Debt Collection, Garnishment, Repossession

questions & answers

Question: Can a credit card company sell thier old receivables/ debt for a lessor amount and the new so collection company collect at the old debt rate?

Answer:

Yes, a credit card company can sell their old receivables/debt for a lesser amount then the current or face value, but the full amount of the debt is not impacted.  When you used the credit card, you agreed to the card member agreement when you used the card.  If you went to Best Buy or Costco or Walmart, you got the stuff and someone fronted the money to the store, right?  It was the credit card company.  You now owe them the full amount (plus interest, fees, and court costs if the card member agreement allow for it).  That company can sell that unpaid contract to whomever, for whatever amount they want.  

Here a copy of the applicable term from a relatively recent cardmember agreement.  I just cut and pasted it.  They are almost all the same.  Most car loans, personal notes, and mortgages all have substantially the same thing:

Assignment of Your Account to Another Creditor We may assign, sell or transfer your Account and amounts owed by you to another creditor at any time. If we do, this Agreement will still be in effect unless and until amended, and any references made in this Agreement to "we", "us", "our" or "the Issuer" will refer to the creditor to which we assigned, sold or transferred the Account or amounts owed under the Account. You may not delegate your obligations and responsibilities to us to any third party without our express written consent.

The full answer to this question (based on industry experience) is not CAN they, but rather WHEN will they do it.  The entire credit card industry is participates in the model of charging off bad debt, then selling it at a significantly reduced rate to large investors.  The large ones collect some of the money, then piece it out and sell it to smaller investors, who pay collection firms and attorneys to pursue the debt. 

A bank (credit card company) is required to charge-off a credit card that is not being paid for after 6 months of default.  They cannot just let it sit there and accrue interest and late fees.  When it is charged-off, the debt is then moved to a different part of the balance sheet and usually sent to an outside collection firm for 6-24 months.  The bank still owns the debt at this point.  As of now (early 2009) only a small portion of debtors are actually sued directly by the banks.  This requires an attorney for representation and more spending to pay for court costs.  Banks are in the business of money, not lawsuits.

After the specified time period for collections, they will gather non-collecting debts into groups of similar credit ratings, balance sizes, locations, etc., and sell it off the face value of $20 to $100 million per month (tens of thousands of accounts at a time), usually at steep discounts.  The discount is because of the risk involved in possibly not collecting the full amount owed (because most people settle for far less!), and the present value of future collections.  There is a significant amount of statistics and financial evaluation that is involved in the debt buying industry.

Whoever owns the debt can take whatever remedies the law allows in order to collect it.  Whether they choose to use a collection company to call you, or a law firm to sue you, then the owner of the debt must follow the applicable laws.  Eventually, the debt may work its way down to an investment company who is willing to front court costs and will file a lawsuit against you, if that investor believes they debt can be collected.