The experience of my company, CRN, which works 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, are going as far as they can to assist their struggling account holders. Issuers offer plans to reduce interest rates on credit cards through hardship plans, debt management plans or offer balance concessions through debt settlement, which go a long way in helping heal their individual account holders financial wounds and assists them in avoiding bankruptcy. In this way (credit card debt concessions), I see these financial institutions as actually helping the nation heal, one account holder at a time.
Not so with Capital One, in my experience.
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 where they may receive as much as 10% of the account balance in a chapter 7 (if they’re lucky) or maybe as much as 40-60% over 3/5 years in roughly 30% of the chapter 13s that are filed (approximately 70% of chapter 13s are reportedly not completed).
I have continued to encourage consumers with unmanageable debt heavily weighted with Capital One accounts to seek bankruptcy protection.
Now we have Capital One choosing to be spiteful, and perhaps illegally, with those few 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 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.
How does reporting an outstanding balance due after an agreed upon settlement, where both parties agree that when settlement terms are met it satisfies the obligation, comport with the 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 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
How is this NOT in violation of the FCRA?
Remember the marauding Viking themed commercials that Capital One ran for many years on television? Here they are wreaking havoc through the lives of real people, NOT ACTORS!
What’s in your wallet?……Indeed!
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.
After 10/27/10, virtually all of the companies offering to settle debt for a fee, will have to charge those fees based on a contingency. In other words, you pay for the service contingent upon who you hire, having successfully negotiated a reduced pay off amount with your creditors that you then accept and fund. Makes a ton of sense right? Yes indeed!
People will, however,still need to approach the idea of hiring someone to settle debts with caution.
Where We Were
Debt negotiation companies have, for the most part, been able to charge upfront fees. Often, the fees have been spread out over 6 to 18 months or more. This practice has long been recognized by some of us in the industry as one of the leading causes for consumers to “fail and bail” from their settlement program.
The reason for the fail; money that could have been aggressively saved up to fund the earliest settlement offer went to the service providers fees instead.
The reason for the bail; creditors and their assignees continue down a relatively predictable path to collect on unpaid accounts which can eventually lead to filing a court action to force you to pay.
Being sued does not necessarily mean the death of your debt settlement plan, but you need resources to address the lawsuit before it becomes a judgment. Without the money needed to address the issue, it will often mean the end of the road. Having paid upfront fees to a company who put their profit ahead of your success means you have limited, or no, resources to maneuver through the different stages of collection.
Where We Are
You may have, or currently do, recognize a debt settlement plan to be a realistic approach for you to avoid bankruptcy. Having enrolled (or thinking of enrolling) in a plan with a company whose fees were/are/still paid prior to successful negotiations is equivalent to gambling. You bet you can get through the settlements before getting sued. The company you hired bets they can get you to pay them all their fees before you bail.
Many companies who sell or perform debt settlement today will find that, without the ability to charge the high upfront fees, they will not be able to keep the marketing machine going. They will leave the industry. In their wake, we will hear from many more consumers who were sold the hope of avoiding bankruptcy by sales people whose only motivation was to meet a quota, keep their telemarketing chair and get paid. For more than a year, the media and internet has been ablaze with stories of people being taken in by the promises of many players in the debt relief industry. They are a statistic of the “fail and bail”. The statistics will get worse as several companies close their doors and leave their customers in a lurch, having paid in advance for a service that now will not be completed. At least, not by the people who were already paid for it.
Where We’re Headed
Do I sound a bit jaded? That’s because I am. So much so, that I can see where we are potentially headed in this industry.
Beginning in September, I think we will start to see some similarities with new and existing companies offering debt settlement based on the now required (in most cases) contingency fee structure. Two of the similarities will be:
The new sales approach; “You need to come up with money as quick as possible to settle with your creditors”. – This is a good thing! It has been missing from the message of the majority of people selling debt settlement for a decade.
Many of the companies offering success fee debt settlement will charge between 25%-30% of savings where possible (some states have limits or caps on fees –Illinois is capped at 15%). – This is a bad thing!
When comparing 50% of your account balance as an average settlement, 30% of savings is roughly the same as charging the 15% of debt enrolled that has been the average in the industry to date. Fees could actually be higher than before with debts settled early in the program and for less than 50%.
We will still see high “fail and bail” statistics because companies will settle a debt and collect their contingency fee first, before moving onto the next settlement. There really is no problem with that per say. They did a job and should get paid for it. It is the correct model to have. Always has been. The problem is if the fee is too high, it still takes just as long to settle the debts as it did prior to the FTC banning upfront fees for a settlement service.
