading this, and other debt and credit related websites, do not post at all. That is not Jay. He IS on other websites, and here, looking for more feedback. That’s great. But before he got to the place where he started looking for more feedback, I assume he read somewhere that sending in a 25% settlement offer with some canned wording to Discover Card, in order to settle with them, was a good idea. It is not. It is a good way to blow the opportunity to settle with Discover for 40% to 50% before they charge off the account and place it into their collection pipeline.

Current trends for successfully settling a Discover credit card directly with the bank are between 40% and 60%, with some one-off events that can settle lower, but it is not all that common. There are also accounts that can be flagged for no negotiation and settlement that would result in a lower pay off with Discover. Historically, my experience suggests Discovers criteria for refusing to settle, prior to outside debt collection efforts, are based on account usage prior to defaulting on your payments, length of account history (account less than a year or three old), or when a “collectability” assessment suggests the account not be settled. Settling your Discover card before it gets charged off (6 months late), is most often going to be accomplished by speaking with a collections/recovery representative employed by Discover. The best deals and savings from settling with Discover will typically be in the last few weeks leading up to them charging the debt off as noncollectable on their books.

I cannot know whether Jay’s account would have been one that got settled prior to charge off and placement with an attorney for further collection. But I do know that his goal has been to settle, because he sent a letter to Discover offering to, and has said that remains his goal in the above linked comment  string. Had he been able to settle early, he could have potentially avoided the charge off entry on his credit, and would have avoided being in the position he is in now. But I suspect Jay read somethings online that, while probably intended to be helpful and useful, may have helped to over complicate an otherwise straight forward opportunity to resolve his Discover credit card bill.

Based on my experience, I would say there is at least some likelihood that the letter Jay sent to Discover Card offering to settle, led to his account being treated differently than others that get placed in the collection pipeline after charge off, or placed even earlier than 180 days of nonpayment. I say differently, but that is a misnomer. Discover, and other large credit card lenders, do have policies and protocols in place that, to them at least, would be the normal treatment applied to a small percentage of accounts where they receive canned letters (perhaps like the one Jay sent), from their card members. Creditors will also develop different attitudes for how they handle, or dig their heels in, when settling, or not settling, with accounts that go in the direction Jay read about, where arbitration is elected, and is primarily why I am writing this post.

In a comment Jay said: “Some people have ask me to opt in for Arbitration with JAMS but i do not know much about Arbitration. I really need advice with this soon. All I have to do is send them a CMRRR saying that I dispute this debt, request validation and elect arbitration with JAMS to resolve this matter between us.”

Disputing your Discover Card debt and electing for arbitration.

There is a long sorted history with using arbitration to collect unpaid credit card debts. I cannot possibly cover it in this post, even if I wanted to (I don’t), but I am very familiar with the history, and the strategic purpose of someone in Jay’s situation electing for it now. And though I may come off as not supportive of the different ways you can succeed with “alternative methods” for resolving debt, I am actually all for using different strategies to best resolve a debt when someone is well informed of the risk/reward of the alternatives, like disputing a valid debt, or serving notice to a debt collector that you will elect for arbitration of any dispute. But that does not appear to be a good alternative for Jay when considering what he shared in the other comment thread. Nor is it going to be an effective or realistic option for many who try it. Here is why:

Jay’s goal is to resolve the Discover Card debt.

Jay has access to the resources to help him do that.

Electing for arbitration, or other alternative methods to dodge a legitimate debt, may in fact lead to a HUGE time commitment in order to succeed. What is your time worth? If you have to spend what could be countless hours researching and applying what you learn if the CIR Law Office receives his letter and does not do as that website Jay has been reading suggests (CIC) – where the debt collectors “run for the hills” (man I hope there is more to what he read over there than that) – are you prepared to follow through? What if the process takes more than a year (it could), and you lose anyway (you could), and end up owing far more than originally owed to Discover (could happen)?

decisions

In the first comment Jay left on the other thread he said he owes a debt to Discover for 5200, but is being encouraged to dispute it. I do not know the context of what Jay read, or any comment exchange he had on another site, so I do not know if there was an outline given for the strategic purpose of disputing a debt Jay already knows is legitimate. But it does not matter. The general strategic purpose for disputing a legitimate debt is to buy time for some other reason, or with the expectation that the debt will be treated as a “hot potato”.

Debt collection and playing hot potato: The incorrect assumption that all debt collection is a numbers game that relies on collecting the most, from those most likely to pay, for as little overhead cost as possible. If someone identifies themselves as less likely to pay by sending a dispute or debt validation request, the collector moves on to another file, sends the account back to the originator, sells it off, or assigns the debt to another collector. You then send a dispute, debt validation request, or cease communication letter to the next debt collector you hear from. Wash – rinse – repeat.

Sending a dispute and request for debt validation to the CIR Law Office in Jay’s case will not buy much time. Why? Discover does not sell much of their defaulted credit card debt into the open market these days, so I am confident they still own the debt. CIR will have no trouble meeting their obligation under the FDCPA to provide Jay with validation. I suspect the validation request, dispute, and serving notice that arbitration will be elected in order to resolve any dispute, will only lead to further complexities for Jay, and others who are faced with similar circumstances.

There is an ebb and flow to debt collections.

Creditors deal with things the way they want to; assignment and contingency collection agencies do things a certain way (often as dictated by creditors placing debt with them); debt buyers manage their operations and collection files in the way that makes sense for them. They can all make changes to their practices and recovery goals due to changes in the economy, internal data, legislative changes at the state and federal level, lawsuits they may have defended and lost, or succeeded in, new case law, decisions from higher courts, etc. Consumers electing for arbitration was an effective way to cause creditors and debt collectors to treat the file as a hot potato after the National Arbitration Forum was shut down several years ago. The effectiveness of the strategy was/is real, but is ebbing towards non effective as card holder agreements have been adjusted to eliminate clauses, arbitrators see this as a ploy, and creditors, like Discover, dig in and become stubborn. Stubborn can mean Discover, and other banks, are willing to spend the money taking some of the cases all the way through – even though the costs can far exceed what they can collect (especially given the fact that if they win the consumer can elect for bankruptcy).

Playing hot potato with a debt collector can deliver the desired effect. But it is counterproductive for someone who:

  • Wants to, and has the means to, resolve a debt.
  • Wants to refinance or purchase a home without waiting until the Discover credit card ages off the credit report (7 to 7.5 years). And is not okay with the higher potential to be denied other credit products like future auto loans, and credit cards, and is not okay with paying a higher price for those credit products in the future (maybe even insurance products).

Should someone in Jay’s situation try the hot potato approach with his Discover credit card? No. Not in my opinion. Not when his goal is to resolve it, avoid being sued, and move on with his life.

