Debt Collectors Resurrect Old Debt By Issuing New Credit Cards

People with credit scores that prevent anyone but their mom from lending them money are suddenly receiving offers that allow them to have a credit card — on the condition that they pay back part of an old debt that they are no longer legally obligated to pay.

These deals are the result of joint ventures forgeed between debt collectors and banks, wherein people with debt that had expired under the statute of limitations are offered credit cards, but only if they pay a portion of that debt.

In just nine months, one company involved in these offers claims to have gotten their hands on $15 million in debt that had been considered dead and buried.

According to the Wall Street Journal, though these sorts of credit cards have been around for about a decade, a growing number of banks are suddenly eager to jump on this bandwagon because the new credit card customers have rock-bottom credit scores, which means they pay more fees and have sky-high interest rates. And if they fail to pay, the debt collector agrees to foot the bill to the bank.

Meanwhile, the debt collectors make a big profit on the resurrected debt, which they purchase for pennies on the dollar.

But for those who receive these offers, they may be stepping into a whole new debt mine field. Because once that dead debt is zapped back to life by their agreeing to pay even a small portion of it, they are once again obligated to pay it. Thus, if they fall into their old ways of spending too much and not paying their bills, the debt collectors could be banging down their door for debts old and new.

Bringing Expired Debt Back to Life [Wall Street Journal/Yahoo]

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  1. midwestkel says:

    Clever girl…

    • Thyme for an edit button says:

      I have to admit, I am impressed by this scheme. I think you’d have to be dumb to fall for it, but I think that’s what the issuers of these cards are counting on.

  2. AjariBonten says:

    To totally mis-quote …… “There’s One Born Every Minute”

  3. thomwithanh says:

    *Get credit card offer in mail
    *Shred all paperwork and throw in garbage
    *Repeat if necessary

    • fatediesel says:

      Yep, I never even open credit card offers I get in the mail, they go straight in the shredder. If I wanted a new card I’d research which card had the best rewards for me, not just be lazy and go with whatever company sent me something in the mail.

    • Dallas_shopper says:

      Excellent advice…this is what I do too.

    • Jeff asks: "WTF could you possibly have been thinking? says:

      Repeat AS necessary.

    • AJC says:

      Better yet, roll into tight bundles and burn as fire logs. Save money on heating cost too!

      OK. There’s a bit of toxic gas from the fumes of the burning plastic, but the buzz saves on alcohol expenditures (more savings!)

    • ancientone567 says:

      Better yet. Write in marker on the Unopened letter “RETURN TO SENDER” LOL Don’t forget to add a smile face :)

    • jamar0303 says:

      *Get credit card offer in mail
      *Shred all paperwork and throw in garbage
      *Read about “targeted offers” on Flyertalk with insane bonuses to those who got the relevant offer in the mail
      *Agonize about bonuses that may have slipped through your fingers because you tossed and shredded the invitation

    • coldfire409 says:

      I have a better idea. Open it and stuff all you can into the return envelope. Cost credit card company money for sending you an ad.

  4. Coffee says:

    Ugh…this sounds terrible…I see a scenario where someone is offered, say, a card with a $500 limit…they’re required to pay back $200 of an old debt, which goes on the card, and there’s a $100 activation fee and a $24.95 annual card fee. Before they know it, the new card they got is almost maxed out, and now they have to pay 24.99% interest on the $500 they never really had access to.

    Of course, if the general public is as stupid about this sort of thing as some people I know, it won’t matter – they’ll see $500 and an opportunity to reestablish credit and jump on the grenade happily.

    • Difdi says:

      It’s worse than that. Paying even $0.01 on an old debt that is no longer enforceable makes the entirety of the debt enforceable again. So if you owed (for example) $2,000 and agree to pay $200 of it to get a credit card, you owe the full $2,000 once you make even a penny payment on that $200. The company then starts billing you for the other $1,800 you still owe.

      • Loias supports harsher punishments against corporations says:

        Yup. This is extremely low, even for banks/credit card agencies.

        I do hope, at least, it’s required by law to inform the customer that paying on the debt re-initiates the debt.

        • Coffee says:

          I’m sure they do, as I’m also sure that it’s nestled in tiny print somewhere in the terms and conditions that many fail to read. And I’ll reiterate once again, people should be responsible for what they sign up for, but I just wish the law required predatory companies like this to write out the conditions in simple language in huge font, with many red arrows pointed at it.

          • StarKillerX says:

            While I don’t disagree with the idea behind your post I’m not really sure I hesitate to call this “predatory” for the simple reason that out of date or not the debt is the person’s, it’s just a question of if it can still be legally collected or not.

    • Jawaka says:

      When you default on a credit card bill and it goes to collections its common for the credit card company to offer to satisfy the loan for less than the original amount owed. I wonder if these new offers are technically the same in that the payment towards the old debt satisfies the outstanding bill.

  5. Cat says:

    I suspect that most people who take up these offers have bad credit scores because they were too stupid to have credit cards in the first place. They are incapable of learning from their mistakes, and they’ll default on the new cards, too.

    The debt collectors and banks are counting on their ignorance.

    • dolemite says:

      It’s just another “poor tax”. I really wish they’d teach finances/investing/debt management in high school. Think about it. What are you going to learn in art class? How to make charcoal drawing that you throw away. Now imagine if you learned about debt management and investing and at the age of 19 started investing in a 401k and practicing proper debt management. You might end up with an extra 350K when you retire.

      • ARP says:

        Agreed, but teaching kids how to be financially savvy through public schools is socialism. Not sure exactly why, something about using tax dollars to help others, unlike public libraries, police forces, fire departments, water service, sewer service, roads and all those other things.

        It’s also bad for business since you can’t exploit/scare the ignorant anymore. No, we have a vested interest in keeping most people stupid and while continuing to tout “personal responsibility.”

        My view is that we either teach these things in school or we protect people from their own stupidity. Right now, we teach them very little, and protect them very little.

      • pop top says:

        To be honest, these classes should be started in elementary school so it becomes better ingrained. There are easy ways to “dumb down” these concepts for young kids and middle schoolers. Waiting until high school is good for specific things like calculating interest or discussing credit cards, but with the high school drop-out rate rising, we should get these concepts into people’s heads well before high school.

      • thrillcook says:

        Painting with a broad stroke, destroying any creative youth class as you have done seems a bit quick to judge.
        Since America doesn’t produce physical things anymore, a good portion of our american market that we are selling is entertainment/content, I’m pretty sure you need some pretty creative minds to sustain such a trend.

        • dolemite says:

          I wouldn’t necessarily get rid of art and music, but…what percentage of people will go into that, or even appreciate it? 5%? While 100% could gain from financial management classes.

          • Loias supports harsher punishments against corporations says:

            That kind of thinking is fallacious. Because only 5% of the population goes into music, we should eliminate music altogether from schools? But you also so those kinds of classes are important.

            • dolemite says:

              I’d rather keep them all, but if it came down to dropping one, I think personal finance could do our country a lot of good over a few other classes.

              • Firethorn says:

                I’m going to step up here.

                In functional schools, ALL of the courses can be taught. In ‘failing’ schools, whether that is the fault of the school or the culture of the area, you may have to go for the field goal rather than the touch down.

                For the vast majority of students, I’d indeed rate financial management higher on the importance scale than art or music.

  6. Nobody can say "Teehee" with a straight face says:

    Preying on the poor and financially unsavvy.

    God it feels good to be an American.

    • Coffee says:

      I agree with your perspective, although at times I wonder where protecting ignorant consumers ends and asking people to take personal responsibility begins. I fear, however, that some people will never be safe from themselves, and as long as companies are allowed to exploit their ignorance through legal means, in the end you and I are the ones who end up supporting them.

