negotiate debt

I’ve been involved with debt settlement since 1997, far longer than most people working in this industry. Yet I still have to shake my head in amazement at some of the idiotic stuff debt collectors say.

Now, just to be 100% clear, I have nothing against creditors hiring agencies to collect on their delinquent accounts, and I view the collection industry as an essential part of our economy. The business of granting credit always entails some risk people won’t repay, which creates an opportunity for an industry that helps lenders enforce their contractual agreements. I’m also totally willing to acknowledge that many, if not most, debt collectors do a good job and play by the rules. Where I draw the line is with collectors who flat-out lie to people, break the rules, or make malicious statements intended to bully consumers who are suffering from legitimate financial hardships.

Just the other day, a debt collector with nothing better to do stopped by the ZipDebt Blog and submitted comments against an article I published about two years ago, titled Consumers Should Still Be Wary of the New “FTC Compliant” Debt Settlement Companies.

Normally, when a debt collector posts a snide remark on my blog, I just delete the comment and don’t bother to respond. But these particular posts provide a pretty good X-ray of the mindset of a debt collection “manager,” someone who was apparently good enough at the intimidation game to get promoted to a higher level. I always tell consumers they CAN settle debts on their own, but should get a good COACH on board to help them through the process. And this particular set of comments illustrates why. You’re dealing with people who are taught to repeat the same falsehoods many times daily, to the point where they become very convincing and even start to believe their own propaganda.

In his first comment, the collector focused on a statement I made within the article where I noted, “We have recently had instances where one major creditor routinely refused to accept the final installment on settlements negotiated by third-party firms, and clients were experiencing problems with those settlements.”

What you are saying here is the creditor accepted a structured settlement then refused to accept the final payment to settle the debt? That would be an illegal collection practice by the creditor and in no way a reflection of who negotiated the debt. Once a settlement is accepted the creditor cannot back out of it once both parties agree. That would mean they could promise settlements as a way of getting monthly payments. Maybe you should check your facts or stop lying to your readers.

Nice tone, eh? Note that I’ve never once heard from this individual before he posted this. The language tells me this is a person who is prepared to *start* from the assumed position that I am lying to my readers. He doesn’t actually know anything about me at all, has not taken the time to fully digest what ZipDebt is all about, yet is fully prepared to dismiss what I’ve written. This arrogant and condescending tone is sadly typical of many debt collectors and managers. It’s too bad, really, because I firmly believe collectors would recover far more for their clients if they displayed a little respect and compassion once in a while.

The truth is that in the months before I published that article there had been multiple instances of a specific creditor welshing on documented settlements that had been negotiated by debt settlement firms on behalf of consumer clients. I did not say it was something that always happened, or that it was happening with all creditors, merely that we had “recently had instances” where this occurred. The practice of reneging on documented settlements went on for quite some time. Here is one example that was discussed publicly on Steve Rhode’s blog, about a year after my article mentioned this.

Yes, Mr. Debt Collection Manager, of course this is illegal. Are you asking us to believe that major credit card banks and/or collection agencies never do anything illegal? Seriously? If that is the case, why did the new Consumer Financial Protection Bureau recently fine Capital One $140 million and American Express $85 million, both for multiple violations of numerous laws pertaining to collection of delinquent accounts? Why is your industry always the #1 source of complaints to the FTC, year after year after year? After everything we have seen in the past half-decade, from the subprime mortgage meltdown and credit default swaps, to the robo-signing scandal, is there anyone who still thinks the big banks won’t break the rules if it means billions in profits?

Moving to the collector’s second comment, we have the following masterpiece:

I’ve worked in debt collections for the past 5 years, 3 of them as a manager of a debt collections law firm. Some of the statements I’m seeing on here make no sense, for example; Rodney, why would you have $133k in debt when you are telling us you had the ability to pay $7,000 a month to settle. In addition to that most credit card companies are not willing to extend a low settlement 30%-40% on the dollar without the charge-off. Why would the credit card companies forgive that much debt before they get their tax write-off (charge-off). In addition to these funny statements of settling over 100k in debt in 6-10 months (which would be wealthy people taking advantage of the credit card system) thanks for raising my taxes while you have money to pay your debts.

There are so many false statements and misrepresentations in the above paragraph, I’ll have to break it down sentence by sentence:

Bogus Remark #1: “Rodney, why would you have $133k in debt when you are telling us you had the ability to pay $7,000 a month to settle.”

This refers to a comment posted by a client who had settled all his debts using my ZipDebt program. The full comment can be read here, but this is the relevant portion:

I just achieved my last settlement agreement using Charles’ program. My wife and I had 10 credit card accounts and original balances of $133k when we started the program just back in September 2010. So less than 7 months later we’ve settled (or have made settlement agreements with payments due over the next 2 months) of just under $49k.

