What you'll learn from this article:
"Pay for delete" has become increasingly common practice
Removing valid information from credit reports weakens their integrity, and makes them less reliable (which also makes it more likely you'll have greater collection issues in the future)
You should reserve deletions for inaccurate information and special circumstances in resolving honest disputes
What is "Pay for Delete?"
“Pay for delete” is a method in which creditors or debt collectors remove a collection account from a debtor's credit report in exchange for payment of the account. This practice is becoming more common because debt collectors say they face pressure from competitors using "pay for delete" tactics.
To the debtor, the advantage to "pay for delete" is clear — pay a past-due debt and get it removed from a credit report for a better credit score. Creditors have gone along because it helps to increase their short term collection rates and they think it makes them more competitive in the market.
History Repeats - The Slippery Practice of “Pay for Delete”
“Pay for delete” is just history repeating. In a 2010, Robert Tavelli co-wrote a letter with ACA International to insideARM on the consequences of a similar topic - settling in full (SIF).
“SIFs may look today like a gold nugget but, the long-term implications of this type of gold mining could inadvertently combust into a backlash by debtors who currently pay on-time and in-full, kill incentive for debtors to ever pay on-time and in-full, and shape a culture where consumers know they can buy more and settle for much less later. Our assessment is that SIFs are a slippery slope for the industry with very real consequences at stake.”
Much like taking a settlement in full, "pay for delete" will cause long-term economic harm that outweighs the short-term benefits. It also creates a culture for creditors to cut corners as opposed to resolving legitimate accounts and properly advising customers on best practices.
"Pay for Delete" Undermines Credit Underwriting
When you allow debtors to pay to delete it harms the economy by undermining the purpose and reliability of credit reports which banks and other creditors rely on to make lending decisions. FICO scores and other credit scores tell you the odds that a person with a given score will repay the debt so that you can adjust your credit terms accordingly.
A "pay for delete" debtor has a similar credit score as someone who has never defaulted, even though a person who has defaulted before has a much higher chance of defaulting on a future loan. Further, fear of a ruined credit score and the consequences that follow gives people an extra incentive to pay their debts on time. If you remove the consequences, you decrease the likelihood that you or other creditors will be paid on future debts.
Should a Collection Agency Ever Remove Information From a Credit Report?
As a collection agency, you should only remove information from a credit report if it was inaccurate or there is a valid reason for removal. This might be because of identity theft, a billing error, legitimate dispute resolution or a bill sent to the wrong address. In these cases, you aren't undermining credit underwriting because there's no reason to believe that a person wouldn't have paid all of their debts on time. It is the creditor and debt collection agency’s responsibility to report fair and accurate information to the credit bureaus.
What you don't want to do is put yourself in the position of taking a bribe to get money that you're already owed. While it might work to boost short term profits, future customers will be less likely to pay you without that bribe, and you and other creditors will have no way of separating problem customers from those who pay as agreed.
When a debtor pays an account that is reported on their credit report it gets marked “Paid Collection.” Although this may not immediately improve the debtor’s score, it can help improve the score over time. This is the right and fair way to do business for all parties involved. Bottom line... If you are owed a debt, do not cut corners to collect it - If the debtor cannot pay, look to legitimate alternatives. It is that simple!
Tavelli Co., Inc. has over 37 years of unparalleled experience in the debt collection and receivables management industry. Our mission is to achieve the right balance between getting clients paid and being empathetic to debtor circumstances, through implementing innovative practices, hiring experienced people, and improving business decisions through analytics. We provide peace of mind to all involved by collecting money with no complaints. Tavelli Co., Inc. takes the time to carefully listen to your customers and share their feedback with you through meaningful data and transparent communication, so you have access to the information you need to make quality decisions and improve your processes in the future. Contact us today and let the debt collection experts at Tavelli Co., Inc. help you set your business up for success.
IMPORTANT: Information provided by Tavelli Co., Inc., any employees of Tavelli Co., Inc., or its subsidiaries is not intended as legal advice and may not be used as legal advice. It is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel.