Debt Collection Cease and Desist Letters: The Unintended Consequences
The astounding growth of the Internet and social networking has made information — and more importantly, mis-information — easily accessible to today’s consumers. One of the key areas of misinformation and misunderstanding: “Cease and Desist” communications.
Under Section 805(c) of the Fair Debt Collection Practices Act, a consumer has the right to request, in writing (that’s key), that a third party collection agency cease and desist from further contact regarding an alleged debt. It is important to note that, absent contrary state law, this regulation does not apply to creditors. Per section 803(6), the FDCPA applies only to those who collect “…debts owed or due or asserted to be owed or due another.” Therefore, a creditor collecting on debts owed to itself (assuming the creditor does not use the name of a third party to collect its debt) is not considered a debt collector under the FDPCA and is not bound by its contents.
There are many repercussions to sending a cease and desist to a creditor or to a debt collector – repercussions that are often not expected or anticipated by the consumer. While the consumer may experience what he believes is a benefit – the collection calls stop – there are also some unanticipated consequences. It’s important for consumers to understand this.
First: Let’s say a debtor sends a cease-and-desist letter to a creditor. From my experience, more of today’s larger lending institutions – e.g., creditors – have a policy of adhering to the FDCPA. This is not a mandate, but an internal policy decision by the individual institution, since creditors are not legislated by the FDCPA. Since the avenue of open communication has effectively been shut down, many institutions will forward the account immediately to a law firm for litigation. What had started in the consumer’s mind as an immediate way to halt communications has now turned into an unintended consequence: a lawsuit.
Second: What if litigation is not the immediate course of action? Some creditors will stop making phone calls, stop sending letters, and simply allow the account to charge-off. While this stops the collection calls and letters, it also results in a negative mark on the consumer’s credit report. This will have a negative impact for much longer than if a simple repayment agreement had been reached.
Finally (there are other effects but for the purposes of this blog we will limit my list): The creditor may place the account in a holding queue for future sale. While this may not seem to be a major impact, it can be. When this measure is taken by a creditor, it ensures that the particular line of credit will have no chance of being re-opened in the future. In addition, once sold, any room to negotiate on interest rate, fees, etc., is removed; the new owner of the account has no control or influence on these types of factors. While not necessarily a good option for the consumer, it is a very good option for a creditor. It allows the creditor a guaranteed return on these accounts, using a time-value of money-factoring, and also ensures that their former customers will be dealt with fairly and professionally.
And what about those cease and desist letters sent to a third party debt collector? The single most important proposition for consumers to understand is that the cease and desist impacts only the third party collection agency who receives it, not all future agencies who receive that account if it continues to go unpaid (this is supported by caselaw and I can provide upon request). This once again shows that the “want to stop those annoying collection calls” mentality by those advising and advertising to today’s debtors is misinformation. While it may stop the calls from the collection agency in direct receipt of the cease and desist letter, it will not stop calls from any other debt collector who is asked to collect on the account. Additionally, today’s collection agencies are well equipped to forward accounts where they receive a cease and desist to a local counsel for suit to be initiated should they be instructed by their client to do so. The consumer ends up in court when more likely than not, they were simply tired of the phone calls and letters and would not have followed the flawed advice had they realized the true implication of sending a cease and desist letter.
In conclusion, I strongly suggest to any consumer who is contemplating sending a cease and desist letter to work harder to resolve the account with the Creditor or third-party debt collector. This will hopefully avoid litigation and the stress associated.
Howard A. Enders, Esq. serves as President and COO of Phillips & Cohen Associates, Ltd., a national collection agency specializing in Business Card, Deceased, Cease & Desist and Debt Management. Educated at University of Delaware and Widener University School of Law, Mr. Enders has overseen the growth of not only Phillips & Cohen Associates from one office at inception to five domestic and two international sites comprising approximately 400 employees, but also PCA Acquisitions V, LLC, a national debt buyer specializing in niche portfolio acquisition.
About Phillips & Cohen Associates
Phillips & Cohen Associates, Ltd. is a full service accounts receivable management company providing customized services to creditors in a variety of specialized market segments. For more than a decade, the company has served as the industry leader inspecialty services such as Business Card, Deceased Account Care, Cease & Desist, and Debt Management collections by establishing processes based on proven results. Phillips & Cohen Associates is headquartered in Wilmington, DE, with additional offices in Colorado, Nevada, Florida, and New Jersey, as well as international offices in the UK and Canada. For more information about Phillips & Cohen Associates visit http://www.phillips-cohen.com.
This is a poorly argued attempt to induce consumers into foregoing their rights under the FDCPA.
First. It makes no difference whatsover whether the consumer sends a cease communication letter to the creditor. If the creditor’s intent is to file suit, it is going to file suit. I know of know business model in the banking industry that conditions the filing of suit on whether the consumer has presented an invalid, meaningless cease communication directive.
Second. the consumer’s credit report is damaged when the original delinquency is placed. Whether a collection is paid, not paid, settled or otherwise, the creditor or collector leaves the derogatory tradeline in place so as to provide a lingering reminder to the consumer, and to continue to inflict damage upon the consumer even after the creditor has been made whole. The inference that a charge-off remains on a credit report longer than other derogatory information is simply untrue.
Finally. Selling a debt to a junk buyer guarantees a return on the accounts? How good, exactly is a couple pennies on the dollar? When the creditor refuses to settle at 35-40% with the consumer, then turns around and sells the debt for a fraction of that, there is much more at issue here than return on investment.
In one final attempt to intimidate the consumer into allowing herself to continue to be abused by third-party collectors, the writer attempts to convey the impression that cease communication letters are really meaningless, anyway. The account will simply be forwarded to another collector, and another, and another.
Consumers, give this article the skepticism it deserves. After all, it comes from the pen of a debt collector, whom even when trying to feign concern for the consumer, sadly fails at the task.