      • Nobody can say "Teehee" with a straight face says:

        I feel no pity for people that screw up and waste their money through bad decisions.

        What I do feel bad about are systems that are solely designed to prey on people that are /already/ stuck in this pit.

  7. ARP says:

    But wouldn’t many of these debts have fallen off their credit scores (7 years)? If so, then their credit scores should have already improved (assuming they paid everything else on time)

    So, unless they have a more recent habit of poor spending, this really wouldn’t help them.

    • Difdi says:

      And if they pay even a penny on that old debt, the old debt goes right back onto their credit report for another 7 years.

  8. Black Knight Rebel says:

    Please explain not being legally obligated to pay old debt. Are we talking 20 years to life of shit credit for that? I thought the only way to avoid that was Bankruptcy, but even then that really screws up your credit but at least then you have a chance to recover.

    What is this other option that the article refers to?

    • Jimmy60 says:

      Statute of limitations on debts.

      Google it.

    • pop top says:

      Many states have laws that say specific types of debt fall off of your credit report after X amount of years (usually somewhere between 5 and 7, but some states are 10).

      • consumeristjohnny says:

        Your credit report and statute of limitations are NOT the same thing.

        • Black Knight Rebel says:

          Yeah that’s what I figured. I really didn’t know about the statute of debt limitations, so thanks squinko and Jimmy60, but it makes no sense for that to be wiped clean from your credit report otherwise people would have better credit and this scheme that the article is talking about would never work.

          Do you think you could explain a but more consumeristjohnny? I’m sure lots of people would appreciate it.

    • Lyn Torden says:

      It’s called “Statute of Limitations”, typically abbreviated SOL or SoL. It is a per-state law that relieves defendants in a lawsuit from having to defend. The principle is that after a certain period of time, documentation a defendant may need could be reasonably gone. The time period varies by state because different people have different ideas about how long people should keep their financial records. Unlike bankruptcy, SOL does not eliminate the debt. Past-SOL debt can live on forever. You can still be sued even past SOL. Except in a couple states, the defendant must raise the SOL issue in the lawsuit for it to be considered by the court.

    • Not Given says:

      It falls off your credit report after 7 years, 10 for bankruptcy.
      After whatever statute of limitations for that type of debt your state has established, if you are sued for the money, you have an affirmative defense. The SoL begins with either the date of first delinquency or the date of last activity, I’m not sure. The date of first delinquency is the first due date you missed, the date of last activity is the last time you used the credit card or the last time you made even a partial payment.
      I think credit card SoLs usually range from 3-6 years.

  9. u1itn0w2day says:

    I know people who needed bankrupty YEARS ago and are still diddling with old credit card debt which has been resold several times now. I guess this who they are targeting those who didn’t declare bankruptcy. I guess they can do the same with those who declared bankruptcy.

    Some just blow off the debt realizing their credit is trash and others are waiting for a miracle because deep down they know the consequences of bankruptcy. I don’t think either party will pay in great numbers.

    Don’t know if true but I heard debt collectors like debtors who HAD a better credit history and job even if they haven’t paid in years. They say this is the mostly likely to pay off old debt?

    • Not Given says:

      Your friends should send a very carefully crafted letter, sent CMRRR, informing the current collection company that a) the debt was discharged in bankruptcy, b) continuing any kind of collection activity, including but not limited to reporting it to credit reporting agencies or selling the debt to another company is illegal and will be reported to the US Trustee, c) Any further contact from the company beyond one letter informing them that all collection activity will cease and no further contact will be made, will be met with a lawsuit, d) if they want any money at all they should go back to the company they bought it from as it was illegally sold to them in the first place.

