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I was a debt collector for a dozen years-and have worked in the debt settlement industry for the past 4-5 years.
I come from a completely different perspective about “debt” than most people. First-I used to be a collector–having worked in the collection industry for about a dozen years. I’ve worked for banks, collection agencies, even sub prime auto finance companies. I’ve collected on credit cards, utility bills, emergency room debt, auto deficiencies as well as almost any other type debt you can imagine. About five years ago, realizing how stressful working “month to month” was in collections-I “found” a spot for myself in the debt settlement arena. And NOT just ANY debt settlement company (DSC)–but Credit Solutions of America. They fit me in the settlement department-where for several months I conveyed settlement offers between clients and creditors. I also learned that the “BIG MONEY” was being made in sales-so left CSA after a few months to begin selling. SO-I’ve got a different perspective than most.
From an employee perspective-I have to say, that sadly, settlement companies and collection agencies aren’t too terribly different in the way they treat their employees. Both industries pay commission based on performance-which gives rise to alot of the “abuse” that ends up giving the industry as a whole a bad name. Most companies-both collection and settlement-work on an escalated basis..that is-“collect more, make more” and “sell more, make more.” So-it’s not just good enough to “make your goal”–you’re given incentive to hit the next level, beat your previous goal, close at a higher ratio. And when you start giving humans that kind of incentive-and pressure (because everyone competes on “the floor”)-it’s an environment where bad things CAN happen.
Could it–would it–work better ANY other way? I really don’t think so. The primary reason and the common denominator in both equations is the consumer. For the collector-that person is a DEBTOR. For the debt salesman-that person is a CLIENT. At the end of the day-they’re talking to the same person. And human nature being what it is-people who are in over their head–are looking for a way out, and to escape consequences. And candidly, the people that both the collector and salesman are dealing with are typically not the most responsible, clear thinking, and stable people in the world.
I understand this won’t be a popular stand-this is a board that speaks poorly of collectors and debt settlement companies. And in some instances-rightly so. Nobody should be threatened by a collector or lied to by a settlement agent. It’s wonderful irony that the FTC now regulates how settlement companies operate-as they’ve being doing the same for collection agencies [CA] since passage of the FDCPA decades ago.
Isn’t it also ironic that both collection agencies and debt settlement companies are essentially called in to “clean up a mess.” The creditor pays the collection agency (usually anywhere between 15%-50%)–and the client pays the settlement company (usually between 10%-18%). Why is it that the FTC doesn’t insert itself into the creditor/CA relationship-but feels compelled to insert itself between the debtor/client and the settlement company? Are consumers really so timid and ill informed and uneducated that they can’t make a decision for themselves? Apparently so.
Look-I’m not unfeeling or unrealistic. Do bad things happen to good people? Absolutely. And do creditors always act responsibly and sympathetically? Absolutely NOT. But-and this is key-the party that derives the benefit in this relationship is ALWAYS the debtor–leaving the CREDITOR to forever beg, manipulate, and eventually settle to be made some semblance of “whole.”
Consider this. A man and wife have two credit cards with $10,000 limits. For whatever reason, and over whatever period of time-they max out those credit cards. IF you looked at the ledger you’d see meals, car repairs, cash advances, vacations, day care payments–all paid for by the CREDITOR–with the promise from the DEBTOR that they will pay them off–[ie make them whole] over the course of many months. Of course-the man and wife agreed to make regular payments with reasonable interest–much as they agreed to do with their mortgage and car loans. The creditor has done what it agreed to do-make good on the couple’s debts. But then “life happens.” The husband gets sick. Maybe he loses his job. Maybe there’s an unplanned pregnancy. Invariably-money grows tight and the couple wisely decides it’s more important to keep a roof over their heads and their cars to get to work-so credit card payments are skipped. The couple is in CRISIS MODE.
Now-the creditor isn’t getting paid. What SHOULD they do? [I invite EVERY reader of this blog to ask themselves that!] Should they LOWER the interest rate? NO. Should they ignore the delinquency? NO. Should they “work with” the couple? NO. Should they re-classify this as a higher risk debt and charge higher interest? YES. The creditor is in CRISIS MODE.
Who has the leverage in the relationship now? If you said the CREDITOR-you’re wrong! The debtor/couple has already received the benefit of the relationship (meals, vacations, car repairs, day care paid, medical bills paid and on..) The creditor is left begging.