Are there instances where someone should do as Jay is considering? Yes, but those would be very limited instances. And would be limited even further if the average person really had a grasp of how much time and energy they would need to commit to the process doing it themselves, and who were also fully informed on how to compare other options that would help them accomplish their mid to long term personal financial goals before proceeding.

My comment to Jay on that other page is to speak with an experienced consumer law attorney (with a practice focused in defending debt collection lawsuits), before making up his mind on what to do next. The attorney may recommend Jay take a defensive position now that his Discover account is likely headed to the courts if it cannot be resolved in the near future. The attorney likely has dealt with CIL in the past, and will be the best positioned to give Jay solid advice about what he is considering.

I invite anyone concerned with the topic I covered in this post,  or whose goal is to settle or make payment arrangements on their Discover Card, to participate in the comments below. Just know that the bias of this site (and of yours truly), is to mostly publish content and provide perspective about resolving debt, and not playing hot potato with collection accounts.

If you would like to consult with me about your Discover debt you can reach me at 800-939-8357, choose option 2.

If you are dealing with an attorney collecting for Discover, and want affordable legal help to handle the court process while working toward settlement, fill out a profile on this site and get help. It’s as easy as clicking the “get started” tab under the consult request image below.

 

How To Reduce Debt Buyer Collection Lawsuits

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Last week the CFPB and the FTC held a workshop to address what happens to unpaid debts at different stages of the debt collection cycle. Part of which discussed the frequency and challenges faced by consumers when debt buyers file lawsuits in order to collect. The workshop brought together state and federal regulators, economists, major banks, debt collection agencies, debt buyers, consumer advocate attorneys, technology companies, members of the judiciary, credit reporting agencies, and more.

The workshop was aptly titled “Life of a Debt”, with a focus on data integrity in debt collection. But there was a great deal more covered during the event than maintaining data integrity when accounts reach the advanced stages of debt collection. I’d like to share some thoughts and perspectives about the future of debt collection, with a focus on what was covered during this workshop, but I want to start with a discussion of Part 4 (the third panel of the day) of the workshop – the critical stage when debt collections reach the court.

This particular panel discussion focused on data integrity and collecting debt in the courts, and was the liveliest discussion of the day. While the other three panel discussions appeared to reach a general consensus on one or more talking points, this one didn’t seem to “get there.”

Some key points about debt buyer lawsuits that were brought out:

  • Debt collectors are limited to telephone calls, collection letters, or litigation when trying to communicate with consumers about debts being collected.

This is well established. There really is not much more to collection than this, no matter who owns, or is collecting the debt.

  • Approximately 90% of collection lawsuits lack consumer participation. Most end in default judgment.

Numerous studies support this estimate.

  • Debt buyers would prefer to have contact with consumers outside of the court.

Depending on the debt buyer, this is true. I can certainly confirm this, from my own professional experience, that it is preferred by the debt purchasing company Encore Capital Group, whose former CEO, Brandon Black, sat on the above linked panel. 

  • Collection lawsuits should be filed when there is data to back up the claims sufficient to meet local court rules, and that a national set of standards would be great, but may not be feasible.

This last point is a serious flaw, and perhaps why the theme of the workshop included the term “data integrity”. I will have more to share on this in a later post (this one will run long as it is).

With that foundation, and with a focus on what can be done to affect change and improvements regarding collections through the courts in the future, I want to lay out some fresh concepts.

Ready resources to help people deal with debt collectors.

Judge Annette Rizzo, from the first judicial district of Pennsylvania, brought some unique perspective to the panel. As part of the Mortgage Foreclosure Diversion Program in PA, she witnessed the lack of homeowner participation in the foreclosure process drop from 90% (similar to credit card lawsuits today), to just 30% non participation. That is quite the accomplishment! How was that achieved? She provides some background to answer that question during the panel session linked above. If I could use only one word to sum up what must have been a herculean effort that Judge Rizzo only briefly described, it would be… OUTREACH!

How to Reduce Default Judgments

Can anything be done to emulate the success of the Foreclosure Diversion Program in PA as it can be applied to lawsuits to collect unsecured debts? Not in my opinion. At least not to the degree possible when there is much more at stake, like ones home.

There are emotional attachments, physical displacement, larger dollar amounts, and a host of additional reasons why someone is going to be much more committed to mitigating a foreclosure, when compared to participating in a process to resolve smaller balance unsecured debts, like credit cards. But outreach, and access to resources that are not the debt collector, like was expressed by judge Rizzo, are very much worth testing and exploring. And there are participants involved in the collection and payment of unsecured debts willing to “step up”, as Rizzo suggested was needed.

Existing resources can be tapped to get people engaged in learning about the different solutions available to them to resolve a debt, both before a collection lawsuit is filed or as an additional touch point afterward. And there are companies willing to step up and test some of these measures. I reached out to a large debt buyer, and to a national non-profit credit counseling agency, and I confirmed that there is openness and willingness to pilot processes designed to improve consumer engagement.

Nonprofit Credit Counseling Agencies provide “Boots on the Ground” to help people deal with accounts in late stage collections.

There are strengths and weaknesses inherent in the debt management plans offered by credit counseling agencies. Weak, in that some consumers’ financial situations can be resolved with creative and flexible approaches (generally lacking in nearly all managed repayment plans). Strong, in that the plans offer predictability and measurable success if monthly income and expenses show both an ability to pay, and when the person’s income remains stable. But the vast majority of debt management plans do not contemplate principal balance concessions from original creditor participants.

What if you were able to add principal concessions from debt buyers? How does this flexibility potentially change the litigation stage of collection? From my experience, balance concession flexibility, measured beside a person’s current financial ability to pay, when fully understood by people faced with late stage collection notices, including litigation, can make a crucial difference.

Tapping into the strengths of existing systems, technology efficiencies, and the scalability of many credit counseling companies to increase consumer engagement prior to collection litigation – even after a collection action commences, makes sense. This is particularly true when considering the stable and longer-term view of collections that are maintained by some of the larger national debt buyers.

During the session, Black suggested his former company can offer consumers, “…more flexibility, more choice… where they’re going to pay less. We’re not going to need the court system as much.” Taken in context, the success of this approach is predicated on being able to communicate in a meaningful way with the person owing a legitimate debt.

My own experiences working with Encore’s subsidiary companies, Midland Funding LLC, and Midland Credit Management, support this assertion. Current trends within the debt settlement industry at large also support Black’s statement. Resolving debts with the Encore brands offers opportunities for the reduction of balances, and/or flexible payment terms that do, indeed, keep people out of the courts. This type of flexibility did not spring up overnight, and balance concessions and payment flexibility are not unique. This is something hard-coded into virtually all later stage collections. And most collection firms (at least those that are in the space for the long term), including the contingency collection agencies, adjusted quickly to the economic downturn by developing protocols for collections that can meet a consumer’s ability to pay.

