Short answer
Capital One is the credit card issuer most likely to sue in order to collect, and its own settlement letter says it will report a settled account to the credit bureaus as settled with an outstanding balance. Both of those facts should shape how you handle a Capital One debt.
Key points on this page
- Capital One is quick to use the courts to collect on delinquent accounts, more so than other card issuers.
- If your debt is mainly with Capital One, bankruptcy protection is worth serious consideration.
- Item 9 of the Capital One settlement letter states that if the account is settled before charge off, the remainder of the balance is charged off and the account is reported to credit reporting agencies as settled with an outstanding balance.
- Item 8 of the same letter states that forgiven principal of 600 dollars or more is reported to you and the IRS on a 1099-C. A balance that has been forgiven and settled by agreement is not an outstanding balance.
- Reporting a balance that is no longer owed falsely characterizes the trade line and skews debt to income and utilization figures, which can affect approval and interest rates on later loans.
- The coupon or free gift in a Capital One collection letter is a collection ploy to get you to call. Since this page was published, the reporting problem on settled accounts is being addressed through disputes with the credit bureaus.
My experience working with financially-challenged consumers and their creditors nationwide since the economic downturn reflects that virtually every national issuer of credit cards, even larger regional credit unions, have gone as far as they can to assist their struggling account holders. Capital One is an exception to this. How Capital One goes about settling a debt with you, their treatment of credit reporting after agreeing to reduce your balance, and the fact that they are the most likely to sue for collection, all combine for one huge exercise in caution and awareness.
Credit card issuers offer plans to reduce interest rates on credit cards through hardship plans, debt management plans, credit counseling plans, or offer balance concessions through debt settlement, which go a long way in helping their customers avoid bankruptcy. In this way (credit card payment concessions), Capital One is not all that different from other credit card banks.
Capital One, in my Experience, is Tough to Work with
Banks who are paying attention know that working out some type of arrangement with account holders, who will otherwise be forced into filing chapter 7 or 13 bankruptcy, is in their best interest. Creditors will generally offer fair concessions as a final option because they will lose the least. For more about this see: Banks Choose to lose the least.
I am not sure Capital One is paying attention.
Capital One is quick to use the courts in order to collect on delinquent accounts. They would apparently rather their account holders file bankruptcy.
I continue to encourage seeking bankruptcy protection if your debt is mainly with Capital One.
Now we have Capital One choosing to be spiteful, and perhaps illegally, with those few credit card holders they may offer fair concessions to. To see the collection letter referred to below in its entirety: Capital One Collection Letter
The coupon for $50.00 you will see in the collection letter linked above is not all that new a twist to get a delinquent CapOne credit card member to call MRS Associates (a debt collector). It is worth noting however, it is only a collection ploy and nowhere near worth taking advantage of the perceived “FREE STUFF”. The main problem I want to draw your attention and provide awareness to, is number 9 on page 2 of the collection letter.
9. Credit Reporting of Your Settled Account. If your Account is settled before it is charged off, the remainder of your Account balance will be charged off. We will then report your Account to credit reporting agencies as settled with an outstanding balance.
Fair Credit Reporting Act (FCRA) and the requirement to report only complete and accurate information to the Credit Reporting Agencies (CRA’s)? This would FALSELY characterize the trade line and SKEW any later debt to income and/or utilization formula rendering them inaccurate as well. This means that Capital One could be causing consumer’s damages post debt settlement, when they are applying for future loan products whose interest rates and even approval will be factored on a credit report that contains erroneous and false information.
Reporting a balance still due and owing when it has been forgiven would falsely characterize this trade line in your credit report. How do we know the unpaid portion of the settlement is forgiven? Let’s look to number 8 on page 2 of Capital Ones collection letter:
8. IRS Reporting of Debt Forgiveness. If we cancel or forgive $600 or more of principal on a debt you owe, we must provide a 1099-C tax form to you and the IRS. Please consult your tax advisor and the instructions accompanying your tax forms for more information.
How can number 8, indicating the required reporting of forgiven debt to the IRS, comport with erroneously reporting an outstanding balance when it has:
- Been forgiven
- Been settled for a lesser amount agreed to by both parties, thereby leaving no “outstanding” balance
If you have a Capital One story to share, especially as it relates to improper credit reporting, I invite implore you to share it in the comment section below.
UPDATE: Since publishing the above Capital One article about credit reporting and settling Cap One credit cards a couple years ago, some softening of options available to account holders who fall behind has occurred. We do still see the poor credit reporting policy on settled accounts with Capital One, but have also seen how that is getting addressed using disputes with the credit bureaus.
If you are serious about resolving unpaid credit card debt with Capital One and have other credit card debts to resolve, it is important to prioritize accounts and target the best savings with the available money you have and can project saving up in the short term. If you have an experience with Capital One collections, credit reporting, or lawsuits, please share in the comments below. If you have questions about how to handle debts with Capital One, post in the comments for feedback.
I have been in a debt consolidation program for two years where all my creditors have settled except for Capital One. Now I received a warrant in debt from them to appear in court. I don’t know if the legal team from the debt consolidation program will help me and I feel I’m being harassed by capital one when I had a company try to negotiate on my behalf for two years and they take me to court instead. They falsely claim they want to work with you. I feel I have the right to counter sue for harassment and intent to cause more hardship and harm.
I’m having a Capital One situation where due to Covid, I got a charge off. At the time all payment’s were 100% on time from account creation in 2018 till feb 2021 and high balance was around $3,100 of $3,500 limit at time of last payment feb 2021.
I checked my credit report and ALL past payment data, high balance data records have been removed from the reporting (it reads no data) and only a copy and pasted high balance amount of $4,1XXX and past due amount of the same $4,1XXX has been inserted into those two fields over and over since 2021. It’s now June 2024. Credit report also says 70 months of negative payments.
I attempted to refinance my mortgage and got a denial letter which prompted me to look at what was going on.
My question is….. I drafted a dispute, debt validation letter and listed missing data, inconsistency in last payment date between bureaus etc that I submitted to the credit bureaus then had it mail intercepted to come back to me out of fear this could trigger a lawsuits from Capital One.
What should I do? I believe the credit reporting is misleading, erroneous and I know the CFPB has already flagged Capital One for this type of behavior but I also think statute of limitations (if it’s four years and not five years) is coming up feb 2025, should I just ride it out till then and hope for the best? Or…..
Do you think I should continue with the Credit Bureau dispute to try and have it removed from the credit report, or do I have an actual Claim against Capital One that I should proceed with?
I just don’t want to do something that I’ll regret later.
Is your main goal to complete your refinance? If it is, you may want to look at settling the balance with Capital One for less. You can typically get your mortgage with paid collections, but not with unpaid ones of this size.
If you are not in a hurry to accomplish a goal, you could wait out the SOL to sue, but the credit reporting SOL is still going to be 7 years from when you stopped paying, which could put your refinance goal that far out.
Capital One can fix the credit reporting to reflect accurately, and your dispute could be the genesis for them to do so. Capital One removing the item from your credit is probably the least likely outcome, but it could happen.
I would talk with a skilled FCRA consumer law attorney in your state about any claims you may have.