Can Credit Card Companies Collect Debt?
Credit card companies typically package their bad debts and sell them to collection agencies for recovery. Once the company sells an account, it loses ownership and, should the debtor decide to pay off the outstanding balance, he must make his payment to the legal owner of the account -- not the credit card company. Before credit card companies sell debts, however, they put forth considerable effort to collect them.
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Significance
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A credit card company's entire business model is based on collecting debt. Every time a cardholder makes a purchase, the credit card company pays the merchant and the consumer incurs a debt that must be repaid to the credit card company. The credit card company makes a profit by charging interest and fees on their purchases. In this regard, the company collects debt every time a cardholder makes a payment.
Features
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When a cardholder's payment is late, his credit card company will notify him of the late payment by telephone, mail or e-mail and request immediate payment. Should the individual still fail to do so, the frequency of the credit card company's calls and letters will escalate.
Most credit card companies have a collections department that handles debt recovery. A credit card provider can transfer a consumer's account to the collections department at any time after he misses a payment.
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Facts
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Some credit card companies have collection agreements with third-party agencies. These agencies differ from in-house collections departments in that the agency keeps a percentage of whatever amount it recovers. If a credit card company has a contract with an outside collection agency, it retains ownership of the original debt but loses a portion of the amount owed to the collection agency.
Time Frame
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While all credit card companies must collect debt to make a profit, not all debtors will pay their credit card companies. The older a credit card debt grows, the harder it is to recover. Credit card companies know this and will devote time and resources to collecting delinquent accounts for little more than six months before charging off debts. After the company charges off a debt, it typically sells the debt to focus on more productive accounts.
Considerations
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In cases of identity theft, credit card companies cannot collect debts from the victim. When an identity theft victim provides the company with a copy of a police report validating his claims, the company usually writes off the debt as a tax loss. Continuing to pursue the consumer could result in stiff penalties from the Federal Trade Commission.
Another scenario in which a credit card company cannot collect a debt is when a cardholder dies insolvent. Individuals who are insolvent have debts that exceed their assets. Although the credit card company can file a claim against the deceased's estate, it is unlikely to recover any outstanding balance the cardholder owed.
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References
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