Bringing Expired Debt Back to Life. A controversial and growing partnership between debt collectors and banks brings back subprime lending through the revival of legally expired debt.
How it works: once a debt has legally expired, you have no obligation to make any payments on it, but if you can be induced to make any further payment, the clock starts over again, and the debt is live. One way to induce desperate customers is to offer them a new credit card, under the condition that they make a payment on the old debt. Once they do that, they are then stuck with paying back part or the entirety of the old debt with high interest rates. 'The cards, born a decade ago, are gaining new momentum as debt-collection firms look for new ways to collect, said William Weinstein, chief executive of Weinstein & Riley, a Seattle debt collector. No one knows how many of these credit cards, usually stamped with the MasterCard logo, are in people's wallets. MasterCard declined to comment.'
'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.
Many U.S. banks, hungry for new revenue streams, are eager partners. They receive fees and higher-than-average interest rates by granting debt collectors access to their license with MasterCard. The debt companies typically agree to cover losses to banks if borrowers stop paying.
Some lenders say borrowers have a moral obligation to pay their debts even if they are no longer legally responsible. Others are leery about subprime borrowers. But the debt-driven credit cards show some banks tiptoeing back into subprime lending after suffering big losses during the financial crisis.'
'Genesis Financial Solutions, of Beaverton, Ore., said it was opening about 100,000 new accounts a year in its "Balance Transfer Program." Unlike typical balance-transfer offers, where consumers are lured with low interest rates to move credit balances, Genesis borrowers move expired debts onto the new card.'
'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. Other issuers still can do business in West Virginia. Some companies are concerned regulatory scrutiny could slow growth.'
posted by Tell Me No Lies at 5:42 PM on January 4