      Keep checking credit reports to make sure none of the discharged debt makes it back on, re-dated and not marked as discharged in bankruptcy. If it isn’t on your report already marked as discharged in bankruptcy by the original company, don’t dispute it as ‘discharged in bankruptcy,’ dispute it as ‘not mine.’ Dispute it if it is there and sue the company that reported it if they refuse to remove it, as that constitutes continued collection activity. Get your credit reports through the mail by printing out and sending the form by mail. Sometimes they are more accurate than the ones you download from the website, don’t dispute from a downloaded copy. The address of the reporting company is supposed to be the address you can send your letter to.

       Keep meticulous records, copies or originals of everything sent and received including postmarked envelopes, original dated return receipts, unopened returned envelopes if the orignal letter was refused, certificate of mailing for another copy of the letter sent after the CMRRR was refused, phone logs of contact with notes, recordings of calls if you can, etc. Repeat with any new company and do follow through with suing any company that continues collection activity or sells it to another company. An easy $1000 in small claims court. Any calls answered before receipt of your letter should only be for the purpose of finding out the name and/or mailing address of the company, do not agree to anything, do not answer questions with yes or no, use full sentences so it will be difficult to edit their recording, they will be recording. Any calls answered or received, messages or voicemail, or correspondence by mail or email, after their receipt of your letter should be carefully and thoroughly documented for your lawsuit.

      • u1itn0w2day says:

        My sincere apologies. I worded my comment poorly. The person in question should’ve declared bankruptcy years ago. But advice is excellent.

        They have some 4 year old plus credit card debt and a trashed credit rating. You see the credit card offers laying around. But they’re procrastinating bk with little or no hope of getting back to an older pay scale from a different era. This hole was already dug long before a layoff. They’re resume precludes them from making big pay again. But they can’t pull the trigger on bk. In the meantime the collectors have called family and friends asking ‘to relay a message-call the them(the collectors)now.

        Will try your advice on the bk with the collectors since they have ignored verbal requests not to call us about other’s debt/business. They were sternly and verbally told we are not messengers and not to call again.

        Again my bad but outstanding advice.

  10. McRib wants to know if you've been saved by the Holy Clown says:

    So, if these people are settling their debt for a lot less, they are now most likely becoming tax cheats because I bet none of them know to claim the difference as income.

    What fun those offers are.

  11. Lyn Torden says:

    Capital One has been doing this for years. They buy old debt dirt cheap. Then they issue a card or at least an offer. Some fine print will say in some obscured wording that the account is liable for other debts. When someone signs up, they eventually (maybe delayed 30 to 60 days) do an “offset” into this account, even if the old debt is past statute of limitations (expired). Now it’s a new debt and the SOL starts all over.

    NEVER accept a credit card offer you did not personally solicit.

    “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.”

    IMHO, this moral obligation ONLY applies to the original creditor that the debtor originally solicited or chose to do business with, and who would be out a lot of money even if the debt is paid in full to a debt buyer. When a debt is sold, the original creditor chose to take a loss on it. If you want to pay for moral reasons, pay ONLY the company you originally had the account with. They might take it. They might discard it. They might send it on to the debt buyer. Or they might sent it back to you.

    Also keep in mind that there are already many cases of 2 or more debt buyers or collectors trying to collect separately on the very same debt. At least one of them is NOT the legitimate owner. If you pay someone that merely CLAIMS you owe them money, that does NOT relieve you of any LEGAL obligations that may exist to pay the real debt owner, if they sue you. And scammers know that lots of people are eager to pay once they get in a better financial position. And there is an overlap between some scammers and some debt collectors. They don’t need to actually own the account to have the info to fool you into believing they do.

    • Such an Interesting Monster says:

      Sorry, but there is no such thing as a “moral obligation” when you’re dealing with a big bank or any other kind of mega corporation. They are not people and should not be treated as such.

      Morality should be reserved only for those that do the same.

  12. Hotscot says:

    I froze my credit years ago. One of the best things I’ve done.
    Reduced to almost zero all the credit card and financing offers. Plus makes it much much harder for the scum and villainy to defraud you.

