If talking to debt collectors is not your idea of fun, take heart. There is a fast-growing alternative for people with overdue bills: virtual debt negotiation.
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Collection agencies are setting up websites where computers do the work of live collectors. Using a PC or a smartphone you can review the claim, set up a monthly repayment plan -- or even make a deal that wipes out part of your debt.
"Some people don't want to have to talk to another person and explain the circumstances," said David Yohe, marketing director at BillingTree, a payment processor that tracks collection industry trends. "Shame is probably too strong a word -- maybe there is slight embarrassment."
Or maybe the shame belongs to the person on the other end of the phone. Harassment and threats by collection agents make the industry a magnet for consumer complaints.
Fair -- if impersonal -- treatment is one of the upsides of dealing with a virtual collector. But there are pitfalls to watch out for also, as the limitations of online collecting make it a poor fit for some bills.
"It has its downsides," said Manuel Newberger, an attorney who represents debt collection companies. "You're depending on computer logic -- you don't have the human empathy factor."
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About 10% of collection agencies use virtual debt negotiation as part of their online portals, according to a survey of 150 companies by BillingTree and the industry journal Inside ARM. Nearly 30% of agencies said they plan to use virtual negotiation, making it one of the industry's fastest-growing technologies.
Collection companies say they are adopting the online systems to reduce the cost of hiring live agents, but that is just part of the reason. Another is to avoid lawsuits, complaints and regulatory hassles. The systems can be programmed to display all the disclosure statements required in the consumer's state. And since the consumer initiates the contact instead of a collection agent, abuses such as harassment and breach of privacy are moot.
"It's a fairly new tool -- the technology behind it is pretty slick," said Nick Jarman, chief operating officer at Delta Outsource Group, a debt collector based in O'Fallon, Missouri. After debtors type in a settlement offer, the system weighs the figure using rules set by the creditor. If the offer is too low, the system may make a counteroffer, or tell the debtor to try again. "It's almost like an actual collector," Jarman said, "without a human behind it."
Based on examples provided by software company Columbia Ultimate -- the supplier of Delta's system -- the pathway to virtual debt negotiation begins at the same starting point as most collection efforts: An old-fashioned letter in the mail. The debtor -- or supposed debtor -- should receive a letter stating the amount sought and the name of the creditor. If virtual collection is an option, the letter will contain a Web address for the collection portal, and an authentication number to use when entering the system.
In Columbia Ultimate's example, the first screen is a standard-looking login page that asks your name, the code number that was sent by mail and some identifying details, perhaps including the last four digits of your Social Security number.
Once access is granted, the next screen shows the amount you owe to the creditor, and a menu of options. The first option: Make a payment.
"The reason you see big buttons here is, we want to make it very simple to make a payment," said Jon Danne, sales manager for Columbia Ultimate.
You may split the entire amount due into two or three payments, or make a partial payment.
Look for Money-Saving Options
In Columbia Ultimate's demonstration, the options to spread out payments via a monthly payment plan or negotiate a partial settlement are not on the first menu. They lie beneath a button bearing the label "Explore options."
Within the option to make a settlement, an input window lets you enter a dollar amount as a payment offer. Using a mock debt for $1,055 as an example, Danne enters $875 as a settlement offer. The computer is not willing to go that low, and kicks back a hypothetical counteroffer of $1,029.
The tool for setting up a monthly payment plan lets him choose the monthly amount, within limits based on the overall length of the plan. "If I put in $1 a month, it's going to deny that," Danne said. A monthly payment plan spreads payments over a longer period than a settlement, but does not offer a discount on the amount due.
The negotiation process can be fine-tuned by the creditor and collection agency. Before making a counteroffer, the computer might analyze data about typical settlement agreements for the size, age and type of debt. If the analysis is more detailed, it might review the payment history of debtors in situations similar to yours.
"There are different models, depending on how much information you want the system to gather," Yohe of BillingTree said. "The intent of the system is to capture as much of the original balance as possible."
If you and the virtual collector reach an understanding, the next step is to go to a payment screen and seal the deal. In Columbia Ultimate's example, there is an option for a credit card payment, but most people in collections use a debit card or electronic check instead.
The payment triggers the system to send you a letter confirming the terms of the agreement -- or an e-mail, if you have given your e-mail address and permission to communicate electronically about your debt. Neuberger called the automatic creation of the letter a boon for the consumer, as the important follow-through correspondence can be overlooked by a collection agent in a rush to get to the next account. In addition, he said, you can take screen shots at any point during the process, to preserve a record of what went on between you and the virtual collector.
Digital has its Limits
Who is a good candidate for online debt collection? Many debts are not open to negotiation, agencies say, and many people being dunned for old debts are unlikely to pay a computer. Online collection is best suited to the willing payer or those able to "self-cure," in industry terms, Yohe said.
If you think there is a billing error or you aren't certain about the amount being claimed, online collection is definitely not the way to go. To dispute a debt, you'll need to speak with the agency and probably correspond with them to make sure your legal rights are preserved. Once you receive a dunning letter, you have 30 days to reply with a letter seeking verification that you owe the debt, under the Fair Debt Collection Practices Act.
Even if the debt is undisputed, you may be better off talking to a live agent. If you're having trouble finding ways to pay, the agent may have solutions you haven't thought of, agencies say. Some people will scoff at the idea of a helpful collection agent, but if you're trying to pay a bill, collectors are in your corner. They might help refile an insurance claim that has been initially rebuffed, for example, or explore possibilities of insurance coverage that you might be unaware you have.
"People might have access to money they didn't recognize," said Roger Weiss, president of collection agency CACi in St. Louis. "A good collector is a great consumer resource, because they talk to 50 or 60 people a day."
The Machine Gets Tough
Then there is the rigidity of the digital world, which can be difficult to deal with. For example, if a payment is late without an explanation, a monthly payment plan will fall through. The agency will demand the entire unpaid balance. A consumer has better odds of convincing a human collector to allow a brief delay than a machine, although some online systems can be set to allow for brief lapses of two or three days, agencies said.
While many collection agencies are adopting virtual collector technology, consumers are in less of a hurry to try it. Fewer than 1% of people dealing with CACi use the online portal, Weiss said -- and many of them do so after getting calls from a live agent.
"I think there's a lot of things a portal might not do for you -- yet," Weiss said. Technological improvements are in the works, however, that will make virtual collection more useful, he added. And consumers are increasingly comfortable taking care of their finances online during spare moments, a trend that could extend to paying overdue bills.
"If it's 1 o'clock in the morning and you can't sleep thinking about the debt," Jarman said, "you can go online and take care of it."
See related: Tips for dealing with debt collectors