Where We End Up
I estimate it will take a year for the industry to settle in to the new business and operational realities created by the new FTC rules. Some companies are going to try to adapt, only to quickly find it no longer worth their while. Some will find that they should have been doing business this way all along, and will thrive. The amount of companies around a year from now will be far fewer than we have today. Within 12 to 18 months, the industry will have completed the all too necessary cleansing of those who came to it in order to make a quick buck.
I have continuously written articles and spoken out in interviews about the practice of “selling” debt settlement. Selling someone into debt settlement is the number one reason the industry has been tarred and feathered in the media. The over hyped selling by profiteers and sales groups has resulted in enforcement actions by many states, and new FTC rules, in order to curb abuse.
DEBT SETTLEMENT SHOULD NOT BE SOLD!
Steve Rhode, on his blog, getoutofdebt.org, regularly covers the debt relief industry and its foul ups, bleeps and plunderers. He has recently covered several lawsuits filed by employees against the firms they sell/sold debt settlement for. The lawsuits allege failure to pay wages related to work performed. Steve has posted about lawsuits against: Lloyd Ward and Associates, ABC Debt Relief, The Debt Answer, Debt RX USA, Silverleaf Debt Solutions, CreditAnswers, and Credit Solutions of America. Key assertions in these lawsuits provide a clear view into the sales culture at some of these companies. I will focus on Steve’s post about the employee suit against Credit Solutions. Credit Solutions are also the target of multiple state legal actions.
From Steve’s post where he excerpts from the court record (my comments are in bold):
For at least three years prior to filing of this complaint and continuing (hereinafter “Liability Period”), CSA had a policy and practice of not correctly compensating its debt consultants for work performed for the benefit of CSA over and above forty (40) hours per week, to wit: virtually all debt consultants received a $2,000 forgivable draw their first 90 days of employment and a non forgivable draw of $2,000 per month thereafter. Debt consultants qualified debtors for debt settlement plans of Defendant by verifying the debtor possessed at least $10,000 in debt. Next debt consultants analyzed each creditor comprising the $10,000 is owed at least $600 and there are contracts in place between the creditor and CSA. The debt consultant sets up a CSA account for each creditor. Lastly, the debt consultant verified the debtor’s bank accounts and assisted the debtor in picking a payment plan. Once a plan was chosen the debt consultant, using CSA guidelines, would set up a monthly draft on the debtor’s bank account whereby CSA would obtain its fee and moneys to satisfy the debtor’s creditors. Eighty-five percent (85%) of CSA’s fee is collected from debtors’ accounts within the first 90 days. Debt consultants received a fee from the first monthly draft which was a percentage determined on the total volume of draft’s occurring monthly attributable to that debt consultant.
Here we learn that “debt consultants” are what I would more correctly define as sales people. The way this alleged fact is laid out would actually describe more of an order taker. What do they actually do by way of a consultation? It appears they just hit the immediate qualifiers, and then help you pick a payment option that will work for you. There is an obvious motivation for “picking” a payment that you will agree to. That is how they get paid! They have to do it though (more on this below).
Debt consultants were required to work a minimum of 12 hours per day, but were expected to work as many hours as necessary to reach assigned sales goals. Debt consultants regularly worked 14-16 hours a day and CSA provided debt consultants a room to nap and sleep when necessary to reach company goals.
Imagine the pressure to hit sales goals. In the current job market, these sales people HAD to perform to keep the job. They HAD to hit sales goals even if it meant sleeping at HQ to do it! No pressure, right?
Debt consultants were not provided a rest or lunch break, but instead, CSA served debt consultants “cup of noodles” for lunch so they would not have to leave their desk and could continuing selling the debt settlement services.
This allegation is one of the most descriptive of the debt settlement sales culture I have ever seen. Why not just put a shackle from the desk to the ankle of the sales person? Were there bed pans nearby?
Debt consultants worked six (6) days a week.
Ever see Ben Affleck in the movie “Boiler Room”? “ALWAYS BE CLOSING” – The sale that is.
As stated above, debt consultants do not receive overtime for hours worked over 40 in any week.
And why should they? You think cups of noodles are free?
CSA’s revised compensation/bonus plan containing an overtime component does not correctly calculate debt consultants’ regular rate of pay for purposes of calculating overtime; i.e. commissions paid on top of consultants’ hourly rate are not included in their regular rate of pay. – Source
Other than the outright lies that are told, there is no single more frustrating fact about the selling of a debt settlement service than the pick a payment plan approach. It is sold that way because it has to be. A consumer who is struggling to pay their creditors the required monthly minimum is focused on the dollar amount they cannot come up with. When a debt settlement sales person suggests all you need is to establish a monthly dollar figure that you can do, the hook is set!
