Sometimes, this blog refers to credit card companies “charging off”, which is industry jargon for writing off delinquent accounts that are regarded as noncollectable. That debt may be thought of that way, but, of course, every effort is still likely to be made to collect the noncollectable.

Credit card debt collection: “a broken system”

What usually happens is that each of the credit card companies bundles up a whole lot of delinquent accounts and sells them on to a specialist collection agency for cents on the dollar. Collectors then begin relentless campaigns to “persuade” the debtors to pay up. Back in July, the Federal Trade Commission (FTC) published a paper on this system. It said that, after extensive analysis, the FTC concluded:

…that neither litigation nor arbitration currently provides adequate protection for consumers. The system for resolving disputes about consumer debts is broken. To fix the system, the FTC believes that federal and state governments, the debt collection industry, and other stakeholders should make a variety of significant reforms in litigation and arbitration so that the system is both efficient and fair.

Credit card companies careless over accuracy

Behind those dry words are some exceptionally dodgy practices. Some weeks ago, The New York Times reported a story told by Linda Almonte, a former middle manager with one of the nation’s biggest and most respected credit card companies. She said that, in 2009, she was helping her employer to sell on to a collection agency 23,000 accounts. Together, these were worth about $200 million, but they were to be sold for 13 cents on the dollar, so the bank expected to raise roughly $26 million.

As the process of preparing the files progressed, it became clear that they contained numerous errors, ranging from wrong addresses to incorrect balances. Indeed, there was more than one case in which cardholders had actually won court judgments against the issuer. In fact, when a sample was tested, it turned out that more than one-fifth of the files contained material errors. That’s 5,000 out of 23,000.

…and collection agencies are too

The extent to which faulty information is likely to bother collection agencies is up for debate. The same story in The Times tells of a former employee of a collection company who told lawyers who were deposing her that she was expected to sign 2,000 affidavits a day. Assuming an eight-hour working day, that’s about one every four seconds, so the chances of her picking up on mistakes were slight.

Indeed, John G. Watts, Esq., an attorney with the Watts Law Group of Birmingham, Alabama, thinks that rogue collection agencies go beyond the careless. He says that many will routinely flout the Fair Debt Collection Practices Act, and that some will pursue bogus debts that they know are not owed.

Credit card debt–a way forward?

Often the only way to deal with a collector who’s unlawfully strong-arming you over bogus or legitimate credit card debt is to consult an attorney who specializes in such matters. But the best time to act is way before your debt becomes a problem.

If you currently feel–or if find you find you do so after the holiday –that both your balances and the credit card rates you’re paying are uncomfortably high, then you may want to think about applying for one of the many balance transfer credit cards that are available. You often have to pay a one-off fee (usually between three and five percent) on the amount you transfer.

But some of these balance transfer credit cards offer zero percent introductory APR for long periods, which can provide you with a worthwhile breather from high credit card rates.

If your credit score is still healthy, but your balances are uncomfortably high, it’s well worth considering a credit card that has a low rate introductory balance transfer offer.

Published 12/20/10 (Modified 03/24/13)