PFD - Why isn’t it that simple?

[909]

I’ve been reading a few threads where folks can’t get a creditor to agree to delete reporting a derog in exchange for payment.

Why is that? What does the creditor have to gain by not doing a PFD? Wouldn’t they be more likely to get paid if they ceased reporting the derog? Are they just being intentionally mean?

Thanks for any insights that you can share. I just can’t imagine why this isn’t a standard practice.

[marty56]

It should be a no-brainer for a collection agency.  IMHO it requires them to do extra work and maybe it weakens their reputation.

[trusty]

Deleting a legitimate derogatory item is a kind of like a terms of service violation for a creditor.

The creditor - when signing up with the data aggregators - agrees to represent information accurately and completely.

So, in the event that a derogatory item is paid, the update to be made is simply just that... the item is to be reported as a paid derogatory item.

Credit reports and scores are designed to penalize delinquency, regardless of whether a derogatory item is eventually satisfied. So, oftentimes paying a derogatory item after the fact doesn't improve the credit score. Which is why the idea is to get the derogatory item stricken from credit reports.

However, each and every creditor has their own internal policies for how strict their credit reporting will be, which doesn't necessarily take settlement offers into consideration. Rather, when a consumer offers to pay, the consumer has essentially acknowledged the validity of the debt and its reporting.

That's why many have experienced better success with debt validation, as well as the dispute process, prior to a blind faith approach... which essentially tries to get a creditor to illegitimately remove a derogatory item that is otherwise purportedly valid.

So, in order for a creditor to have the credit bureaus delete an item, they have to admit to wrongfully reporting that item, in the first place. Which is quite the disincentive for a creditor that values the veracity of their relationship with the credit bureaus.

Ultimately, there's just no legitimate path to improving the scoring of derogatory items, other than time. Unless of course the derogatory item is inaccurate, in which case, there would be no good reason to offer to pay a debt that is inaccurate.

So, if we're just going to try to do the right thing by paying a valid debt, ultimately the only way it would get deleted is by a creditor circumventing the reporting system, in which case, we have not actually done the right thing by asking for deletion of a valid debt.

So, a studied consumer would do well to utilize a valid technicality - to invalidate its reporting - since that's the only legitimate basis to have it stricken from the reports.

[Revelate]

Not entirely correct: it's not an agreement to report accurate information per se, it's functionally an agreement not to report any mistaken information.

Not reporting a collection account paid or otherwise is not a violation and CA's don't have the same agreements as banks do in my experience.  End of the day there's no legal nor regulatory issue with deleting it, but there is if it's wrong.  There's the difference; it can be argued it's not the *most* accurate representation, but that's not required.

Collection Agencies usually purchase the debt from the OC, not always as there are some in-house and similarly beholden ones, but that's typically why the OC won't accept a payment on something that's out for collection in my experience: they no longer own the debt.  I think a CA's reputation is simply on if they pay their bill (to the lenders) and then whether they get the money or not is irrelevant to their actual performance from a lender perspective.  If they're just servicing the debt, then performance would be tracked but reporting is doubtful.

Could be wrong, I've worked in subprime lending and we had an inhouse collection arm (and actually a number of lenders used us because, well, we got results) but that was an example of outsourcing with a specific agreement: most CA's are just JDB's and they both own and service the debt.

[Anonymous]

Thanks Revelate.  I think the puzzle that our OP is having is, given what you said, there seems to be every incentive for CAs to agree to PFD arrangements -- even to actively promote them.  They'd just emphasize that they won't delete it unless the person pays the full amount.  This way the CA maximizes the chance it will get its money and maximizes the money each participating consumer gives them. It's a powerful carrot in their toolkit in addition to their well known sticks.

Since the CA is a business who's goal is to make profits, why would some CA's refuse to agree to PFDs?  That is the puzzle our OP is having, if I understand him right.

[Revelate]

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@Anonymous wrote:

Thanks Revelate.  I think the puzzle that our OP is having is, given what you said, there seems to be every incentive for CAs to agree to PFD arrangements -- even to actively promote them.  They'd just emphasize that they won't delete it unless the person pays the full amount.  This way the CA maximizes the chance it will get its money and maximizes the money each participating consumer gives them. It's a powerful carrot in their toolkit in addition to their well known sticks.

Since the CA is a business who's goal is to make profits, why would some CA's refuse to agree to PFDs?  That is the puzzle our OP is having, if I understand him right.

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I'm not certain that we can ascribe credit knowledge to CA's any more than we can to the general population.

Also I suspect people asking for PFD's is a very small number compared to the total number of cases.  I think perhaps in 10 years it's possible every CA might do it (or they might sign agreements to disallow it going forward, hard to say) but right now I think it's just a simple education problem.

[trusty]

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@Revelate wrote:

Not entirely correct: it's not an agreement to report accurate information per se, it's functionally an agreement not to report any mistaken information.