Stepping up.

I reached out to Encore Capital Group and asked, “Is there a willingness to test a cooperative effort with non-profit credit counseling agencies that can create an additional touch point for resolving debts prior to instigating a collection action in the courts?”

Brian Enneking, Vice President of Consumer Marketing at Encore Capital Group, responded. “We recognize the value credit counseling agencies provide to financially distressed consumers, and we work with many such firms today. We are also very interested in exploring ways to help our consumers get back on track, which can certainly include testing additional methods of connecting consumers with such firms. Our company believes strongly in working with consumers to avoid pursuing collection action in the courts, whenever possible.”

I call that a step up, and one that would be smart for other debt buyers to embrace.

Another suggestion from Judge Rizzo during this same panel session was the notion of creating “various touch points for these cases, to maybe fix it before you even have to use the courts.”

The obvious issues here are:

  • People avoid collection calls.
  • The content of messages left by collectors is limited, and they often go unreturned.
  • Collection letters often go unopened or are disregarded.

When debts reach later stage collections, people have already been overwhelmed with demands for payment. They will often become numb to these ongoing collection efforts. They do not know about the different options to resolve a debt, and the flexibilities that may exist for them to get a handle on the situation before it escalates. Most people do not want to speak with a debt collector, and are not sure who to trust or where to turn.

I reached out to a non-profit agency, Cambridge Credit Counseling, a company I hold in high regard for their national transparency project.  I asked, “Is Cambridge open to participating in a pilot program with a large national debt buyer designed to build consumer awareness, and provide budgeting and counseling sessions regarding their ability to repay later stage collection accounts prior to, or even after, a collection action is filed?

To which they responded: “Absolutely. There has always been a pretty solid barrier between debt collectors and consumers, and non-profit credit counseling agencies like Cambridge can bridge that gap. The missing component has always been financial education. The ongoing counseling that agencies like ours provide, as shown in our Transparency Reports, clearly indicates the impact that education has on the likelihood that a consumer will successfully complete a debt repayment plan. Clients engaged in the ongoing financial education offered by our agency are 22% more likely to repay their debts in full. Quarter after quarter, our data shows that it’s all about education, reinforcement, and engagement.”

Non-profit credit counseling agencies are already in place as touch points in the earliest and later stages of unmanageable debt.

  • The CARD Act requires that a toll-free number be printed on credit card billing statements that will ultimately connect the caller to a credit counselor. And credit card and other loan originators regularly refer their card members and customers to non-profit agencies.
  • DOJ approved non-profit agencies are already integrated in the bankruptcy process through the requirement of pre- and post-bankruptcy counseling.

Providing this additional touch point for consumers facing the specter of collection accounts in the courts is certainly not a stretch.  Can it lead to more participation, fewer consumers facing default judgments, and the wage garnishments and bank account levies that result? Absolutely.  With widely adapted implementation, clear messaging to consumers, and a broad awareness campaign, I believe non-participation could be reduced measurably. Midland Funding LLC, and other debt buyers, already offer payment and balance flexibilities directly to consumers. Connecting consumers with non-profits like Cambridge Credit Counseling and their peers could help lighten the load on our courts, educate consumers, and provide meaningful assistance to people seeking help with debts in late-stage collection.

These two companies show there are additional opportunities for cooperation. Both have indicated a willingness to explore different ways to help consumers understand the options available to resolve debts, both before and after courts are brought into the picture of the life of a debt.

I plan on making some additional outreach efforts to other debt buyers, collection firms, and non-profits. I will update this post when there is more to share.

I invite anyone with a sincere interest in adding to this discussion to post in the comment section below. I would ask that you keep the focus of your comments on the future of debt collection that is sure to come. I will have more to share about all of the panel sessions from the CFPB/FTC workshop in the weeks to come.

Getting Debt Settlement Letters and Agreements

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We just discussed how to negotiate debts successfully on our own, but that doesn’t close the deal…yet. Negotiating debt and paying the new agreement requires a settlement letter. In the wacky world of debt collection, debt buying, and credit reporting, paying off a debt you settle without having a documented agreement, is a mistake. And one you will regret later on if the credit card you thought was settled (other types of debt too) resurfaces in a way where a written agreement to accept less could show the account was resolved, instead of the headaches you may go through without one.

NOTE: This post is part of our Debt Settlement Guide. If you’ve missed any of the previous content, or would like to start at the beginning, please see the links at the bottom of this page.

Reaching the point where you have a verbal agreement to settle and pay off a debt for an amount you can afford is exciting, and a relief at the same time. You must be careful not to lose sight of what are still critical concerns before celebrating your success. This information will help you focus on crossing the debt settlement finish line with confidence – when your success is documented.

A verbal agreement is not enough.

When you’re negotiating directly with creditors, your settlements are generally going to be reached verbally first. The verbal agreement will be for a set amount of money either paid all at once, or paid by making several installments over a set period of time, until the settlement agreement is met. It’s important that you understand the deal is not done until it is documented and fully funded, consistent with the terms and payment timelines laid out in a debt settlement letter.

Verbal communication with creditors and debt collectors are a necessary part of the debt negotiation process. How and when to communicate with creditors and debt collectors to negotiate with them is covered extensively throughout this site. Ongoing communications over the phone with your original creditors and debt collectors can progress until you have the money you need to settle.

You should not attempt to negotiate an account, or offer a settlement amount, until you have the targeted dollar amount you need to fund an agreement. It makes little sense to start negotiating a settlement amount if you don’t have the money to pay. Just making calls to “feel out the situation” wastes everyone’s time and could hurt your efforts later.

negotiations

Your targeted settlement amounts will be different from one account to the next. If you’re working with someone in the network, you’ll be able to set realistic settlement percentage targets, timelines, and goals using real-time data about your creditors and the debt collectors involved.

If you are a DIY reader, be sure to participate in the comment sections of relevant page topics in order to get feedback about timing and targeting for your debts you are looking to settle. The comment section at the bottom of this page is the perfect place to post questions about a settlement letter you have received, or what you could do if you’re having a hard time getting one sent to you.

Reviewing your debt settlement letters.

Reaching a settlement agreement can take one phone call, or it may take several calls over a period of days, weeks, or even months. When a deal is struck, you know that no deal is a real deal until it is documented, and then paid in accordance with the agreement.