So the couple can’t or doesn’t make a payment for 3-4 months. They’re still in control, still have the leverage–they’ve received the benefit! The original creditor reluctantly writes off the debt and assigns it to a collection agency-realizing they’ll lose 15%-50% of whatever payment the CA obtains. What does the CA hear? “The bank wouldn’t ‘work with me.'” and “You can’t get blood from a turnip.” and other statements equally profound. The collector is of course under pressure to collect the debt–and a thousand more like it under his control. His livelihood relies on his ability to get the couple to make good on their original promise-to make good on their debt.
Tell me-honestly. Why are the creditor and now the collection agency, the BAD guys in the equation? Is it because they are faceless? The creditor must be a huge bank able to sustain these type losses? The collector is some toothless gorilla that repeatedly calls because the couple repeatedly ducks his call or worse, lies about their intention to pay. Who’s received the benefit? The COUPLE/DEBTOR!! But the CREDITOR and CA are the bad guy? WHY??
Now-same scenario but back up a few months to right when the couple missed their first credit card payments. The husband begins worrying, so he looks online and researches their options. He makes the decision NOT to consider bankruptcy, and he’s never heard anything good about CCCS. He fills out a form online (in the old days) or responds to a catalog he’s gotten in the mail (post TSR) and before he knows it, he’s talking to a debt settlement company agent. Once the husband explains the situation, their obligations and finances-and asks whatever questions he has-it’s determined that the DSC can indeed help them. The salesman then continues on what you would call a “pitch”-going over things that his company requires him to inform the potential client. After going through all that-and getting certain financial information from the potential client-the salesman sends out the enrollment application–or enrollment package (EP) often via emai, sometimes via fax, rarely via US MAIL .
Why does he send it with such urgency? Two reasons. First, debtors are largely irresponsible and don’t want to face consequences. If the debtor/potential client gets off the phone-they may never be in the appropriate “mood” to face their debt again. Secondly-debtors are fickle. If they don’t sign with you, chances are good that someone more forceful/less ethical will pressure them into signing with them. Make no mistake. Committing to a debt settlement program is a positive move in the right direction-for most people in this position. But for a debtor who has stopped making payments-for whatever reason-to agree to begin making payments into a program–its a HUGE movement forward, a HUGE shift in attitude. It has the potential to be very positive.
An enrollment application is put in the couple’s hands. The salesman goes over the application-answers whatever questions they have. In fact, reads certain specific parts of the agreement to the couple (disclosures for example.) The couple makes the decision to accept or reject the agreement–or just “think about it.” Even IF they choose to accept it-make a hasty decision, react under pressure–they still have between 3-10 days to cancel the agreement without penalty or cost. Even though the debtor has essentially hired the DSC to work for them, the debtor still has ALL the leverage. Remember-the debtor is still the only party that’s received the benefit of the initial relationship!
Three months later-after making several payments into their debt management program–the creditor turns the debt over to a CA. The debtor/client doesn’t like THIS turn of events-and without warning, after receiving too many demanding calls-abruptly quits the program. A few weeks later-they have the gall to demand their payments back-threatening to call the AG or FTC on your company. They’re “outraged” to find that while in the program-their interest rates and balances have increased-and blame the settlement company.
I know this is LONG-and I apologize. But WHO is regulating the consumer? WHO is protecting the creditors, collection agencies, and debt settlement companies from consumers that make ill advised life choices-and reap all the benefits of the relationship?
And for the debtor that asks IF debt settlement REALLY works-or expresses doubt that it does-I say THIS.
IT REALLY WORKS. Creditors really accept less than the full principle balance–and quite often. What DOESN’T work is for a consumer to move “willy nilly” between solutions and then being surprised at the mess they’ve created.
A debtor that chooses to file bankruptcy still has to complete the terms of the bankruptcy or risk being DISMISSED, rather than have the debt DISCHARGED.
A debtor that chooses to quit a debt settlement program in the early stages because it’s not what they expected-“the balances are HIGHER”–probably take a cake out of the oven after 4 minutes and express disappointment that it’s no good! Stay the course. Call the settlement advisor for answers and reassurance. If it doesn’t work for YOU, don’t blame the process or company–walk down the hall to the mirror–and ask the person staring back at you if you’ve done EVERYTHING you agreed to do. In all likelihood-they haven’t.