Here we see the old-school debt collector mindset at work. If the client paid out $49,000 over seven months to settle their $133,000 of credit card debt, the immediate assumption is that the client had *cash flow* of $7,000/month to work with. Mr. Debt Collection Manager applied the standard “deadbeat” assumption to Rodney’s comment, implying he had plenty of income to pay his bills with, but chose not to. Yet the reality was that the client had experienced a huge pay cut and was forced to rely on his credit cards to survive, then burnt through his liquid savings in a futile attempt to remain current with his creditors. The total minimum payments for Rodney’s $133k were more than $3,000 per month, yet he could barely cover $500/month due to his loss of income. The $49,000 for settlements came from a LOAN against his 401(k) account, another loan from his FAMILY, and the $500/month he was able to set aside in lieu of regular payments.

The problem here is that Mr. Debt Collection Manager does not understand a very basic principle of financial accounting: Income and assets are not the same thing! Rodney could simply have filed bankruptcy instead, but chose to borrow from his retirement account and from family so he could settle instead of file bankruptcy. Mr. Manager also apparently doesn’t grasp the fact that some of his fellow debt collectors *made money* from Rodney’s decision, via commissions earned from those settlements!

Bogus Remark #2: “In addition to that most credit card companies are not willing to extend a low settlement 30%-40% on the dollar without the charge-off.”

I have to scratch my head on this one. All major creditors, with perhaps one exception, prefer to reduce the loss declared at time of charge-off by offering settlements prior to that deadline. During the financial crisis, the banks cleared out hundreds of billions of dollars in credit card receivables through the process of offering direct settlements to distressed consumers. I have thousands of such letters in my database, and about 80-90% of my clients’ settlements are negotiated before the charge-off date. The collector is totally wrong about this statement, but perhaps what he’s actually mad about is that most of this direct settlement activity (before charge-off) did not involve third-party agencies. Translation: If consumers can actually settle on their own with the banks before charge-off, that means a lot less commissions will get paid to collection agencies.

Also, a settlement *is* a charge-off, of that portion of the balance that gets forgiven via the settlement. A “manager” working at a major law firm should be well aware of these very basic accounting facts, but as you may have guessed, one doesn’t need to be a genius to manage a collection agency.

Bogus Remark #3: “Why would the credit card companies forgive that much debt before they get their tax write-off (charge-off).”

What tax write-off? There is no “tax write-off” associated with charge-off. Charge-off equals a loss to the creditor, which means lower profits, which means a lower bill for taxes. Reduced profit is not a tax benefit! It’s a loss, period. Anyone who believes otherwise is welcome to cite the relevant tax code.

Bogus Remarks #4 & 5: “In addition to these funny statements of settling over 100k in debt in 6-10 months (which would be wealthy people taking advantage of the credit card system) thanks for raising my taxes while you have money to pay your debts.”

“Wealthy people taking advantage of the credit card system”? This is completely absurd. As I noted above, the client in question was in desperate straits financially, did not have the income to make his minimum payments, and used his few remaining resources to take the responsible path of negotiating settlements with his creditors.

This type of mean-spirited debt collector cannot allow himself to think for one minute that the debtor might really have a financial problem. Nope. If you cannot “just pay your bills,” it must automatically mean you are a lowlife deadbeat, or a wealthy person trying to scam those poor credit card banks – you know, those same banks that almost brought down the entire world economy. Yep, those poor bankers are being taken advantage of and really need protection from us big bad consumers (aka ZipDebt clients :-)).

And what’s this laughable nonsense about “raising my taxes”? Talk about apples and oranges! There is no relationship whatsoever between the personal income tax rate set by Uncle Sam and losses incurred by the credit card industry. Last time I checked, Congress and the IRS were not too concerned with increasing Federal taxes every time Citibank posts a quarterly loss.

Now, if you are a consumer trying to settle a credit card debt, imagine running into this particular debt collector on the telephone. Here is an individual prepared to rattle off a string of lies with enough confidence to make his pronouncements sound like Holy Writ, who is willing to bully and browbeat a distressed consumer into making payments no matter what. Should consumers expect compassion, mercy, or even honesty and plain dealing from such a collector? Absolutely not. Arrogance, condescension, accusation, and flat-out lying are what you can expect.

Again, when you repeat the same lies hundreds of times per week, you start to believe those lies yourself and become very convincing at telling them to the next person on the list. For consumers to successfully negotiate with this type of collector, training and ongoing coaching is required. Collectors like this one are actually quite easy to handle when you know the ground rules, understand how the collection process actually works, and have some training on how to respond to these tactics. That’s what I do here at ZipDebt. I arm consumers with the tool kit needed to successfully negotiate settlements with original creditors, collection agencies, collection law firms, and debt purchasers.

It’s pretty funny, actually. Whenever I post the results achieved by ZipDebt clients proving that DIY debt settlement is a far more effective solution than hiring a debt settlement company, I’ve been attacked by people working inside the debt settlement industry. I’ve been accused of helping people “game the system,” and told my results were “too good to be true.” Based on the comments posted by Mr. Debt Collection Manager, it seems debt collectors don’t believe me either. I’m fine with that though. If they are mad at me too, I take it as a good sign that what I do works very well for consumers. 🙂