Pre-litigation demand letters have become a “scourge” on the industry, with lawyers sending as many as 10 demand letters for every lawsuit they file against a collection agency, according to a panel of industry experts who spoke during a webinar hosted earlier today by AccountsRecovery.net.
Lawyers are using demand letters like “spaghetti,” throwing as many as possible against the wall, hoping that collection agencies will settle rather than run the risk of having a lawsuit against them. But the industry must stand up for itself or run the risk of backing itself into a corner and only seeing the number of letters continue to increase, said the panelists during the webinar, which was sponsored by WebRecon.
“If you don’t push back, it increases the cost of poker going forward,” said Charity Olson of the Olson Law Firm, noting that the amounts being demanded to settle threats in a demand letter have increased from around $2,000 to as high as $5,000 recently. “We’ve backed ourselves into a corner by settling too quickly.”
Avoiding a quick settlement was a key strategy cited by the panelists as a way for collection agencies to fight back. Lawyers are looking for quick settlements and the more work they have to do on a case, the less likely they are to continue pressing forward. Lawyers are using TV commercials and Internet ads to attract potential clients and with a steady stream of prospects coming through the door, lawyers are likely to abandon cases that appear to be unlikely to bear any financial windfall. In many cases, the lawyer is not in the same geographic region as the plaintiff, which makes it harder for them to go back and get more information from them.
“You have to make it stale,” said Tim Collins, the chief ethics and compliance officer at Convergent and the owner of Optimized Legal Solutions. “You want to make the plaintiffs’ lawyer go back and talk to the plaintiff.”
When a demand letter is received, it’s important for agencies to have a process for investigating the claims being made and then deciding what to do next. But the investigation should also include looking at the law firm or lawyer filing the claim. Some are known to more likely not to follow through and file lawsuits, instead just slowly fading into the background.
“You have to know absolutely who you are dealing with,” Olson said during the webinar.
The size of the collection agency should not have an impact on the strategy being used, said Kelly Knepper-Stephens, the chief compliance officer at Stoneleigh Recovery Associates. Smaller agencies can use many of the same ideas that larger agencies use when fighting back against demand letters.
“You can still create pain points if you are at a smaller agency with a smaller staff,” Knepper-Stephens said. When investigating a plaintiffs’ attorney, Knepper-Stephens said to call industry lawyers, and ask around other collection agencies to see if anyone has experience dealing with the firm in question.
Those who missed this important event can access a recording of the webinar by clicking here
