Question About How a Settlement Must Report on Credit

[hpotterfan77]

I received a letter offering me a 75% discount settlement on an older account.  I'm tempted to take it however after speaking to the original creditor, they told me that if I take the settlement offer, it will report as "Settled for Less than Full Amount" which I expected BUT that they would still show the remaining balance on my credit report instead of a zero balance.  I was under the impression that if you take a settlement offer, once you pay it, they can show the Settled for Less Than Full but that it would then report as a zero balance.  Am I incorrect in this?  I'd like to know before I take the offer.  Thanks!

[KJinNC]

You are correct. The person you spoke with is either ill-informed, or trying to scare you into paying the full amount. That said, it will stay on your report and it will say "settled for less than full amount" or words to that effect, so it's not ideal. If possible, I would try to pay for delete; if that is not possible, I would try goodwill letters for removal after settling.

[OmarGB9]

You are correct. They MUST by law update to zero balance regardless of whether you settle or PIF.

[hpotterfan77]

Thank you for the replies! It’s what I thought.

[OmarGB9]

It could also be that the rep meant that when you settle, at first they'll update the balance by subtracting the amount of the settlement, and THEN they'll make one final update to zero balance afterwards. Perhaps the rep just left out this second part.

[bass_playr]

Hang on, the answer depends on some things that you did not specify.

First, who's offering you the settlement?  Do they own the debt, or does the original creditor own it still?  It matters...because if the OC still owns the debt, then the debt collector is collecting on their behalf...and they may or may not authorize such a discount.  

If the OC does still own the account, then there's a possibility that they may still be able to report a balance on your reports.  If they accept the settlement, then no, they cannot.  

If the OC does not still own the account, then they are absolutely lying to you because they cannot ever report a balance still owed if they sold the account.  

Plus, there are other factors to consider....how old is this debt?  You said it's an older account.  Negative reports can only stay on your report for up to 7.5 years from the date of first delinquency, unless it is included in bankruptcy.  

[FireMedic1]

From @RobertEG 

The statutory basis for the required update is FCRA 623(a)(2), which imposes a duty on any furnisher to promptly update prior reporting so as to maintain its current accuracy.

Once a debt has been paid to the satisfaction of the creditor, regardless of the amount they chose to accept as satisfaction of the debt, there is no more debt due to the OC, and no more debt subject to continued collection by a debt collector.  Ergo, each must promptly update their respective reportings to $0.

How either can assert a continued debt or amount remaining under collection once they have accepted payment as satisfaction of the debt defies simply logic.

Perhaps they are confused by their separate reporting obligation to the IRS, via a form 1099c, if the amount of the cancelled debt is $600 or more.

That reporting is unrelated to credit reporting.

As for filing a comlaint with the CFPB, if the facts of the case used to support a violation of the FDCPA or FCRA are not contested, then no judicial review is needed, and they can intervene without need to bring legal action on behalf of the consumer

The facts supporting their failure to have complied with the FCRA in this situation appear uncontested..... the debt is satisfied.

The only possible exception I would see is if the OC accepts an amount AS satisfaction of the debt with them, yet the debt collector separately asserts that some fee or amount is separately obligated to them based solely upon their debt collection activities.

If they were to make such an assertion, they would be in violation of FDCPA 808(1) unless there is some specfic authorization in the account agreemment creating the debt, or some provision of state law that entitles their collection of any such amount. 

[FireMedic1]

From @RobertEG 

The statutory basis for the required update is FCRA 623(a)(2), which imposes a duty on any furnisher to promptly update prior reporting so as to maintain its current accuracy.

Once a debt has been paid to the satisfaction of the creditor, regardless of the amount they chose to accept as satisfaction of the debt, there is no more debt due to the OC, and no more debt subject to continued collection by a debt collector.  Ergo, each must promptly update their respective reportings to $0.

How either can assert a continued debt or amount remaining under collection once they have accepted payment as satisfaction of the debt defies simply logic.

Perhaps they are confused by their separate reporting obligation to the IRS, via a form 1099c, if the amount of the cancelled debt is $600 or more.

That reporting is unrelated to credit reporting.

As for filing a comlaint with the CFPB, if the facts of the case used to support a violation of the FDCPA or FCRA are not contested, then no judicial review is needed, and they can intervene without need to bring legal action on behalf of the consumer

The facts supporting their failure to have complied with the FCRA in this situation appear uncontested..... the debt is satisfied.

The only possible exception I would see is if the OC accepts an amount AS satisfaction of the debt with them, yet the debt collector separately asserts that some fee or amount is separately obligated to them based solely upon their debt collection activities.

If they were to make such an assertion, they would be in violation of FDCPA 808(1) unless there is some specfic authorization in the account agreemment creating the debt, or some provision of state law that entitles their collection of any such amount.