    If there’s a New Year thing you want to do I highly recommend it asap.

  13. smo0 says:

    So people post bankruptcy are affected by this?

    or just people who let the time limit run out…. just want some clarification.

  14. oldtaku says:

    This takes poor life choices to a whole new level.

  15. HogwartsProfessor says:

    Why is shit like this legal?

    • Coffee says:

      Lobbyists who work for Visa, Mastercard, and the banking industries. No other good reason.

    • Difdi says:

      Because the law assumes that citizens are educated, capable of critical thought, and read contracts thoroughly before signing. The law is not to blame for the fact few people have even one of those traits these days, let alone all three.

  16. Alliance to Restore the Republic of the United States of America says:

    There’s something about clean-cut, suit-wearing bankers in bed with sleezy debt collectors conspiring to prey on others that just makes me want to erect a guillotine.

    I get that people need to be responsible for the choices they make, but goddamned if the deck isn’t stacked against them/us/99%. Politicians and banks wreck the economy, then the vultures swoop in for what’s left.

    It just ain’t right. One day we’ll all wake up and realize we’ve had enough. Heads will roll and it won’t be pretty.

    • StarKillerX says:

      Don’t forget that there were many of “them/us/99%” who used subprime mortages to their own advantage and in the end many got caught up in it when the bubble burst.

    • MrEvil says:

      I’m all for blaming it on the debtor when credit is due. But after looking into how much the Credit industry spends on researching and exploiting human behavior, it’s hard to leave them blameless.

      In today’s business climate, nobody can be 100% honest and 100% ethical and make it. If you were 100% ethical and honest you’d be profitable, but you wouldn’t have growing profits quarter after quarter. And with shareholders it’s just not enough to be profitable.

  17. Rick Sphinx says:

    They are doing this to bankruptcy’s also. If you declared bankruptcy, and were cleared of the debt, the bank can re-instate it with a new card offer. So be sure to read the mice print on any offer regardless of your credit history. And before I get a lot of comments, even after bankruptcy, people need a credit card to help rebuild credit for the future. Now if you did declare chapter 7 or 13, you should only use cards to purchase some small things, a couple times a year and pay it off. Don’t get stuck again by over charging beyond your means.

  18. alcathiax says:

    This “scam” has been around since 2005. I remember getting this offer (on an alleged debt from an old Providian card charge off) from Midland Credit Management. They wanted to put the entire balance on a card with Plains Commerce Bank.

    However, since Plains Commerce is in South Dakota, and South Dakota does not have any usuary laws in regards to interest, the card featured a nice 29%APR on purchases and 37% APR on cash advances. The balance is treated as a cash advance with no grace period. So nice for them to force me to pay now or face over-the-limit fees and a dinged credit report due to >100% utilization on the card!

    Here’s a link to some interesting thoughts on this:
    http://www.debtorboards.com/index.php/topic,18949.0.html

    • DrLumen says:

      Exactly. They will usually set the credit limit of the card to whatever they believe your unpaid balance is as well. In essence all people get is a brand new maxed out credit card with a mountainous APR and a reset of the SOL on an old debt.

  19. NeverLetMeDown says:

    Surprised people have such an issue with this. There are people out there who have proven themselves, in the past, to be untrustworthy borrowers. Many of them want credit cards. This is, in essence, a fee to get a credit card. Agree to pay off a debt which you incurred, but are no longer legally required to pay, and get a credit card.

  20. dicobalt says:

    Citibank told a friend of mine he owes over $6000 but in reality he only owes just over $1500. These banks do all sorts of illegal things. They are the same banks that will permit a small 3 bed 2 bath tiny house, with no yard, located 30 miles from the city center to be both appraised and sold for a quarter million dollars. Know those people who “flip” houses? They were playing right into that. Banks have zero sense of perceived value vs actual value.

  21. gman863 says:

    The Gambino Family just called. They want their loan sharking operation back.