- American Express settles debts for 50 cents on the dollar.
- Nationwide Credit Corp. collects delinquent debts on a contingency basis.
- Call centers may be willing to deal at the end of the month.
I am negotiating an American Express debt with its collection agent. It insists I provide a hardship letter. Why?
I owe American Express $5,200 and I am over 90 days. They sold my receivable to Nationwide. I spoke with a representative in India and was told that they must get payment by April 30th or my deal of a settlement of $3,100 will be void. What is magical about April 30th? Secondly, they want me to give them my routing number and checking account so they can deduct the amount. I told them I would send a money order as soon as they put the deal in writing. They then said before they put the deal in writing I had to send them a hardship letter and they had to get it approved by American Express... doesn't make sense to me. American Express should be out of the picture. Why do they insist on an online payment?
You raise three issues in your message, which I discuss below, including:
- The settlement amount and payment
- Approval of terms by the original creditor
- Negotiating tactics
Before I discuss these issues, I need to make it clear that much of my answer is speculation. It probably does not need to be said, but I do not represent American Express or the collection agent.
Settlement Amount and Payment
Each creditor has its own policies for settlement amounts. The rule of thumb for American Express is 50 cents on the dollar. Therefore, the offer of $3,100 for a $5,200 debt is approximately 60 cents on the dollar, which is higher than average but not unreasonable. If you have the funds to make a lump-sum settlement, offer the collection agent $2,080, which is 40 cents on the dollar. The customer service representative may balk at that amount, after which you can offer to meet in the middle at 50 cents on the dollar.
It is unusual for a consumer to receive an offer of settlement at 90 days of delinquency. Typically, settlement offers occur after 120 days of delinquency, when the debt is charged-off.
I caution readers to not give collection agents account numbers and authorization to transfer funds directly from the consumer's account. I have received messages from consumers who have given this information to collection agents, and either through incompetence or malevolence have deducted more from the readers' accounts than the amount agreed upon. That is not to suggest that the collection agent here is unscrupulous, but a wire transfer offers no benefits to the consumer and exposes them to risk unnecessarily. Therefore, the safest course of action is to send the collection agent a paper check.
Approval of Terms
You mentioned the collection agent is "Nationwide." There are several collection agencies with that term in their names. If the collection agent is "Nationwide Credit Corp." then according to its Web site, this collection agent operates on a contingency basis. This means it is paid only if it collects funds from the consumer, and gets nothing if it makes no recovery. I am not privy to its contracts, but it is logical to assume that a collection agent in this type of fee arrangement would require the approval of the original creditor before accepting anything less than the face value of the debt.
It is also logical to assume that if a creditor is willing to accept anything less than the full balance due, that it would want to know that it is forgiving debt to a truly distressed consumer, and not someone who is sitting on a pile of cash and out of miserliness refuses to pay their entire debt.
Review the Bills.com resource Negotiating debt to learn more about tactics and techniques for dealing with collection agents.
You are wise to insist the debt collector put the terms and conditions of the settlement in writing.
Regarding the April 30 deadline, the only reasonable explanation I can fathom for it is that the call center and customer service representative have an incentive or bonus in store if they achieve a certain number or amount of settlements by the end of the month. I can see no legal or business reason for such a deadline.
If you cannot reach an acceptable settlement amount with the collection agent, or if you do not have a lump-sum available to pay a settlement immediately, consider hiring a debt settlement company to do the heavy lifting for you. For a no-cost quote from a pre-screened service provider, visit the Bills.com debt saving center.
I hope this information helps you Find. Learn & Save.
Dealing with debt
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q3 2023 was $17.291 trillion. Auto loan debt was $1.595 trillion and credit card was $1.079 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Rhode Island, 21% have any kind of debt in collections and the median debt in collections is $1575. Medical debt is common and 5% have that in collections. The median medical debt in collections is $526.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.