After the date of delinquency, collections accounts may lawfully remain on your credit record for a period of seven years. Many customers are keen to figure out how to get their records cleared up faster.
One tactic, frequently referred to as “pay-for-removal” or “pay-for-delete,” involves the customer agreeing to a settlement with the collection agency. The collection agency agrees to remove the record of the account from the customer’s credit report when the consumer pays the debt (either in full or a reduced amount that the creditor accepts). It appears to be a sensible solution in theory. Pay-for-delete is a tricky concept in real life.
Pay-for-delete: Is it legal?
Pay-for-delete is a legal gray area in several respects. The Fair Credit Reporting Act (FCRA), a complicated piece of legislation, lays out the standards that apply to creditors, collectors, and credit bureaus. Debt collectors are not required by the FCRA to report information about consumers to credit bureaus. Due in part to the fact that it helps their sector as a whole, the majority of collection agencies do report. People are aware that credit scores are used by lenders to determine whether to grant credit and under what conditions. One incentive to pay up is the prospect of having negative credit.
Nonetheless, the FCRA does provide that organizations who disclose consumer credit information have a duty to present an accurate and comprehensive report. According to the Federal Trade Commission (FTC), “Generally speaking, it’s against the law to report information that you know or suspect to be erroneous… The FTC, Consumer Financial Protection Bureau (CFPB), state governments, or in some situations, individual customers may bring legal action against you if you violate the FCRA. The maximum fine for each infraction is $3,817.
Some businesses argue that choosing not to report a paid account is distinct from notifying the truth. It’s also important to note that the FCRA contains numerous consumer protection provisions, including the ability to legally challenge information you perceive to be erroneous and the right for accounts to gradually disappear from your credit report. The FTC might not give a technical infraction that benefits the consumer as much attention.
In the end, it’s up to legal experts to sift through the FCRA’s complexities and any other relevant legislation to decide whether pay-for-delete is permissible.
Why should collection agencies offer pay-for-delete or why not?
Because their agreement with a credit bureau forbids it, many debt collectors won’t accept a pay-for-delete plan. Others would wager that the FTC and CFPB (Consumer Financial Protection Bureau) will not bother to take enforcement action against a relatively small FCRA violation since they have more important matters at hand, such as cases of identity theft and fraud.
The collection agency may determine it’s worth the risk if pay-for-delete proves to be a successful tactic for encouraging a consumer to pay off a debt. Some businesses might perceive the FCRA as giving them free rein to report customer data.
The parent business Encore Capital Group’s collection agency, Midland Credit Management, has revised its credit reporting guidelines. The revised policy is in effect as of October 11, 2016.
According to the time since the account became delinquent, “[W]e will suspend credit reporting on accounts that are both Paid in Full or Paid in Full for less than the whole debt and more than 2 years old. Additionally, if payments start within three months of our mailing the initial notice and continue every calendar month after that until the account is paid in whole or paid in full for a balance less than the full sum, we won’t start reporting on any new accounts.
“The FCRA establishes a maximum time limit for reporting, but not a minimum,” a spokesperson of Encore said. Prior to adoption, Encore had its policy reviewed by legal and compliance experts, and we are confident that it complies with all regulations.
According to Encore’s further statement, “In listening to our consumers, we found that a significant challenge with current practices that maintain negative tradelines for seven years, even after a debt has long been paid or resolved, is that many consumers feel their only alternative for a more immediate resolution is to dispute the debt in question. Even though they are aware that the debt is legal and that they are liable for its payment, they frequently engage in this conduct again. The existing credit reporting and rating system offers little incentive to pay off an underlying debt because it keeps that correct but unfavorable information for seven years.
When Midland implemented the new policy, they immediately stopped reporting qualified accounts for 1 million consumers, and the following month, their CFPB complaints reached an all-time low.
The policy adopted by Midland seems to be the first of its type. Other collection agencies may adopt similar policies if the corporation avoids consequences from the FTC or other regulatory bodies for this policy.
Can a deleted account return on your credit report?
You are not entitled to have an account erased from your credit report after paying it off. In order to have a thorough and accurate record, the account is typically reported and marked as “Paid.” You might be able to argue that an account went to collections due to mistakes beyond your control in some circumstances. For instance, it’s possible that after you relocated, bills and collection notices were sent to your previous address without being forwarded. In such circumstances, the collection company or the original creditor could voluntarily erase the late payment off your credit report.
The FCRA provides instructions on how to stop erroneous information from resurfacing on your account after being erased. Nevertheless, there isn’t much you can do to stop the debt from showing up on your credit report if it is accurate. Until it legally expires, creditors are not required to stop disclosing accurate information.
Can you dispute a paid account if it doesn’t disappear from your credit report?
The ability to dispute accounts on your credit report gives you as a consumer the power to make the collection agency “perform a reasonable reinvestigation” within 30 days of receiving your dispute.
A dispute that is not resolved within the allotted time frame, for example because of a human error, may be deleted off your credit report. But, if the agency still feels that the information is accurate, it may report the same account again in the future. The account will then return in your file as a result. According to the FCRA, the agency must notify you of the reinsertion within 5 days.
An attempt to overload a collection agency with disputes and stall investigations is unlikely to work because debt collectors are not required to look into duplicate or baseless disputes.
“Whenever a collection agency agrees to remove a file due to a dispute, they are expected to submit a delete notification to the credit bureaus,” a spokesman from Equifax stated. Equifax has procedures in place to stop disputed accounts from resurfacing on a consumer’s credit report. Not paid accounts, which the spokesperson stated often remain on the credit file for the full 7 years, but erroneous information is the focus of disputes.
Be aware that a pay-for-delete deal might not have the desired effect on your credit score. A collection agency may not report to all three credit bureaus because credit reporting is optional. Find out which credit bureaus a collection agency will get in touch with to get an account off of your record. It can take a few weeks for an account to remove off your report if an agency agrees to pay-for-delete.
As you can see, the procedure of deleting an account from your credit history is challenging. You might be able to negotiate a pay-for-delete deal, depending on elements like the circumstances surrounding your delinquent account and the collection agency’s interpretation of their FCRA compliance responsibilities. If not, your best course of action might be to improve your credit practices as much as you can while waiting for old credit issues to formally disappear off your credit report.