Debt settlement letters with original creditors and debt collectors are typically a standard form that will consist of the following:

  • The creditor and/or debt collectors name.
  • The date the letter was drafted.
  • Your name.
  • Your account number.
  • Outstanding balance owed on the account (this is sometimes missing and is not a deal breaker).
  • Amount that is being agreed to as settlement and satisfaction of the debt (less than the full amount owed).
  • Terms and amounts of payments to be made – if you are settling the account over a period of time – instead of with one lump sum.
  • Date your payments must be received by in order to have met the settlement agreement.
  • The settlement letter must reference that the account being satisfied in full i.e. “settled”, “settlement of this account”, “accepted as settlement in full”, “paid in full”.

The letter will have other general information, such as disclosures about settling debt. Creditors and collectors put this information in to cover themselves. The bulleted items above are what you want to see in a settlement letter to cover yourself.

Settling with a third-party debt collector means you must get the above details documented before remitting any payment towards the agreement. If the above bulleted items are missing from your settlement letter, you should request a different letter be sent to you that meets the above specifications.

Watch this quick video about debt settlement letters:

Setting up an agreement with without a letter.

Some of the large banks will not release a settlement letter to you until your payment arrangements are set up in their computer system. They will request that you give them specific electronic or ACH payment information over the phone first. Should you agree to this? Yes, in some instances.

If you’re experiencing a creditor or collection agency holding back sending you a settlement letter, be sure to post about that in the comments below to get feedback about how each one of your creditors deals with this prior to settling, or negotiating your agreement and setting dates for payment. This way, you know what to expect beforehand, or can navigate the negotiation and settlement process of a specific account with more confidence.

Schedule your first (or only) payment for a future day that gives enough time for the settlement letter to reach you by mail. 10 days or longer would be best.

  1. Make payments on the settlement from your bank account that you set up specifically for saving and funding the agreements.
  2. If you do not receive the settlement letter within 72 hours of when your payment is scheduled for processing, you can call and demand the letter be faxed to you, or the funds will not be available in the account.
  3. You should be prepared to walk away from a deal if you do not have documentation in hand before the payment date. As a caution, be certain you don’t have the funds in your set-aside account on the date you set up a payment – if you are walking away from a deal.

Providing information and setting payment dates in advance of having received a settlement letter is usually only an option I consider when dealing with original creditors, and in some limited instances, debt collectors working for your original creditor.

Do not release payment information to debt buyers, or debt collectors working for debt buyers, without documentation in hand.

There are some instances where I will recommend you record a phone conversation about agreeing to settle a debt. I always encourage you to tell the debt collector that you are recording the call and why (they refuse to send you the agreement in writing before payment is set up).

Receiving debt settlement letters via fax.

Technology has provided many conveniences and cost savings when communicating important details that require documentation. Documents can be emailed with the click of a mouse. It may surprise you to learn that banks and collectors do not readily take advantage of technology advancements. You will find that many internal recovery specialists (bank employee debt collectors), and outside debt collectors working for collection companies, are not allowed to email anything to you. One way to work around the delays of getting settlement letters mailed to you is to get them faxed to you.

If you do not have access to a fax already, you can set up a virtual fax service. This would give you a 10 digit fax number that others can send documents to, and you can receive the faxed documents as attachments to an email, or receive an email notice a fax has been sent to you to log in and download, or print.

One of the services I recommend to receiving debt settlement letters via fax is eFax.com. The cost of an efax account, or similar virtual fax services is low. Setting up a way to receive faxed settlement letters is worth the cost when dealing with time-sensitive communication and funding of settlement agreements you’ve made. Getting the settlement letter faxed the same day is especially handy if you follow some of the “end of month”, or “end of collection agency contract” strategies that I lay out on this site, and other personal finance sites.

Working with a debt settlement company, or a professional negotiator, should not mean you let your guard down about getting settlement agreements documented and in your hands. Just because someone else is handling the heavy lifting doesn’t mean you should not be concerned about having copies of all settlement letters. Be sure to get a copy of all debts that have been negotiated and funded from any professional you work with as each of your debts are being settled.

With business trends for electronic data storage, and the fact that computer systems can crash, physical documents this important should always be in you possession.

Conclusion:

Negotiating and agreeing on an amount you will settle a debt for is primarily going to be done over the phone. Once you have a verbal agreement, it must be followed up with documentation. The settlement letter should meet certain requirements before you remit payment in full, or make a partial payment. If you do not receive a settlement letter, or a letter does not include what is standard information to protect you, it’s okay to walk away from the deal. You can receive settlement letters via fax and mail (sometimes even email). No settlement letter means you don’t have a deal. Keep all settlement letters in a safe place with all of your other important documents.

Almost done. The final step in our Debt Settlement Guide is paying debt collectors after the negotiations are done.

If you have questions about your settlement agreements, please comment below for dedicated feedback, or call 800-939-8357, ext. 2 to reach me directly.

This Debt Settlement Guide includes:
An Expert Guide to Credit Card Debt Settlement
How and Why Banks Settle Credit Card Debt with You
Types of Accounts to Include in Your Debt Settlement Plan
Why Settling Credit Card Debt is Like a Race
How to Settle Credit Card Debt Quickly
How to Talk to a Debt Collector
How to Negotiate Credit Card Debt Successfully Yourself
7 Largest Credit Card Banks and How They Settle Debt
Get Debt Settlement Letters and Agreements from Collectors (you are here)
Paying Debt Collectors After You Negotiated a Settlement

Paying Debt Collectors After You Negotiated a Settlement

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Negotiating and settling debts that are past due at all stages of debt collection is thoroughly discussed throughout this site. With all of this detailed information and discussion, don’t forget to plan and prepare for one of the basic elements of settling your credit card debt. All successful debt negotiations have two things in common…a documented agreement (covered in the previous section) and paying the settlement agreement.

NOTE: This post is part of our Debt Settlement Guide. If you’ve missed any of the previous content, or would like to start at the beginning, please see the links at the bottom of this page.

At this point, it should be well understood that the main ingredient to completing a debt settlement program is having the money available to complete the lower pay off deals as they are negotiated. There are recommended ways for establishing and fortifying your “war chest” of cash resources to fund the debts you’re settling. The focus of this page is the type of bank account you should use that your funds will be deposited in for the purpose of, first accumulating and holding money, and later used to distribute payments in satisfaction of your debts that are negotiated.

There are two recommendable ways that these accounts have been traditionally set up – “self saver” accounts & Escrow Accounts.

Using escrow accounts for debt settlement.

Third-party escrow services are the most common type of account used by professional debt relief service providers. When an escrow account is set up correctly, your money is deposited into a separate FDIC insured account in your name. You add money to the escrow account every month in order to build up your “debt settlement war chest”. Pushing money into your escrow account is typically done through an ACH or auto-draft on the same day each month. You can usually add additional money to your escrow account (like from a tax refund or other source), anytime.

