On January 7, 2010, FTC staff spoke by telephone with Michael Figliuolo, an individual who submitted a comment in response to the Notice of Proposed Rulemaking regarding the debt relief amendments to the Telemarketing Sales Rule. Mr. Figliuolo worked for several years in Capital One’s collections department. In 2001, he began working at Capital One as Group Manager for U.S. Card Operations Strategy and Analysis. In 2003, he became the director of Specialty Collections, U.S. Card Operations at Capital One. He left Capital One in 2004 when he founded a management consulting firm. He has recently been retained by a debt settlement company as an expert witness to provide testimony involving litigation regarding the company. Mr. Figliuolo provided FTC staff with background information on creditor policies related to debt settlement.
First, the staff asked if Mr. Figliuolo could speak generally about creditor charge-off policies. He explained that, pursuant to Federal Financial Institutions Examination Council (FFIEC) policy, accounts owned by banks that are 180 days or more overdue must be charged off. He noted that in unusual circumstances, such as fraud or bankruptcy, banks charge off debts sooner than 180 days, but in no circumstances would charge-off occur later than 180 days. He explained that Capital One’s systems were set up to automatically charge off at 180 days overdue.
Mr. Figliuolo noted that at Capital One, an account that was one day overdue was considered delinquent, an account that was between approximately 30 days and 179 days overdue was typically considered in “active collections,” and after 180 days the account was considered ”in recovery.” Once an account reached the recovery stage, collections were typically outsourced to a collection agency, although Capital One maintained ownership of the account. At Capital One, accounts stopped accruing past due charges and late fees after charge off, and interest rates on those accounts either dropped to zero or to a very low rate.
The staff also asked Mr. Figliuolo to speak about Capital One’s procedures for interacting with debt settlement companies. The staff asked whether Capital One verified that consumers possessed the money to pay settlements before making offers to them. Mr. Figliuolo, speaking about the 2001-2004 timeframe, explained that Capital One did not attempt to verify whether a consumer had sufficient funds to fulfill a settlement offer because 1) it did not have a method to verify the information, and 2) the consumer could withdraw the money from the account at any time, so such information was not valuable. Mr. Figliuolo also stated that, based on his knowledge of the practices of other creditors and through his interactions with senior level personnel at those creditors, the practices at Capital One were consistent with the practices of other creditors at that time.
The staff also asked whether Capital One provided documentation to consumers after the debt had been settled. Mr. Figliuolo described the different types of documentation that Capital One could provide to consumers confirming that a settlement was completed: 1) the first statement after settlement would show that a settlement was paid, the account had a zero balance, and the account was closed; 2) a letter might be sent, either by request of the consumer, by request of the debt settlement company, or on Capital One’s initiative, stating that the account
had been settled; and 3) if the settlement resulted in more than $600 in savings through forgiven balances, then Capital One would send the consumer a 1099 form alerting the consumer to a possible tax obligation. Mr. Figliuolo said that some creditors also sent out letters to consumers with the terms of the settlement before the settlement agreement was executed.
The staff asked Mr. Figliuolo to speak about creditor decision-making regarding settlement offers. In Mr. Figliuolo’s experience, creditors did not routinely make settlement offers upon learning that a consumer had enrolled with a debt settlement company. He explained that some debt settlement providers had established relationships with the creditors and could negotiate settlement offers upon enrollment. He further explained that creditors make settlement offers by balancing the cost to recover the debt against the likelihood of recovery, as well as considering other factors such as the time of month or year. In addition to making settlement offers in response to a request by an individual consumer or debt settlement company, a creditor might make a settlement offer on its own initiative, directly to a consumer. If a creditor decides to make a proactive settlement offer, it may do so by direct mail, a telephone campaign, or through an online message. He noted that consumers often ignore proactive settlement offers from creditors, especially when provided by mail. Mr. Figliuolo explained that although creditors do not intentionally make more favorable settlement offers to consumers who work with debt settlement companies, debt settlement companies often do get better settlements than consumers working alone. He said that consumers working alone often do not realize that settlement for less than full balance is available, or they accept a creditor’s first settlement offer, which is not usually the best offer a creditor might be willing to accept. He said that debt settlement companies have access to in depth information about previous settlements with the creditor, are better negotiators, and often have established relationships with the creditor, which result in better settlements for consumers.
Finally, the staff asked Mr. Figliuolo how Capital One treated powers of attorney sent by debt settlement companies. During Mr. Figliuolo’s tenure at Capital One, if a consumer signed a power of attorney directing Capital One to deal directly with the debt settlement company, then the debt settlement company would be added to the account as an authorized representative. He suspected that creditor policies regarding powers of attorney have changed since his tenure at Capital One; during his time at Capital One, the debt settlement industry was so new and the use of powers of attorney was not widespread. – Source
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