What Happens When Credit Card Companies Sell Your Debt

For millions of Americans, credit card debt may be a burden, but for credit card companies, it’s an asset. And like any other asset they own, they can sell it if they choose to.

Case in point: Barclaycard sold $1.6 billion of credit-card balances in the first quarter of 2017 to the privately held personal-loan company Credit Shop Inc.

Transactions like that aren’t unusual these days. Often the accounts involved are ones that the card issuer has decided are too risky for its business model or that are already in delinquency. In those cases, a card issuer may sell account balances for just pennies on the dollar.

Here’s what you need to know, in case your card debt is ever sold.

Why Do Card Issuers Buy and Sell Debt?

Credit card debt can provide a steady and substantial income stream to the lender that holds it. American Express, for example, earned $1.4 billion in interest income in the fourth quarter of 2016 alone.

But some debts are more dependable than others. For that reason, cardholders may pay widely different interest rates, depending on how risky the lender judges them to be. Less-creditworthy borrowers, whose accounts are referred to “subprime,” tend to pay substantially higher rates to make up for the possibility that they might be unable to pay back their debt, and the lender will be forced to take a loss.

Not all card issuers want to assume that kind of risk. But for lenders willing to take it, such accounts can be a lucrative proposition.

For all the current buzz around selling premium rewards and cashback cards to their best customers, credit-card issuers also see opportunities with those who credit is less-than-stellar. Credit Shop’s recent purchase represents the debt on subprime, or “near prime,” accounts that Barclaycard had decided to sell. Credit Shop reportedly also plans to market a credit card of its own within the year and will likely extend the offer to its growing list of subprime account holders.

Lenders that acquire subprime accounts can also try to increase their income by applying pressure on delinquent cardholders to start making payments again. Another alternative is to pitch those customers a balance-transfer credit card that would consolidate the balances held on other cards and reduce the rate they’re paying on their debt.

How Will You Know Your Debt Has Been Sold?

In many cases cardholders won’t know that their debt has been sold until they hear from the new owner or a debt collector calls, demanding payments. A lender that buys your debt can also resell it to still another lender.

What If A Debt Collector Calls?

If you find yourself on the receiving end of a call from a debt collector, the 1997 Fair Debt Collection Practices Act offers some safeguards. For example, collectors aren’t supposed to call excessively or make threats of violence. Debt collectors are also prohibited from impersonating a credit agency or an attorney.

By law, you have the right to demand documented proof of the existence the debt and the amount you supposedly owe. This request must be made in writing within 30 days of the first contact from a collector. During the time it takes to investigate and reply to your request, all calls from the collector must stop.

Debtors also have the right to request that all future contact be conducted in writing. That can prevent disruptive and embarrassing calls at home or at work. Debtors can sue if collectors break any of these laws.

The Federal Trade Commission explains your rights in this situation on its website, https://www.consumer.ftc.gov/articles/0149-debt-collection.

How To Stay Out Of Trouble

You may not be able to do much about having your debt sold, but you can generally avoid tangling with debt collectors if you make your credit card payments on time and don’t let your account balances get out of control.

Under the federal CARD Act, which went into effect in 2010, credit card companies are required to give consumers 21 days from the date the statement mails to make a payment. So aim to pay as much of the balance as you are able to—ideally, all of it if you want to avoid further interest charges—within that time frame each month.

Credit-card companies are also required to provide a 45-day notice before any rate increases. If you receive such a notification, consider paying off the account if you’re able to or transferring your balance to a lower-rate card, which will be less costly to repay.

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