The amount of money in your escrow account will build over time. When there is enough in your escrow account to fund a targeted settlement with one of your creditors, the professional you hired will begin serious debt negotiations. When an agreement is reached and documented, the money in your escrow account is used to fund the settlement. You will continue the process of saving and sending money to your escrow account each month until the next settlement is reached. You then simply wash, rinse, and repeat.

If you’re using a typical debt settlement company to settle your credit card debt for you, virtually all of them will use an outside third-party escrow company for warehousing your money that they will later use to fund the settlements they negotiate for you.

Debt settlement attorneys may/may not use an outside escrow service for holding your money until settlements are reached. Attorneys will often use segregated trust accounts for holding client funds. Attorneys are held to a fiduciary standard when dealing with client money, so escrow accounts are not necessarily something that will be offered to you.

A key to the escrow account is that you can request your money be released to you at anytime. A legitimate debt settlement company will only recommend escrow accounts that are set up in this manner. There are monthly fees associated with using most escrow services.

I have always looked at outside third-party escrow accounts as an unnecessary expense that is passed on to the person hiring a debt settlement company. But I also recognize the efficiency that a debt settlement company needs to do their job, and escrow accounts set up in your name at an FDIC insured bank provides many efficiencies for settling debt.

Using your own bank account for settling debts.

A “self saver” account is just a standard checking account set up independent of anyone, in your own name, and often at a local bank branch. It should be an account that offers you the ability to fund settlements using check by phone, and ACH types of payment. You should open an account separate of the checking account you use to pay your monthly bills. Similar to how you work with a debt settlement company, or settlement attorney, you would add money to your account each month and allow the money to accumulate.

Open an account to fund your settlements.

When settlements are documented and accepted, the payment in satisfaction of the now-reduced balance will be drafted from this account. Fees for this account, if any, will be what are charged by the bank you open the account with.

Because CRN has primarily advocated DIY debt settlement, we have always promoted self saver accounts as the way for you to save up money over time in order to pay settlements as they are negotiated. When our members ask for a professional to do the negotiations, we have had no trouble working with our members using the separate self saver account approach. You save on escrow account fees, and your money is in your absolute control at all times. This way of providing professional debt negotiation also assures that you see every agreement to settle in writing, and every settlement is discussed with you before it is accepted and paid. We find this to be the better way of providing debt settlement services, but we are one of only a few companies that operate this way. It may be less efficient for us, but it saves you money, provides the most protection, and offers the most transparency of what is going on with your settlements.

There is one type of person that will benefit more from using an outside escrow account service. If you cannot trust yourself with the money you’re saving to settle your unpaid bills (even though you can withdraw funds from your escrow account anytime), the separation from being able to hit the ATM, or write a check, can make a difference.

Why it’s important to have a separate bank account.

There are benefits to using a separate account to pay your settlement agreements. Some of the benefits are hard to overlook, and some are just not as critical of a concern as they once were. Some of these benefits are:

  • The money is not mingled with funds used for regular living expenses. The tendency for most people will be to leave money in this separate account untouched except for its intended purpose – funding settlements.
  • There is less of a temptation to use the funds for a discretionary purchase.
  • Settlement funds on deposit in the account can be limited to the amount needed to fully fund one deal at a time which helps avoid problems if a transaction error were to occur that would have otherwise caused you to run short of money to cover other checks you have written, or auto draft payments for bills. Transaction errors are extremely rare, but leaving nothing to chance is just good planning.

Your set-aside account should not be opened at a bank with whom you have an account you will be negotiating a settlement with. If you currently have either a checking or savings account with a creditor you are behind in making credit card payments to, move accounts. Having your accounts, whether for personal daily use or for set aside funds, at a different bank is imperative.

A bank, typically, cannot see your balances, deposits and transactions with another bank. They can see balances, debits and deposits you have with accounts internal to their own institution. Negotiating a reduction in balance that you can afford to pay is complicated by objections that the creditor may raise if they can see that you have more than what is represented as your ability to fund on deposit in an account with them. The bank is likely not going to weigh whether some of those funds are for rent or a mortgage payment, and will not really care if some of the balance they see on deposit is earmarked for a different creditor you have fallen behind in paying.

The best thing to do in order to prevent these kinds of objections from even occurring is to have all accounts currently in use at a different bank. If you would like to keep a checking account open with little money on deposit, until any past due credit card balances are settled with that same creditor, that’s okay. You can go back to using that bank after satisfying your settlement agreements. It is sometimes a matter of how convenient that bank is to your work or home, or even the friendly tellers at a certain branch, that you’ll miss.

One key to experiencing as smooth a debt settlement process as possible will be your continued funding and the safe holding of the money you will need to meet all offers to settle accounts for less than the balance owed. Placing those funds in an appropriate escrow or self saver account, as outlined above, is recommended.

This completes our Debt Settlement Guide blog series. If you missed any previous sections of the guide, please see below. If you’re looking for something specific that wasn’t covered within the guide, please use the search bar to the right, see our Debt Settlement FAQ, or post in the comments below for dedicated feedback from Michael or shared experiences from our readers who have been there.

This Debt Settlement Guide includes:
An Expert Guide to Credit Card Debt Settlement
How and Why Banks Settle Credit Card Debt with You
Types of Accounts to Include in Your Debt Settlement Plan
Why Settling Credit Card Debt is Like a Race
How to Settle Credit Card Debt Quickly
How to Talk to a Debt Collector
How to Negotiate Credit Card Debt Successfully Yourself
7 Largest Credit Card Banks and How They Settle Debt
Get Debt Settlement Letters and Agreements from Collectors
Paying Debt Collectors After You Negotiated a Settlement (you are here)

Tips For Handling Debt Collection Phone Calls

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In the main debt settlement article series,I have stressed the importance of being in communication with your original creditors, and sometimes their contingency debt collectors, during first stage collections. You should know at this point that debt collection phone calls, and dealing with debt collectors and bank recovery personnel, is part of your debt negotiation process.

Some of the debt collector phone call highlights I cover include:

  • Your conversation during a collection call should initially be kept brief and focus on your financial hardships.
  • It is best that you initiate the calls in order to maintain the proper mindset during your interactions with debt collectors.
  • In some limited instances you will want to be in more frequent communications, such as when settling with your original lender just before they are set to send your account out to a collection agency, or just prior to when a collection company is set to lose your account.
  • You can limit phone calls you make to banks internal recovery departments, and other debt collectors, to once a month during certain stages of collection and depending on the creditor (there are instances where it is better to not call at all until you are ready to resolve the debt).
  • Negotiating settlement deals generally involves you making outbound calls, not mailing letters (without your having had prior telephone discussions), unless you are hiring a professional negotiator.