I appreciate there being a Board like yours, Steve. There needs to be a place where voices can speak out. I’m not advocating for either collection agencies or debt settlement companies. In a way-they are necessary tools created by a demand-when consumers were unwilling or unable to meet their agreed obligations. No CA should ever threaten or lie to pressure a debtor to pay. No DSC should misrepresent or side step a troubled consumer’s direct question. No CONSUMER should ever lie about their intention, ability or willingness to pay a creditor. In a perfect world, none of these things would happen.
I guess what I’m saying is that the debtor/creditor relationship is one defined by it’s nature as nearly adversarial. But why does the only party that reaps the total benefit, also warrant the most protection under the Law?
Thanks for the platform to post.
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You managed to hit the nail right on the head and explained out everything without complication.
Credit Counseling
Your article has some truth, however painting all debtors with a broad brush or generalizing debtors as irresponsible is not fair or accurate.
I once was a person with a credit score of over 800, paying my bills on time for 25+ years. We were excellent savers having six months of money in the bank. Then our economy here in the US lead to state budget crises, causing my husband to lose his fulltime teaching position and me a state employee to have my salary reduced, health and retirement insurance cost also increased, about a 15% pay reduction. Our family lost about 60% of our income. Unemployment ran out, my husband accepted a low paying job in retail, then broke his ankle at home, required surgery and the monthly unemployment was very little. We have four children, two with special needs. We trimmed all of the fat out of our budget. We still couldn’t make it.
I called my creditors some were great in working with us but some were not. I acted in good faith for 25+ years with my creditors and now I am in the position where we can no longer pay all of our debts. Instead of ignoring the situation which is overwhelming and depressing, we decided to file Chapter 7, (we could not afford the Chapter 13 payments) and have done so. I called all of our creditors and let them know. Again, some took the information and were courteous and professional a few were not.
I am sure some people make bad decisions or are irresponsible when it comes to debt but it’s not everyone. If I had the money I would prefer to pay my creditors as I am sure most people would. However, I cannot and the law provides a solution through bankrputcy. There is also a reason the law includes bankrputcy as an option for people with debt and also for creditors, financial institutions and other businesses, it’s necessary.
Of course, getting past the “customer service” person and onto an actual supervisor is a task in itself. However, from my personal experience, I have to disagree with the statement “IF there is no hardship-the consumer can often get a supervisor to return them to the original APR.” I have had instances when I couldn’t pay on time (everything from a family emergency requiring me to go out of town, leaving my bills behind (before everything was online), to simple internet problems (after everything was online). I’ve even submitted payments no more than 10 minutes late (4:10 Central). In ALL cases, the creditor DID reverse the late fee, but NEVER the APR. When I’ve inquired about the fact (in my opinion) that my reason for being late was valid enough to credit the late fee, why isn’t it also valid enough to reverse the APR increase, I always have been told “I’m sorry, but the APR is as low as it can go”. You must know better supervisors (could I get their numbers…LOL).
Mike this is Kevin-the original poster. You make a good point-to which I’d suggest this.
It depends on the stage of delinquency and what type communications or payments are being made. For example-if the couple puts their head in the sand and the debt rushes towards and past charge off-then I’d say the creditor’s hands are pretty well tied with whatever banking policy they have. If the couple stays in contact, makes and keeps “promises to pay” during the hardship-regardless of the amount, and is willing to accept SOME increase over the duration-then I think creditors should (and often do) “work with the debtor.” Often a person is penalized for one late missed payment. IF there is no hardship-the consumer can often get a supervisor to return them to the original APR. At the same time-it’s reasonable for the creditor to boost the interest rate and expect the client/debtor to re-establish a period of on time payments before lowering the interest rates.
I think from a creditor’s perspective-once a consumer slips into “crisis mode” once-they are considered at risk to do so again. And sadly-in today’s economy-they most often do.
Great comment–great insight.
I’m going to add 2 or 3 cents here….I’m not going to argue the above, as there is a lot of validity in what Kevin is saying. But I think he needs to look a little further down the road. I’ll yield the point the when “life happened” the couple went into CRISIS MODE, which led to the creditor going into CRISIS MODE. My problem is that frequently, “life fixes itself”. The husband gets well, gets his job back, and the wife gives birth to a healthy child. Expenses have increased some, but they are able to maintain. Why is it that creditors are quick to “re-classify a higher risk debt and charge higher interest” but NEVER re-classify a lower risk debt and charge lower interest? They are extremely quick to respond to “life happening” (in fact, most will raise APR after just 1 late/missed payment), but I have NEVER heard of someone returning someone’s APR back to what it was BEFORE “life happened”, no matter how long payments are made on time…..