Not reporting a collection account paid or otherwise is not a violation and CA's don't have the same agreements as banks do in my experience.  End of the day there's no legal nor regulatory issue with deleting it, but there is if it's wrong.  There's the difference; it can be argued it's not the *most* accurate representation, but that's not required.

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I agree with the premise that credit reporting is voluntary.

However, there's a difference between choosing not to report something, versus actually reporting something that ends up having to be eventually deleted because it turns out to have been, "mistaken information." Essentially, once a derogatory item is reported, it can only be deleted for a valid reason, if the data reporting company is following the program terms of service.

However, if it is in fact a legitimate debt, than a debtor satisfying a debt is not a valid reason to have it stricken from the reports. If it's being reported correctly, than a payment to satisfy the debt is simply to be updated as just that... a paid or settled derogatory item. But, the derogatory history remains.

So, paying a debt does not and cannot very well make the debt, "mistaken information." Rather, paying the reported derogatory item only serves to update it's reporting, for the benefit of posterity. There is no sanctioned path to pay for deletion of a debtor's derogatory history, unless of course the debt was inaccurate.

Regardless of the intent, paying for deletion is essentially backdoor deal, made with the express disregard for the veracity of credit reporting information. It's actually less legitimate than traditional, "credit repair," in that, at least the credit repair process relies on procedures sanctioned to be upheld by actual statutes, to ensure that credit reporting is accurate and complete. Paying for a deletion deliberately circumvents all of that. The only reason it's not illegal is because consumers are not required to report debts against themselves.

Now, personally I think the credit reporting system could be far more equitable and rewarding to consumers that eventually satisfy their debts. There are a lot of positive credit relationships that - after checking a consumer's credit - should probably be reported in a consumer's favor, that are not being reported. Utilities, rental histories, etc. It's not at all equitable to report negative histories without any basis for otherwise reporting positive history.

But, that's not how it is presently structured. Delinquency cannot be fully eradicated just by making a johnny-come-lately belated payment, and in a twisted way... it actually makes sense that the system is setup that way. In the end, everyone has to figure out how to keep their credit history clean; whether it's making sure everything is paid before it goes delinquent; or finding technicalities to have negative histories removed.

Nevertheless, paying a derogatory item is not one of those sanctioned paths. It's just pay... and hope for the best. - Leaving your credit history in the hands of who knows who, and hoping that they play ball, when they have no legitimate reason to use deletion of a valid debt as a reason to procure payment. The debt is either legitimate and stays, or it's inaccurate and should be deleted. It cannot be both, simultaneously.

[Revelate]

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@trusty wrote:

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Nevertheless, paying a derogatory item is not one of those sanctioned paths. It's just pay... and hope for the best. - Leaving your credit history in the hands of who knows who, and hoping that they play ball, when they have no legitimate reason to use deletion of a valid debt as a reason to procure payment. The debt is either legitimate and stays, or it's inaccurate and should be deleted. It cannot be both, simultaneously.

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If that were the case why does FICO 9 discount paid collections?

At least from an algorithmic perspective, there's no difference between a deleted collection under FICO 8 and a paid one on FICO 9; as a result, not certain the market agrees with you on this one as FICO models are backwards looking in terms of lender features.

[trusty]

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@Revelate wrote:

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@trusty wrote:

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Nevertheless, paying a derogatory item is not one of those sanctioned paths. It's just pay... and hope for the best. - Leaving your credit history in the hands of who knows who, and hoping that they play ball, when they have no legitimate reason to use deletion of a valid debt as a reason to procure payment. The debt is either legitimate and stays, or it's inaccurate and should be deleted. It cannot be both, simultaneously.

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If that were the case why does FICO 9 discount paid collections?

At least from an algorithmic perspective, there's no difference between a deleted collection under FICO 8 and a paid one on FICO 9; as a result, not certain the market agrees with you on this one as FICO models are backwards looking in terms of lender features.

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Pay-for-deletion is not mutually exclusive to credit scores. Pay for deletion pertains to whether an item continues to be reported correctly, or not.

Sure, mortgage lenders will continue to require payment of debts, prior to issuing loans. So, perhaps there are improvements being made to credit scoring, that are being implemented for their benefit.

If that's the case, that's certainly a step in the right direction. But, there remain fundamental flaws to the credit reporting system that make paying derogatory items inadvisable.

[909]

Thanks to all for your comments.

CGID, you’re correct in that I’m curious why a CA doesn’t incent PIF in return for deleting the record.

Trusty, I understand your POV, but flexibility can be allowed in execution. If you come in my store asking for a refund for a product you purchased 31 days ago and my stated policy is that refunds are allowed up to 30 days after purchase, I can still refund your money instead of adamantly holding to my policy, esp. if you provide a good reason why you couldn’t come in on day 30, etc.

These points of principle are always up for negotiation when settlements are made in 5, 6 and 7 figures, so holding firm on principle for the debtor who got behind on a $120 bill or moved and missed a bill, etc. seems unreasonable and a path forward that doesn’t harm a person for years should be acceptable.