Settlement Playbook with Issuing Creditors

By Courtney Dodson

Characteristics of issuing creditors

An issuing creditor is a financial institution, like a bank or credit union, that extends loans in the form of credit cards, personal loans, and more. While there are many issuing creditors to choose from when borrowing money, most share some similar characteristics. Typically, these creditors are some of the largest institutions in the credit card industry. When obtaining a loan from one of these companies, a typical interest rate can fall anywhere from 13-23%. Issuing creditors are usually well-established and set in their ways.

Issuing creditors and delinquency

Different types of creditors vary in the way they approach delinquency, which is when a borrower has ceased payments toward a debt. Delinquency can lead to many negative consequences, including a damaged credit report, inability to take out future loans (including a mortgage), and possible loss of collateral or assets. 

A few key characteristics for issuing creditors dealing with delinquency include:

  • 90 days after delinquency, the bank reaches out with an initial settlement offer.
  • 120-180 days after delinquency, the bank extends optimal settlement offers. 
  • Settlement percentages range from 25% to 40%. 
  • The bank may request information like income, expenses, bank statements, and tax returns. 
  • After 180 days, the bank will likely sell your debt to a debt buyer.

If you have a loan from an issuing creditor, you’re unlikely to negotiate a payoff deal while remaining current with your payments. If you become delinquent on those payments, however, creditors usually become open to debt settlement options. Your debt is considered an asset for a creditor when you successfully make payments toward it, but if you can no longer make those payments, the creditor has to write the debt off as a loss instead. As the timeline approaches for your debt to become a loss (which is typically six months or 180 days), banks and other issuing creditors are more willing to negotiate lower settlement percentages to recover at least part of the loan. For example, many major banks are willing to offer a 40% settlement rate, in which you are responsible for paying off 40% of your debt owed. Some banks may settle at 30% or even 25%, but these percentages are much harder to obtain. 

Because issuing creditors tend to be large and well-established, their policies are consistent and may require more documentation than some other types of creditors. Be prepared to supply financial information, including income, expenses, bank statements, and tax returns. The creditor needs an idea of your overall financial situation to determine how collectable you seem. For instance, are you paying your mortgage on time? If so, you may be more collectable than someone who pays rent because your home is considered an asset. Similarly, are you making car payments on time? Depending on the creditor or third-party debt collector and how collectable you appear, your settlement offer may differ. 

If you make no payments on your account for 6-8 months and the issuing creditor has charged it off, they may opt to keep your account rather than sending it to an outside collection agency. This means you’ll hear from and potentially work with the issuing creditor’s recovery department—which may be aggressive—rather than a third party. Alternatively, the creditor may sell your debt to a debt buyer. Debt buyers purchase debt that is considered difficult to collect for pennies on the dollar, allowing them to earn a profit on any money they manage to recover from the borrower. Since debt buyers pay very little to acquire delinquent accounts, they are also usually willing to negotiate settlements. Read more about how debt buyers operate

Overall, negotiations with issuing creditors tend to be uncomplicated. The best advice to follow as a consumer is to clearly communicate your financial distress and avoid stating your ability to pay debts. This should help you obtain a more favorable settlement percentage. 

Risks and benefits of working with issuing creditors

Obtaining a loan from an issuing creditor is typically a straightforward option. Using a well-established bank can also result in benefits during hard times:

  • Some banks reduce interest rates to almost zero during times you cannot make payments.
  • Some banks reduce settlement rates during economic recessions.

If you do become delinquent on your account, the issuing creditor is likely to reach a settlement agreement with you to make it easier to pay off your debt. A disadvantage to working with an issuing creditor could be dealing with their collection teams, who sometimes stretch the truth to collect more money or to collect it more quickly than necessary. 

If you need help connecting with your creditors, Kredit can help.

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