From Collector: Make Me an Offer
The word “settlement” comes with a lot of baggage.
5/10/2019 10:30 AM
Debt settlement offers seem like a pretty straightforward way to help consumers resolve their debt when your regular collection methods have petered out. But keep this in mind: while you may think settlements are easy to understand, consumers may not. Some consumers find these offers confusing—even the word “settlement” might lead them to think you’re referring to a legal matter—and they can be a minefield if handled incorrectly.
Your agency has undoubtedly set some guidelines for which consumers can receive settlement offers and the parameters of those offers. But you should also know that settlements are regulated by the Fair Debt Collection Practices Act, and this month’s Collection Tips in Collector magazine reviews a few things to keep in mind before you extend such an offer.
Offering discounts during the first 30 days after a consumer has received an initial communication from your agency can be tricky, and you’ll want to pay close attention to the language you use when describing them to a consumer (if your agency allows you to offer settlements at all during this time).
Don’t offer consumers a settlement during the validation period that requires them to pay within those first 30 days in order to take advantage of the discount. If you do offer to let the consumer resolve the debt at a discounted rate, make sure the deadline for that offer extends past the 30-day period—and by more than just a few days. And once an offer is made, don’t withdraw it during the validation period.
Be careful when making settlement offers on debts that are beyond the statute of limitations. Some courts have ruled that settlement offers could mislead consumers into believing their debt is judicially enforceable when it’s not. Follow your agency’s stated procedure for any settlement offers made in connection with an out-of-statute debt.
When an amount of $600 or more is forgiven, the IRS may require consumers to report the amount forgiven to the IRS as taxable income. Your agency needs to consider whether a settlement offer must also notify consumers of potential tax consequences if they accept. Consideration of this step isn’t addressed in the FDCPA, and courts have issued varying opinions on whether creditors need to file a 1099-C disclosure in these situations.
Unless a settlement truly will not be offered again, don’t use language that would indicate the settlement is a one-time offer, which could violate the FDCPA. Saying “I’m able to offer you…” may be better than saying, “This offer is only good until…” Also, avoid indicating that the settlement offer you’re presenting is the lowest offer the consumer will ever get. Your client may decide later to offer something even better.
Editor’s note: The Consumer Financial Protection Bureau’s proposed rule on the FDCPA addresses some topics related to statute of limitations and disclosures ACA International is reviewing for comment. Read in-depth coverage of the proposed rule by Compliance Analyst Andrew Pavlik.
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