Credit card companies are in business to make money. When they issue you a credit card they make money by charging the merchant a transaction fee every time you use your card, and they earn money if you carry a balance or incur late payment or other credit card fees. Offsetting this income are their costs for processing payments and an expected amount of ‘bad debts’.
Reducing Their Credit Card Portfolio
Credit cards companies can, and often do, sell a portion of their credit card portfolio. They may do so for business reasons. Perhaps they feel they are over-exposed in one geographic area or type of account or they may need funds to invest elsewhere. In this case they may sell a block of accounts to a debt purchaser or another credit card company altogether.
Sending Old Debts To Collection Agencies
Banks and lending institutions expect that a percentage of their loans will become uncollectible. Having said that, they still want to recover as much of their original loan as possible before they ‘write off’ your account. When you are late making your credit card payments your credit card company will first attempt to collect from you directly. This will begin with an overdue notice on your statement and may proceed to collection calls from your lender. If you ignore creditor’s notices or their collection calls then they will typically proceed in one of two ways:
- assign your debt to a debt collection agency to collect;
- sell your account outright to a debt purchaser.
It is bad for business for a retail bank to be hounding people to pay old accounts. The banks consider the old accounts a cost of doing business so they minimize the loss (and negative public relations) by sending the bad accounts to businesses that specialize in the collection of unpaid accounts.
Why Your Bank Would Sell Your Account Rather Than Attempt Collection
Collection agencies make money whether they have been ‘assigned’ your account or have purchased it outright. Agencies who are collecting accounts on behalf of your lender for a fee typically earn between 25% and 60% of the original debt depending upon how old the account is. For a lender the decision comes down to how much time and effort they want to continue to put into your overdue account compared to what they expect to recover. Keeping track of your account and processing reports from collection agencies still requires staff so uncollected, overdue accounts continue to cost them money. At some point, they decide that is makes more sense for them to take a few pennies now rather than wait for perhaps a few more pennies down the road.
When Your Credit Card Debt Is Sold To A Debt Collector
As a consumer, you have certain rights if your debt is sold to someone new:
- You must receive notification of the sale.
- Unless your contract allows otherwise, the company purchasing your debt must abide by the original terms of your agreement.
Just because your account was sold for less than the original debt however, does not mean you are not liable for the full balance. These agencies will move quickly, and aggressively, to collect as much as possible in order to increase their profit. You should also be aware, that even though these accounts have been sold, the collector may not have all original documentation on your loan. They will likely only receive information regarding your balance and perhaps recent transactions and collection attempts. If you feel the information they have is incorrect, you have the right to demand proof of their claims.
It is not usual for old accounts to be sold more than once. It is possible that your account could start with one collection agency and end with another. Always ask who you are dealing with and ask for proof they are authorized to collect on the debt before making any payments. Also, if you agree to a repayment plan with either your original creditor, or any collector, make sure to keep your documentation in the event your account is sold.