Your initiating calls to creditors and debt collectors, and establishing that you have a financial hardship, is an important function of the debt settlement process. There are many places you can read from online that discourage phone calls when your accounts are in collection. Not calling is really only a strategy that makes sense for someone who is trying to completely avoid their debts. It is not a good approach most of the time if your goal is to resolve debt, or prevent more aggressive collections.

Unfortunately, being proactive in making the calls does not necessarily lead to less debt collection calls being placed to you. Debt collectors calling you all of the time definitely has an impact on your daily life. This debt relief program report focuses on steps you can take to control the collection calls.

If you have not read through the debt settlement sections of the CRN online program, but are several months late with credit card payments already and serious about settling, you can skip to this section: https://consumerrecoverynetwork.com/settling-credit-card-debt-your-bank-before-charge-off/

Ways to filter debt collection calls that have proven helpful.

It is important that creditors and debt collectors have a means to leave you a voice message. Without the ability to reach you, or leave a message, you increase the likelihood you will receive collection calls at your place of employment, or that locator collection calls will be made to your family and others. The end of this report will discuss how to handle collection calls that you may get at your job.

Setting up a second phone line has proven to be one of the most helpful ways to manage the amount of collection calls that come in. Getting an additional phone line using the technology available today is not complicated, or expensive. In fact, many people only use a cell phone, so using technology to add another phone number is preferred. It is best to set up a second line that you will use as your “voice mail trap,” where creditors and debt collectors are free to leave messages when they call.

There are several inexpensive solutions for creating a second phone line.

Option #1 is the Magic Jack (www.magicjack.com). You can order a Magic Jack for less than $40, and it includes one full year of unlimited long distance dialing, as well as a digital voice mail account. The device plugs into the USB port of your computer. You will need a broadband connection to make use of this device, which permits you to make or receive phone calls through your computer, by using a regular telephone handset. You can set up a voice mail message and check your messages online. So the entire process works silently. When you are ready to call back a creditor, simply plug any handset into the Magic Jack and call ONLY from that number.

Option #2 is a Skype account, which is also a voice-over-Internet (VOIP) account similar to the Magic Jack in operation.

Option #3 is a prepaid cell phone (pay-as-you-go), which gives you more portability in checking your messages while you are away from your computer. Consider this option if you travel frequently, and need to access your voice mails without being near a computer

Option #4 is a service provided by Google called “Google Voice” that will allow you to set up a method of call screening that can be set up for free. It will also allow the opportunity to return calls to creditors and debt collectors without having your daily use phone number captured by their caller ID. It is easy to set up and use.

Option # 5 is using some of the cell phone apps for smart phones that allow you to set all numbers that are not in your favorites to a “Do Not Disturb” Setting. Kicking debt collection callers to voice mail instead of even buzzing or ringing your cell.

Option # 6 is to develop an acceptance level that the phone is gonna ring with collection calls. You just look at the caller ID and do not pick up unless the call is from someone you recognize.

Not all debt collection calls will result in the collector leaving a voice message.

Steps for  using option #4 above:

  • Go to the following link and set up an account by following the prompts: Google Voice Service
  • You can set up a number of options for this account so read the instructions carefully to insure it is functioning the way you want it to.
  • You can set this new number up so that all calls received will go directly to voice mail or you could choose to have the calls forwarded to a specific number if you prefer. The suggestion would be to have all calls go directly to voice mail.
  • When you receive a call you will be notified by e-mail that you have a message with a link to it so you can listen to the message.

Here is the added bonus to this service. You can also place outgoing calls from this number. You can log into your Google Voice account and place a call. Google voice will connect your home phone and once you have picked up the phone your outgoing call will be placed. This will isolate your home phone number from the caller ID capture used by most creditors and these calls are free anywhere in the United States and Canada.

Giving out your second phone number to creditors and collectors.

Notify your creditors of your new phone number by accessing your accounts online (if you still have online access), by logging into your creditors websites. Go to your profile, and change any number you do not want called to your number that is now set up for creditor or collection agency calls. You can also simply call your creditors from your new number and inform them of the change in contact information.

Creditors do tend to keep old contact numbers in your file. Even though you change your number online or by calling in directly, this may not stop all calls to other numbers they have in their system. It will reduce the number of collection calls. When making your outgoing calls to creditors, limit yourself to this service and you will further focus future calls to the new number you have set up.

If your credit card debt is later passed onto a debt collection agency, or sold to a debt buyer, you want the second phone line to be passed along as well. This way collection calls from debt collectors will be focused on this new number. When you make proactive outbound calls to debt collection agencies from your second line they will be more focused on the number you called them from in the future.

Debt collectors calling you at work.

Collection calls to your place of work are prohibited once you inform the debt collector that your employer does not allow you to receive personal calls. If you receive collection calls at your job, a simple statement such as “you are calling me at my job and personal calls are not permitted. Do you have my personal number on record? Let me be sure you do, it is xxx-xxx-xxxx. Please make certain you remove my work number from your file. You have my personal number and that is the only way you should contact me”. Be sure the number you provide is the number you have set up for all incoming creditor and collector calls.

If phone calls to your employer persist, or a collector discloses the purpose of their calling to another person at your work, be sure to post about that in the comments below, or call in for a consult about what some next steps could be for handling the situation.

Anyone with questions and comments about dealing with collection calls can post in the comment section below for feedback.

If you are new to the CRN site and would like to get comprehensive information about settling debt, you should read through the debt settlement article series starting with the introduction to debt settlement.

Midland Funding LLC or Midland Credit Management Trying to Collect From You

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I recently spoke with a woman who had just been sued by Midland Funding LLC for a debt they bought from Citi bank. The amount she is being sued for is a few thousand dollars. She is being sued by a debt collection attorney in her state after collection attempts were first made by Midland Credit Management (MCM). Both Midland Funding and MCM are part of Encore Capital Group, which is one of few publicly traded debt buying companies in America, and one of the largest in the world.

I want to share the facts of her situation because they may help if you are getting collection notices and phone calls from Midland Credit Management, or if you are being sued by Midland Funding. Many of you reading this can prevent escalated collections from Midland in the courts, and anyone already in the courts will want to know how best to navigate things from here.

There will be many a reader just looking for why Midland Funding is appearing on your credit reports. Once you know why Midland is on your credit, many of you will want to know some things you can do to improve your credit.

Be certain to read the updates regarding Midland Funding on your credit reports that I posted at the end of the article. They have set themselves apart from any other debt collection company in the country by developing a consumer friendly credit reporting policy.

