Collection Agencies Should be Wary of SIFs: ACA

The accounts receivable management industry’s largest trade group, ACA International, says that settlements-in-full (SIFs), which are growing in popularity among their members, have some hidden pitfalls that some in the collection industry fail to realize.

“SIFs may look today like a gold nugget,” ACA CEO Rozanne Andersen and board member Robert Tavelli wrote in a letter to insideARM. “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.”

Tavelli, owner of NCCS, Inc. in Santa Rosa, Calif. and immediate past president of the  California Association of Collectors, explained that several years ago in the medical industry, there were basically insurance companies and consumers who paid the bills, and health care providers were able to collect most of what they were owed. But insurance companies have cut reimbursements, are often paying late and more people are paying late or not at all, leaving health providers in a situation in which they are now recovering only a small percentage of what they are owed, with more accounts being turned over to contingency collection agencies, some of which are settling the debt in full for much less than what was initially charged.

“People are taking less responsibility for themselves,” Tavelli said. “They’re not following through with the payments like they used to.”

He added that as underpayments grew, healthcare rates went up in an attempt to cover the difference.

By settling for less than what’s owed, consumers are left wondering if they were overcharged in the first place, according to Tavelli. It also makes consumers question what they really owe. More recently, attitudes in the collections and credit card industry have followed the same trend.

Consumers who have gotten too deep into debt can file bankruptcy if payment issues can’t be resolved, Tavelli said. But by accepting SIFs too easily, collection firms aren’t pushing consumers to consider this step.

InsideARM’s most recent Credit & Debt Collection Industry Confidence Survey showed that 40 percent of ARM company respondents are using more SIF offers as a collection strategy in the recession, although the rates differ among industry sectors (“SIF Strategies Differ Between Collection Agencies and Debt Buyers,” Feb. 23).

It’s not that SIFs don’t have their place for individual or extreme cases, Tavelli said. But a wholesale movement to SIFs means higher rates for those who do continue to pay their debts. Additionally, this also hurts the prices that firms can get when selling debt and impinges on the value of debt already purchased or assigned to collection because the expected collections may never be made.

Tavelli added that some of the consumer protection laws have also gone too far. Most collection firms and their employees are very careful to help customers resolve debt, not to treat consumers unfairly, he said.