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As the couple moves OUT of crisis mode, shouldn’t the creditor also?
I’m going to add 2 or 3 cents here….I’m not going to argue the above, as there is a lot of validity in what Kevin is saying. But I think he needs to look a little further down the road. I’ll yield the point the when “life happened” the couple went into CRISIS MODE, which led to the creditor going into CRISIS MODE. My problem is that frequently, “life fixes itself”. The husband gets well, gets his job back, and the wife gives birth to a healthy child. Expenses have increased some, but they are able to maintain. Why is it that creditors are quick to “re-classify a higher risk debt and charge higher interest” but NEVER re-classify a lower risk debt and charge lower interest? They are extremely quick to respond to “life happening” (in fact, most will raise APR after just 1 late/missed payment), but I have NEVER heard of someone returning someone’s APR back to what it was BEFORE “life happened”, no matter how long payments are made on time…..
As the couple moves OUT of crisis mode, shouldn’t the creditor also?
Mike this is Kevin-the original poster. You make a good point-to which I’d suggest this.
It depends on the stage of delinquency and what type communications or payments are being made. For example-if the couple puts their head in the sand and the debt rushes towards and past charge off-then I’d say the creditor’s hands are pretty well tied with whatever banking policy they have. If the couple stays in contact, makes and keeps “promises to pay” during the hardship-regardless of the amount, and is willing to accept SOME increase over the duration-then I think creditors should (and often do) “work with the debtor.” Often a person is penalized for one late missed payment. IF there is no hardship-the consumer can often get a supervisor to return them to the original APR. At the same time-it’s reasonable for the creditor to boost the interest rate and expect the client/debtor to re-establish a period of on time payments before lowering the interest rates.
I think from a creditor’s perspective-once a consumer slips into “crisis mode” once-they are considered at risk to do so again. And sadly-in today’s economy-they most often do.
Great comment–great insight.
Of course, getting past the “customer service” person and onto an actual supervisor is a task in itself. However, from my personal experience, I have to disagree with the statement “IF there is no hardship-the consumer can often get a supervisor to return them to the original APR.” I have had instances when I couldn’t pay on time (everything from a family emergency requiring me to go out of town, leaving my bills behind (before everything was online), to simple internet problems (after everything was online). I’ve even submitted payments no more than 10 minutes late (4:10 Central). In ALL cases, the creditor DID reverse the late fee, but NEVER the APR. When I’ve inquired about the fact (in my opinion) that my reason for being late was valid enough to credit the late fee, why isn’t it also valid enough to reverse the APR increase, I always have been told “I’m sorry, but the APR is as low as it can go”. You must know better supervisors (could I get their numbers…LOL).
Your article has some truth, however painting all debtors with a broad brush or generalizing debtors as irresponsible is not fair or accurate.
I once was a person with a credit score of over 800, paying my bills on time for 25+ years. We were excellent savers having six months of money in the bank. Then our economy here in the US lead to state budget crises, causing my husband to lose his fulltime teaching position and me a state employee to have my salary reduced, health and retirement insurance cost also increased, about a 15% pay reduction. Our family lost about 60% of our income. Unemployment ran out, my husband accepted a low paying job in retail, then broke his ankle at home, required surgery and the monthly unemployment was very little. We have four children, two with special needs. We trimmed all of the fat out of our budget. We still couldn’t make it.
I called my creditors some were great in working with us but some were not. I acted in good faith for 25+ years with my creditors and now I am in the position where we can no longer pay all of our debts. Instead of ignoring the situation which is overwhelming and depressing, we decided to file Chapter 7, (we could not afford the Chapter 13 payments) and have done so. I called all of our creditors and let them know. Again, some took the information and were courteous and professional a few were not.
I am sure some people make bad decisions or are irresponsible when it comes to debt but it’s not everyone. If I had the money I would prefer to pay my creditors as I am sure most people would. However, I cannot and the law provides a solution through bankrputcy. There is also a reason the law includes bankrputcy as an option for people with debt and also for creditors, financial institutions and other businesses, it’s necessary.