Owing Midland

Credit card bills that go unpaid are packaged up in large bundles and sold off to bad debt investors in the normal course of lending. A portfolio of debt being bought by companies like Midland Funding could include your account, and thousands of other unpaid credit card bills.

Having your credit card debt bought by a debt buyer like Midland Funding is not unusual. And depending on how the debt collection and debt buying landscape changes in the next year or three, it could become even more common than we see today.

Midland Funding and Midland Credit Management are different.

While Midland Credit and Midland Funding share the same ownership under Encore Capital, each company does something different, and those differences matter to you. Midland Funding is the debt purchasing arm, while MCM will be recognized as the active debt collection agency, similar to how you would view any other debt collector.

Midland Credit Management sent a debt collection letter to the woman I reference above. Receiving a debt collection letter from a collection company you don’t immediately recognize is a normal occurrence. Collection agency letters and phone calls are the 2 primary ways a debt buyer, or the debt collectors they hire, will try to get you to pay.

You have options for handling the collection efforts from Midland Credit. If you are in a position to work out a settlement for less than what is owed on the now purchased account, doing so after the first phone call or collection letter you receive, is something to consider.

Understand that making arrangements to pay a debt buyer the full amount for a debt they bought is not going to go to your original creditor. The debt buyer is not a lender, but an investor. They are risking money to buy up bad debt to turn a profit.

Midland Funding is willing to accept less than the face value of your debt through its debt collection arm Midland Credit Management. How much less will vary. You are welcome to call me at 800-939-8357, ext 2, in order to get help settling with them.

Midland Funding generally shows up on your credit reports. Once on them, you cannot pay Midland to delete the derogatory in the first 2 years they have your account. You can negotiate a lower payoff and Midland Funding will update your credit reports to show the account is resolved and a zero balance owed. This will help you get a home loan through, and benefit you in other ways too.

There is a delay between Midland Funding buying your debt, and them reporting to the credit bureaus. Midland Credit Management will often start off the collection process by sending you a collection notice, or make collection phone calls that you may pick up. In the letter or phone call Midland may offer you the opportunity to settle or set up payments on your account in order to prevent the credit reporting of the collection account from occurring at all. As of the most recent update to this article, you have three months from the date they get your account to take advantage of this offer. If you can afford the money to settle, or set up payments you are confident you can pay each month, there are immediate and long term benefits to doing this. It is not a trick, they actually do this, and may be the only debt collectors making this type of offer.

If you want to settle with Midland Credit Management for less than the balance owed; can afford 50%; and sometimes spread out over 24 months; click the get debt help tab at the top of this page and create your user profile.

You can get help settling with MCM and have a deal done within days (as long as MCM has not already sent your account to a collection law firm). The Network I helped build has many negotiators, and we all charge 15% of savings. No savings, no fee.

Debt validation request letter sent to Midland Credit Management.

The woman I refer to in this article sent Midland Credit a validation request in response to a collection letter MCM sent her. Sending a debt validation letter to a debt collector is your right. If for any reason you question the nature of the debt being collected, requesting validation from a collection agency or debt buyer will accomplish a couple of things:

  • Triggers an obligation under federal law on the part of the debt collector.
  • A written response from the debt buyer should include the original creditor, the amount owed, and these days, we are seeing some form of documentation to back up their claim (not simply a reference to their own spread sheet of debts they purchased).
  • Debt buyers and debt collectors do not always respond to your request for validation, but the response is often sufficient to meet the standard that would allow them to continue to collect (the federal debt validation standard is low enough to trip over, your state law standard may be a little tougher).
  • Debt buyers may never respond to a debt validation letter. The account may end up with a different collection agency, or sold off to a different debt buyer (Midland has not been much of a debt reseller of late).

Midland Credit Management did not respond to her validation request to her knowledge.

It is not uncommon for a debt buyer to ignore a validation request. The reason validation of debt requests are ignored by Midland Credit Management, and other debt collectors and debt buyers, is that sometimes no meaningful information was included when the debt was purchased. There are sometimes options to acquire detailed information from the original creditor at an additional cost, but that is not always the case. And you may not appear all that collectable to a debt collector, and they just may not bother if they see a low probability that you will pay anything.

When debt validation requests are ignored, Midland Funding may still send your account to a collection attorney.

Many years ago, I came to the conclusion that sending debt validation requests to a debt collector like Midland Funding, when you already recognize the debt as yours, and your goal is to resolve the debt by settling with the collector for the lowest amount possible, is counterproductive.

Midland Funding sues in order to collect.

The woman who inspired this post next received a collection letter from a well known and very active debt collection law firm in her state. She sent a new validation request to the attorney debt collector hired by Midland Funding. The collection attorney responded to the validation request with some basic information about the original account including monthly billing statements from Citibank.  Shortly after receiving the debt validation response in the mail from the Midland Funding attorney she was served with a lawsuit.

Debt buyers will target accounts they buy for aggressive collection. Midland Funding is part of the largest debt buying collection brand in the nation. Lawsuits to collect can play a big part in how a debt buyer like Midland Funding will look to turn a profit on their investment in defaulted credit card debts.

The debtor, in this case, shared with me that she knew the sister of the process server that showed up at her door to serve the lawsuit. With that connection, a friendly enough conversation took place. The process server shared the fact that she had a list of Midland Funding lawsuits to serve… about two hundred of them. She lives in a county with a small population. Two hundred or so lawsuits on debts bought by Midland Funding is not unremarkable given the amount of people there are in the area.

What to do about Midland Funding collecting your debt.

If you are contacted by Midland funding, or by Midland Credit Management, or some other Encore debt collection brand, consider the following (Atlantic Credit and Finance, Asset Acceptance):

  • Are you able to come up with a plan to resolve the debt for half of what is owed? If you can afford to settle with MCM or Midland Funding you can contact them and work toward getting a deal negotiated, a written agreement on the collectors letter head outlining the terms, and pay it off. While it is recommended to negotiate and settle with MCM or Midland Funding in a single lump sum payment whenever possible, you can also look to set up monthly payments that you are confident you can afford and follow through with to completion. Midland Credit Management and Midland Funding both offer different methods to resolve debts they are collecting while giving you time to pay.
  • If you are not familiar with the debt they allege you owe, request the debt be validated. Send your request in writing via certified mail. If you do not hear back from them do not assume they went away. I do not recommend this approach if you want to resolve a debt that you know to be yours.
  • Be certain you are aware of how long it has been since you last paid on the account and compare that to the SOL (statute of limitations) for being sued on your type of debt in your state. You may learn that you cannot legitimately be sued for the debt as it has passed the SOL. That does not mean the debt can no longer be collected, or that you should ignore it. The account is likely showing up on your credit report. If you have a goal of buying a home, or refinancing an existing home, you may find you are forced to settle collection accounts in order to qualify for a loan later on. And settling later on may come at a higher price. Avoid applying for credit of any nature just prior to negotiating with Midland Credit and other debt collectors (it makes you look more collectable)

Depending on your current financial situation, looking for affordable settlements and paying off debts with Midland Credit Management and Midland Funding will set you up for less stress and the ability to achieve later financial goals.