Imagine if the sales people at Credit Solutions actually shared the TRUTH of the matter with you. If they told you that in order to be successful with settling your delinquent accounts, you are in a race. You have to come up with the money to fund offers as fast as possible. You would not feel the sigh of relief that is purposefully designed into the sales approach by the majority of people selling debt settlement. Instead, your heart would palpitate. You would know that debt settlement is a tough choice, not an easy one. You would have a much clearer idea if debt settlement is even right for you. The sales person for CSA would not close as many sales. Do you think they would ever get to go home?
Don’t consult with a sales person offering debt relief!
If you are asked what you can come up with each month to put toward settlement, or someone “helps” you come up with a figure they are confident you will bite on, you are talking to someone offering “pick-a-pay”. Pick-a-Pay is a suitability test that everyone will pass. Using this approach means virtually any one breathing will qualify for debt settlement. That is, and has been, absurd (absurdly profitable that is).
Look to speak with someone who actually works with consumers and their creditors/collectors on a daily basis. If they have any experience and are what I would consider a responsible service provider, they will TELL you the amount of money you will need to come up with, and how quickly, in order to SUCCEED with settlement in your particular situation. Armed with this knowledge, you will then be able to evaluate whether or not filing bankruptcy would be the better choice.
You can speak with just such an expert by scheduling a consultation with a CRN negotiator. All CRN consults are conducted by people who, every day, actually settle debt or provide detailed information to CRN members on how to settle their own. There is no one more prepared to provide you the necessary details about how this approach will apply to your unique set of circumstances.
For more on how debt settlement is inappropriately SOLD, read:
What if tax payers could claim interest payments on debts (other than mortgages) as a deduction? Would it assist in an economic recovery? I would suggest YES. The fundamental reasoning would be two-fold:
It would allow consumers with debt to be able to more aggressively pay down that debt with the tax savings, which could put them in a position to spend responsibly sooner than they would otherwise be able.
Doing so would also prompt additional consumer spending
Banks who have proven to be the best lobbyist’s known to mankind should get behind a move like this. If there were more willingness and ability to borrow, banks will step up. They could charge rates with less public or political back lash. Banks would also likely see an immediate reduction in the sky high default rates they are experiencing now.
Think about it.
This type of policy move could spur spending and thereby job creation. This is what the country’s economy needs to climb out of this recession, not more ZIRP, ineffective onetime tax credits, or short lived sugar rushes from stimulus spending. These things have only proven to cause distortions in market conditions when what we need is stability and a return to some semblance of predictability.
Take this a step further and provide tax deductions for all interest payments on all debts. Interest payment on debt is essentially phantom money that does not really exist in the money supply, unless you count the audible sucking sound it makes. Interest payments are an additional tax on the labor of those who borrow. This type of tax deduction would provide a strong benefit to a struggling middle class.
Other than some pulled forward demand market distortions this may create in the first year it is implemented, what distortions would a policy like this create? The act of using credit to buy a thing is already pulling forward demand as it is.
Would a move like this “screw savers”?
One might argue this is so, but likely only in perception. Savers save, that’s what they do. They are smart enough to look for ways for their money to earn interest, not pay it. Taken in totality, a policy move like this may actually provide more investment opportunity for savers.
The federal tax base would take a hit, sure, but the government has proven it is going to deficit spend no matter what anyway. With the inevitable stimulus plans 2.0 through 9.0, additional backstopping of the states, unemployment extensions etc… being baked into the cake right now, wouldn’t this tax deduction be a better way to let the free market help to sooner find the equilibrium our economy so desperately needs right now?
We have mortgage interest tax deductions as a means to promote home ownership. Given the dire need of consumers and businesses to start participating in an economic turnaround that has solely been fed-by-the-fed to date (the sugar rush is fast wearing off), why not treat all interest on debt the same?
Wouldn’t it be nice if the price of a thing was actually the price of that thing, instead of the price tag plus interest? Sure, that’s exactly what happens when you pay cash, but cash transactions are only part of spending. An economy reliant on credit and fractional reserve money policies is what he have, and have had, for some time now. Unless our country is ready to give up that ghost (it’s not), being able to deduct all interest payments on debt might be a nice little push for a national economy on training wheels in need of finding the balance to ride on its own.
Should a tax deduction on interest payments be temporary? Perhaps only for the next 10 years, while the US is busy emulating Japan’s economy of the PAST 10 years?
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How does reporting an outstanding balance due after an agreed upon settlement, where both parties agree that when settlement terms are met it satisfies the obligation, comport with the 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 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.
Other than the 
This type of policy move could spur spending and thereby job creation. This is what the country’s economy needs to climb out of this recession, not more ZIRP, ineffective onetime tax credits, or short lived sugar rushes from stimulus spending. These things have only proven to cause distortions in market conditions when what we need is 
