debt collection

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)?

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.

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 collection 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!

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.