The woman who inspired this article was someone I worked with a few years ago. She was laid off from work and struggled to find a new job. She could no longer afford to make payments on her credit card debts and was referred to me by her accountant. I worked with her and her husband to develop a plan to settle her unpaid debts, rather than file bankruptcy (they had filed in the 90’s and did not want to go through that again). She was able to knock down her largest 6 credit card balances by settling with her original creditors using money she was able to borrow from a family member. Her husband’s hours were then cut back at his job, and it became impossible for her to follow through with the plan, leaving a couple of her smaller balance accounts unresolved, the Citibank account Midland Credit Management began collecting was one of them.

She did not reach back out to me for feedback on dealing with the Midland Credit Management collection letter she received. Instead, she went to the internet and found what she said was the consistent advice to send a debt validation letter to MCM. She thought the collection account was behind her when she did not hear back from MCM. When she received the attorney collection notice in the mail for the same debt, she simply repeated her debt validation request again. She did not know how, or what, to respond to the collection attorney with, once they mailed back evidence of a debt she already knew she owed. She only contacted me again after she was sued by Midland Funding.

Settling with Midland Funding LLC when sued.

I suggested she connect with a local consumer attorney about her options to handle the lawsuit. After that consultation, she decided to settle the lawsuit from Midland Funding. We got a good deal, to be sure, but she was settling on a total balance that had increased due to attorney costs. We could have settled directly with Midland Credit Management early on, and for a much better savings, and less stress.

There is, often enough, also going to be a difference between the amount you can negotiate and get approved to settle for, when you are dealing with a debt collection attorney. It is not uncommon to see a 20 to 40 percent premium to settle a Midland Funding debt once sued for collection, compared to negotiating before the account lands in court.

If you are just not in any shape financially to follow through with any strategy to resolve the debt with Midland, you may end up with a judgment against you. Judgments can be settled for less down the road, so keep that in mind. But you may want to consider defending against any collection lawsuit too. There are good resources that can help you, but you will want to assess the costs and time involved in any effort to defend collection lawsuits.

What you can do to resolve debt with Midland.

You may be reading this and in a situation where you cannot possibly think of how you can resolve a debt being collected by MCM or Midland Funding. I understand that. The situation is what it is, and sometimes all you can do is wait for things to improve before tackling old debts. However, you may want to at least learn about the options available to you to tackle debts Midland is collecting. You may be surprised by some of the flexibility that is available. You may even be able to avoid being sued later, by taking action today.

If you have received collection notices from an attorney for Midland Funding, or have been sued by an attorney for collection, you will want to contact the attorney directly. You should also consider speaking with an experienced collection defense attorney of your own.

If you are trying to resolve an existing judgment from Midland Funding, you have options for that as well.

There will be additional pressures on Midland Funding, Midland Credit Management, Encore Capital Group, and many other collectors and debt buyers, as a result of new federal regulatory supervision. The CFPB has already had a huge impact on Midland Funding. I will keep the article updated as things develop.

Midland Funding on your credit reports.

I am updating this article as of 1/10/17 to include information about Midland Funding credit reporting policy changes that are way ahead of the curve when it comes to providing you the ability to meet your current and future personal credit goals. Be sure to click through and learn more about how Midland Funding will handle credit reporting when it comes to  accounts you have with them.

  • Midland Funding will not show on your credit reports if you are able to make payment arrangement, or settle with them for less, in the first 90 days after they purchase your account. This is obviously ideal when you can commit to resolving accounts with Midland Funding early on.
  • Midland Funding will remove all credit reporting if you pay or settle a debt with them that is 2 years old. This means you stopped paying your original lender 2 or more years ago. This is an obvious benefit to those of us who had financial setbacks that lingered longer, and who could not take advantage of the opportunity to keep Midland off our credit reports from the beginning.

There are many examples of people in the comments below, and who I have spoken with on the phone, who are taking advantage of Midland’s credit reporting policy.

Midland Funding is leading by example with this credit reporting policy.

Updated 2/20/20 – Three additional debt buyers have since followed the example Midland set for credit reporting, only they one upped Midland by deleting the negative credit reporting regardless of whether it has been 2 years or not. So… now we need to see the trend setter catch up to the trend!

Arrow Financial Services – Debt Buyer Closed Shop – Debts Purchased – LVNV Collecting

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Arrow Financial Services was once a major player in buying up bad debts like charged off credit card bills. One of the more aggressive ways Arrow sought to collect on old unpaid credit card debts was to use the courts.

Debt buyers like AFS send some of the debts they buy up on the cheap to an attorney debt collection law firm. Arrow and other bad debt investors rely on the fact that 90% or so of people are not sure about how to deal with a debt collection lawsuit.

People get served a summons and complaint on an unpaid credit card bill and tend to put their head in the sand. What winds up happening when the lawsuit gets ignored, or where a person was not aware they were being sued (it happens), is a default judgment is entered. Those judgments can then be collected on, or even sold off to another debt buyer.

Arrow Financial closed up shop. Where did the debt go?

In just the last week I have gotten a couple of questions on and off line about how to find where Arrow Financial Services judgment debt has gone. In all cases the requests were related to:

  1. Someone trying to qualify for a mortgage and underwriting suggests they cannot approve a new loan, or the approval on a new loan will have an increased likelihood of success by settling old judgment debt.
  2. Someone trying to sell a home and satisfy or settle the judgment debt in order to pass clear title. Even if the home owner is trying for a short sale.

It is difficult to find much public information about who purchased the Arrow portfolio, or portions of it. According to a person I spoke with last week, they have a former arrow judgment account that they tracked to LVNV now owning.

LVNV is a large debt collection agency.

LVNV is part of the Resurgent Capital Management and Sherman Acquisitions brand. I was able to confirm that Resurgent/Sherman/LVNV brand did pick up a “good portion” of the Arrow Financial Services debt portfolio.

If you are looking for how to resolve or settle Arrow Financial Services debts, start by reaching out to LVNV. You can reach them by calling their customer service at: 888-665-0374.

If you have any questions or concerns about resolving an old Arrow Financial Services debt with LVNV, or another debt collector, or having trouble finding who has your debt, post questions and comments in the comments below for feedback.