Be Sure to Get Client Approval Before Settling Collection Accounts

Patrick Lunsford

A brief warning to the ARM industry about offering settlements to debtors: run it by your client first.

A pool service company in Texas has filed a lawsuit in Harris County District Court against a collection agency it contracted to recover past due account balances.

AAA Pool Plastering accused their collection agency vendor of accepting a settlement on a commercial collection account that AAA Pool Plastering expressly rejected weeks earlier. The plaintiff says that the agency was going after a $9,784 debt incurred by another pool business. When the agency brought a settlement offer of $2,500 to AAA, the company rejected it.

But AAA says that the agency two weeks later accepted the settlement payment from the debtor anyway, and deducted its commission fee before remitting the balance to AAA. So AAA is now suing for damages, court costs, and attorneys fees alleging – among other things – fraud.

So this case is kind of small potatoes, and the fraud allegations are a little hyperbolic. But it does serve as a reminder that collection agencies are extensions of their clients. Even now, when settlement is often the best way to satisfy an account, the original creditor still needs to recover enough money to cover their end.

Just remember to run all settlement offers by your clients before even extending them, regardless of whether it’s a large balance one-off – like in this case – or one of thousands that you’re working for a client.