Loaded Credit Card Offer

Jan 5, 2012 by

The December 9, 2011 Money Counselor blog post “Know Your Limitations” included a caution about unintentionally re-starting the statute of limitations clock that governs the right of debt collectors to obtain court authorization for garnishment or a property lien. Now, according to a December 31 Wall Street Journal article, always creative debt collectors are teaming with MasterCard on a credit card solicitation specifically designed to induce debtors to re-set to zero the statute of limitations clock on an old debt. Once that’s accomplished, the collector may exercise its restored right to garnish wages or bank accounts or obtain a lien on the debtor’s property.

The Pitch

Solicitations in this burgeoning area of debt collection entrepreneurship typically headline a “fresh start” or “balance transfer” opportunity. To obtain the low-limit credit card offered, the recipient must agree to settle—make a specific payment on—an old debt. Often left unsaid completely or clearly is that, while the debt may legitimately still be owed by the recipient of the offer, the right of the creditor to obtain court-authorized remedies like garnishment has expired.

The Catch

If the recipient accepts the credit card offer, the amount of the settlement offered immediately becomes the new credit card’s account balance. If the card owner can’t or won’t pay, once again the creditor has at its disposal all of the usual debt collection weapons, including getting court authorization to garnish wages or bank accounts or obtain a property lien.

Industry Sliminess

I hope I don’t sound cynical in scoffing at the industry defense of this new tactic: It’s merely offering an underserved segment of the market—those with poor credit histories—an opportunity to obtain a credit card. It’s just that I know why debt collection and credit card companies are in business, and it’s not to help people with poor credit succeed. The likelier motivation is what the Wall Street Journal describes as the opportunity to “create assets out of thin air.” As the WSJ further reports:

CompuCredit, a leader in the business, collected about $15 million in newly resurrected debts and fees by issuing credit cards to people with banged-up credit in the first nine months of this year, according to a securities filing. It also has drawn scrutiny by federal authorities for allegedly deceptive practices.

and

Federal authorities have declared some of the offers deceptive because they failed to clearly explain to people they needn’t pay back even a penny of the past debts because the obligations had expired under statutes of limitations set by individual states.

As I wrote in my “Know Your Limitations” post, I’m not suggesting that people should under any circumstances ignore legitimate debts that they can afford, even over time, to repay. However, if you do have overdue debts, it’s wise to make an effort to understand your rights and the limitations on debt collectors’ rights, and to be very, very wary of any and all communications from a debt collector. You can be certain that the collector does not have your best interests on its radar.

And a reminder: You can opt out of credit card solicitations.

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