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 Discovere 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, even 25%, 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 Discover’s 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: “Someone 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.