It was not long ago that I sat in a room talking with a prospective client. He was going to have me do collection work, which is my bread and butter, for his medium-sized business. His business is expanding from a regional business to what would become a national business. He had a number of concerns that we addressed. When we got down to how we would deal with his receivables, he asked me a question about writing demand letters in advance of filing suit. I was able to talk him out of it, but this is not the first time I have dealt with clients who want demand letters sent, and this will probably not be the last.

I have often wondered what a credit manager, or any other creditor, imagines that a demand letter will do, or accomplish. I have always suspected that some people believe that these letters are devastatingly effective, or at least have some effect. I would imagine that a new credit manager, fresh from business school or promoted from elsewhere in the company, would view the effect of a demand letter something like this little vignette:

Danny Deadbeat strolls out early on another beautiful morning on Liability Lane. He strides out to the mailbox, whistling a happy song (probably "Pennies from Heaven"). A light breeze is blowing across from Lake Nopaydabill, the flowers are all in bloom, and there is not a cloud in the sky. He pops open the mailbox, and amongst the checks from his business partners, letters from friends, admirers and relatives, and magazines carrying ideas of great importance, is a grim, somber letter with the name of a law firm. "Whatever could this be?" he wonders.

He opens the envelope with trepidation. It is a letter from a lawyer. He owes a debt! Whimpering, as if gut-punched by a strip club bouncer, he falls to his knees. Could it be true? Could his whole happy life be a sham? The sky darkens quickly. Rainclouds gather and the first few cold drops spatter on him. He crumples the letter, his tears mixing with the rain. Life...has no more meaning. A letter from a lawyer, he owes a debt! Since his life is now effectively over, he must end his life and pay the debt. No! He must pay the debt, and then end his miserable existence. Yes, that is how it must be...

This is complete nonsense, but a nice fantasy. But, surprisingly, it seems to match up with many people's expectations of what a demand letter will do. I expect that the receipt of a demand letter is quite a difference occasion than the picture presented above. My version of the vignette would be somewhat different:

Danny Deadbeat wakes up with his usual hangover for company. His seventeen children have been squalling since daybreak, and his wife left several days ago with his girlfriend to go shopping. They have not been heard from since. Bleary-eyed, he walks out the door of the house and dodges weeds growing from dubious clumps on the lawn, plastic tricycles with only two remaining wheels, and small little rivulets of oil leaking from his ancient Chevy up on blocks in the driveway. He reaches into the overstuffed mailbox and discards the supermarket circulars and the demand letters from lawyers and collection agencies. He is looking for the credit card offers from those credit card companies still undisturbed by a credit rating that shows he has clearly not paid a bill in his adult life. Later that evening, a cold wind blows the sale flyers and demand letters down the block...

Demand letters just don't work. The fundamental problem with the demand letter is that we all get too much mail. Every day when I get my mail, I am astounded at the sheer amount of trash that the mail carrier has had to haul. I cannot remember the last time a friend or relative has actually written me a letter with pen and ink. I get magazines, mostly about travel, airplanes, and other things that interest me. Since there are so many avenues to use the information in my junk mail, I bring most of my mail to my shredder and shred most of it unopened (I go through a lot of shredders this way, due to the volume of the junk mail). Mass-marketers employ people whose entire careers are dedicated to getting me to open envelopes using one clever trick or ruse, or another. I have to imagine that a demand letter has no great chance of survival against these great masters of this art.

Even if a demand letter were to be opened after making it through its competition in the mailbox, I cannot imagine that my letter is any surprise to the debtor. I can count the rare occasions that a debt was actually a surprise to a debtor.

There are, of course, great stories and tales of demand letters that got results. My office once settled a case worth six figures on a demand letter. These things do happen; however, they are so infrequent that the odds of this happening are similar to a lottery. Since the lottery has been called a tax on the ignorant, then so too must the practice of sending a demand letter be an exercise of futility, and a tax on the hopeful but inexperienced.

Further, the sending of demand letters can cause other problems. First and foremost, a clever debtor in a commercial situation will file suit in some far-off jurisdiction against my client, the creditor. In commercial situations, this is not at all uncommon. Clearly, the debtor knows what is owed but the costs of retaining a lawyer in some far-away state exceeds the value of the debt. The clever debtor then will succeed in his tactic of suing his creditor and thereby forces his creditor to relent and leave the debt unsatisfied. This is not as uncommon as most people would think.

There are also regulatory issues. The Federal Trade Commission has a standard requiring meaningful involvement of the attorney who writes the letter. This requires the writing attorney to have some knowledge of the case, as opposed to being a mere letter writer. The heart of this matter is that if a lawyer writes a letter indicating that he has some knowledge of the situation, or that his client has asked him to write a letter about a debt, the lawyer must be writing something about which he knows nothing. If the lawyer knows nothing, and is writing from a list of names and addresses, then the Federal Trade Commission has acted most unkindly to lawyers who are in the business of mass-mailing demand letters. As a result, I will no longer do demand letters in cases for which I have not been retained. There are others that are still doing this, and I will not criticize what others do-I just will not do it myself.

Another legal quagmire is the Fair Debt Collections Practices Act. Admittedly, most things this office does are in the commercial venue. Therefore, the Fair Debt Collections Practices Act is always not applicable. This does not keep debtors from filing suit. Luckily, and in the Fourth Circuit, judges are now onto this game and applying attorney's fees to debtors who are using this tool improperly and without a basis.

Moreover, there are some demand letters that are just plain bad. In a course I have taught for NACM East Coast, I spent a good amount of time analyzing a few such letters. There are letters from lawyers that are truly remarkable. One example is a letter from a lawyer that says: "Please send us your payment now" and nothing much else. I have to wonder if this has ever worked. Another letter, going the opposite direction to maximize language, indicates that the lawyer is "...desirous of disposing of this claim in an immediate fashion." Plainly, this lawyer has just come from watching a production of Guys and Dolls. I also have exhibited letters which are from law firms but do not contain a signature or contain one that is either stamped or from an "administrator;" these cannot ever be taken seriously or be effective.

Further, in that course, I have shown letters that look like a lawyer wrote them but plainly are not; they seem to be from collection agencies with names that sound vaguely like law firms. Nothing makes a legitimate debt look more illegitimate than a clearly deceptive letter. Not to mention some of the language in this letter-one of my favorites demand full payment within seven days; otherwise, "...we will notify our client of your refusal to pay." Doesn't the client already know about this non-payment? Some of these letters also indicate that they are not the creditor and neither do they represent the creditor, but somehow the "account has been transferred" to them. Some of these letters indicate that this is a "formal demand." Was it delivered by a butler? These are but a few examples.

So, to summarize, writing demand letters is an ineffective way to prove very little, and will usually be ignored. It can, on occasions, get one sued or cause one's client to be sued. When contrasted with the alternative, merely filing suit, I am astounded that I am still requested to write these letters.