Credit Card Debt Survival Guide

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Chapter 3: The Credit Card Debt Industry

Zombie Debts scroll down

Junk Debt Buyers

Buying junk debt has become a big business. Blocks of junk debt are bought and sold by equity firms with individual transactions totaling up to several tens of millions of dollars and more. The basis of these sales is the clause in all credit card agreements which states the credit card bank has the right to sell the account.

According to Business Week:
“Portfolio Recovery Associates [a large national junk debt buyer] specializes in receivables that have been charged off by a credit originator. In 2007, Portfolio Recovery had net income recognized on finance receivables of $184.7 million, an increase of $21.3 million, or 13%, compared to $163.4 million in 2006. Because credit originators and/or other debt servicing companies unsuccessfully attempted to collect these receivables, Portfolio Recovery was able to purchase this debt at a substantial discount to face value. From its inception in 1996 through Dec. 31, 2007, Portfolio Recovery acquired 1,030 portfolios with a face value of $35.3 billion, for $791.6 million, representing more than 16.7 million customer accounts.”

In one recent credit-card-debt portfolio auction buyers started bidding at five cents on the dollar of each debt and eight cents on the dollar won the bid. That was a first generation sale. In other words the credit card bank sold a block of charged-off accounts. There are second, third, fourth and more generations of sales going down to one to two cents on the dollar or less. To illustrate, over three years I was contacted by three different junk debt buyers attempting to collect for the same credit card debt.

The database of accounts that comes with each junk debt buyer purchase usually has minimal account information, which includes each account holder’s name, address, social security number, and balance owed. Junk debt buyers (JDBs) will pay more for accounts with phone numbers.

When a JDB takes possession of your account, they notify you in writing of their ownership hoping to collect. Then, they typically turn that block of accounts over to a collection agency. Or, they use their own in house collection resources. JDBs are not the original creditor, so their collection efforts are covered by the FDCPA and state fair-debt collection and collection-licensing laws.

Junk debt buyers also rely on the numbers. At a few cents on the dollar, they do not have to collect on a majority of debts to make a lot of money. If you use the deny/dispute debt validation strategy with a JDB, its collection agency and perhaps its collection attorney, your debt will probably be downgraded and sold to another JDB. When a JDB attempts to portray itself legally as the original creditor primarily to the credit reporting agencies, this re-aging tactic is sometimes called factoring. The rationale is if they can stay on your credit report for longer than the sevens plus 180 days from the account’s date of first delinquency, your will be more likely to pay them for a deletion of the negative listing from your credit report.

Zombie Debts
NCO Financial is a junk debt buyer that re-ages debts for the purpose of being able to continue to report old debts which have expired either under the state Statute of Limitations for collections or the Fair Credit Reporting Act (FCRA). These “zombie” debts can be 10 years old or more. They can even be old debts covered by a bankruptcy. Their strategy is that you have forgotten about the debt and have discarded any of its documentation; that you will pay them a few dollars just to get rid of them. But once you pay them a few dollars on the debt, you will have re-contracted with them. The statute of limitations will restart, and they will be able to dun you more severely. For a more detailed explanation; Zombie Debts.

JDBs validate your debt with an affidavit from one of their employees attesting to the sale of your account (but not the thousands of others it was sold with) from the OC or another JDB, or they simply give you a copy of a bill of sale. They don’t have your credit card contract of adhesion. They do not have you account details. Their documents will not stand up in court, but that does not prevent their collection attorney from contacting you threatening court action.

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