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To Find a Credit Card Debt Solution, We Need to Understand How the Credit Card Companies Operate

A few large national banks account for most of the U.S. consumer credit card debt. Corporate acquisitions are decreasing that number. Co-branded credit cards and affinity/special interest credit cards from your professional association, a consumer group, your college alma mater, or your favorite sports team are owned and administered by one of these companies.

National credit card companies usually charge off their open account bad credit card debts six months after initial delinquency. That charge off activity is closely monitored by the Federal Reserve. According to cardweb.com, about six percent of credit card debt is charged off each year.

Credit card companies deal with their unsecured bad debts by writing them off and losing money on them or getting it back through insurance. What comes back them in collections is new, found money, from which debt collectors can receive generous commissions.

After credit card debt is charged-off, it is typically sold to a junk debt buyer or a company that is a combination of a junk debt buyer and collection agency, sometimes with a law firm’s name (to scare debtors) associated with it.

Unsigned generic agreements are the norm for credit card companies. Good record keeping appropriate for legal collection attempts is difficult with the credit card companys’ enterprise-wide computing systems. These two things are important to consumers attempting to eliminate credit card debt.

According to the Federal Reserve and Business Week, the consumer credit industry increased from $133.7 billion in 1970 to $2.5 trillion in June, 2007. Credit card earnings have been consistently higher than returns on all other commercial bank activities, according a Federal Reserve June 2008 report to Congress.

In addition to profits from high interest rates, according to bankrate.com, [credit card] fee income, the bulk of which comes from penalty fees, accounted for 31 percent of [credit card] profits in 2001, up from 28 percent in 2000.

You can read the whole section about understanding credit card banks in the Credit Card Debt Survival Guide.

Chapter 3: The Debt Collection Industry - Understand the People You Will Be Dealing with  
The Credit Card Banks  
A. The Concept of Contracting and Recontracting
Understanding an unsigned contract of adhesion is the first step to eliminate credit card debt.
B. Credit Card Bank Operations and Customers
Enterprise-wide computing systems make it difficult to keep a paper trail of charges and payments in a credit card account.
C. Delinquent and Charged-off Accounts
The Federal Reserve Bank requires credit card companies to write off delinquent credit card debts on a timely basis; 6 months to a year after they become delinquent.

Educate yourself and become confident with the Credit Card Debt Survival Guide.

Review our growing list of original articles (21) on credit card debt and collections.

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