Credit card companies are just like any other business – they’re in it to make money. Between the interest on your payment, late payment penalties, and transaction fees, Visa, Mastercard, and other credit card companies make a profit in exchange for extending you a line of credit. Some of this profit is absorbed, however, by overhead costs and overdue accounts. In an effort to retain profitability, credit card companies will often sell off some of their lines of credit. Here’s what you need to know if your credit card debt is sold to a collector or debt purchaser.
Selling Debt to Mitigate Loss
If a credit card company feels they have too many overdue accounts, they may decide that their best bet is to sell a block of accounts. Also, sometimes a company requires the funds in the short term for other investments. In most cases, if a credit card company deems a certain line of debt ‘uncollectible’ they may decide to cut their losses and receive a fraction of the original amount. When you have recurring late payments on your credit account, and if you’ve ignored a number of notices, your creditor usually has the option to hand hour account over to a firm specializing in debt collection or sell it off altogether.
Who’s Buying Your Old Debt?
It’s important to understand the distinction between having your account assigned to a collections agency and having it actually sold. When a debt collection agency is assigned your debt, they receive a fixed commission of 25-60% of the amount owed. This is good business for them because it is not their original investment and they have specialized staff and (usually more aggressive) procedures for collection. Often, this is a credit card company’s first option. However, if the debt continues to go uncollected, they may decide it is wise to sell your debt to another credit card company or debt purchaser. These entities buy your debt at extremely low rates with the hope of pursuing collection for a profit.
What Happens When Your Credit Card Debt is Sold
A common misconception in a debt sale is that you, as the consumer, are now liable for less debt. When your debt is sold, even if it is resold multiple times, you still owe the full original amount. When another entity buys your debt, they will be motivated to collect as quickly as possible to minimize their loss. It is also likely that a debt purchaser will not have all of the original documentation. If you think they have incorrect information about your debt, it is critical that you demand they show proof for their claims.
It’s also important to know that you do have rights in this situation. Specifically, the law preserves your rights as a consumer to receive notification when your debt is sold and to maintain the terms of your original agreement (unless your contract allows otherwise). This is important because if you are looking to pay down debt to restore your credit score, you must pay the current owner of the debt, not the original lender. It is possible that your debt can be sold multiple times, because your account could be handled by multiple collections agencies before you pay it off, so be sure to keep track of all relevant documentation. Further, you should always ask for proof that a collections agency or debt purchaser is actually authorized to collect before you send any payments. For example, if you are under Automatic Stay protection during a bankruptcy, collectors may NOT attempt to collect any money from you.
If you are being harassed by debt collection agencies, contact Las Vegas bankruptcy attorney DeLuca & Associates at (702) 252-4673 for a free consultation today.