A controversial and growing partnership between debt collectors and banks that profits both has been going on. Those card offers are actually tied to the collection agency that has had to write off the debt after the statute of limitations has passed. The debt companies typically agree to cover losses to banks if borrowers stop paying on their new debts incurred with their shiny new plastic. The credit-card agreements essentially create assets out of thin air for the banks and debt collectors.
And the Feds are actually doing something about it
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.
But Banks only get their Wrist Slapped
Bank officials last year agreed to a $3 million settlement without admitting or denying wrongdoing. In 2008, CompuCredit agreed to return more than $114 million to customers after the Federal Trade Commission accused the company of deceptive practices that included failure to disclose high credit-card fees and failure to tell customers that accepting a Majestic credit card—emblazoned with a Visa Inc. logo—essentially enrolled them in a debt-repayment program. The company didn’t admit to any wrongdoing in the settlement.
It’s like paying TWICE
People who stop paying bills earn lousy credit ratings but eventually are freed of old debt under statutes of limitations that vary by state and range from three years to 10 years from the last loan payment. But if a debtor agrees to make even a single payment on an expired debt, the clock starts anew on some part of the old obligation, a process called “re-aging. Now they have a lousy credit rating and wind up paying back the debt! By restarting a debt’s statute of limitations, the collectors have years to retrieve payments.
Hey Banks another way to make assets our of thin air and collect from the willing Sheeple
Card Acquisition LLC says on its website that the Sioux Falls company’s Affirm credit card can help debt collectors wring profits out of seemingly lost causes. The cards give “the debtor a positive way to settle their debt,” the website said. Company officials didn’t respond to calls for comment.Last year, West Virginia Attorney General Darrell McGraw barred Jefferson Capital Systems, the debt-collection unit of CompuCredit, from offering state residents an Emblem credit card through the company’s “Fresh Start Solution Program.”Mr. McGraw said the program was “abusive” because people didn’t realize they were agreeing to pay debt that had expired.
Yet these folks are still screwed
Mr. Carpenito’s credit card from CompuCredit carried the name of Monterey County Bank, the Federal Deposit Insurance Corp. accused Monterey of helping Tighorn Financial Services LLC disguise efforts to resurrect expired debts through new credit-card offers. Tighorn, a debt collector based in Sioux Falls, S.D., didn’t return calls for comment.
Angela Hoover, a 47-year-old laboratory assistant from Strasburg, Pa., said she was ready to sign up for an Emblem credit card in November. After reading the offer letter three times, she realized she would have to pay $434 in old debts before she could get the card. The letter’s “legal hogwash” was confusing, she said. “I am just grateful I didn’t accept it.”
via Price of Getting a Credit Card Is Paying Expired Debt – WSJ.com.