Credit card debt collection

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Helene Mueller
eCollect support team

Credit card debt collection represents the whole system of debt recovery techniques and proceedings. It can be executed by the creditor himself, where he can collect the defaults he owns on behalf of his own company’s trading. The process can also be carried out by a professional debt collection agency (DCA), which figures as a separate third-party organisation. Such debt recovery agency acts on the part of the lender and requests an interest payment either from the creditor or from his debtor. Credit card debt recovery derives from the formation of credit card defaults and past-due payments. The consumer credit is generalised as the process of borrowing a monetary amount from a lender, and the sum is to be used for personal needs- consumption of goods or services. The reasons for credit card debts vary. Usually the mainsprings derive from sudden medical bills, unemployment or large difference between debtors’ monetary income and their expenditures per month. According to statistic researches, provided by U.S. Federal Reserve Bank, more than 40% of the Americans happen to spend more than their monthly earnings (ext. link 2).


Features of credit card debt collection

Credit card debt recovery is a sub-section of consumer debt collection. Such debts are unsecured defaults, derived from borrowing an amount, when using a credit card. After the purchase, the borrower has a specific deadline to recover the amount due. If he fails to settle the sum before the date for payment has passed, he falls into debt and the creditor has the right to pursue payment by any legal methods. The most usual case is that the lender will hire a professional credit card debt collection agency to retrieve the defaults.

In some countries like U.S. and the United Kingdom the creditor is allowed to charge his debtors a late payment fee for not settling the debt amount in time. A lender can perform credit card debt recovery process on the part of his own company, but then he is not authorised to charge the consumer a fee, which refers to a licensed DCA. This implicates that when a creditor recovers the debts he owns, using one of his internal departments, he is not allowed to request an interest rate from the debtor, as according to the FDCPA and the OFT (see: [1] ) such creditor falls under the definition “first-party DCA” and is not considered as a registered collection agency.

As the credit card debt recovery is part of the financial definition for debt collection, it is controlled by different acts and regulations. Such laws set boundaries for the legal and fair debt recovery, and also portray consumers’ and DCAs’ rightful actions. There are also different government regulators that aim to promote fair and ethical debt collection process.

UNITED KINGDOM

The FCA and the PRA (see: [2] ), the Competition and Markets Authority, etc. These organisations are authorised and regulated by the Financial Services and Markets Act (
http://uk.practicallaw.com/5-505-5867
); the Limitation Act (
http://www.bclaws.ca/civix/document/id/complete/statreg/12013_01
), the Administration of Justice Act (
http://www.legislation.gov.uk/all?title=Administration%20of%20Justice%20Act%20
), etc.

UNITED STATES

Valid lawful regulators for controlling credit card debt collection process and consumers’ rights are: The FDCPA, the CFPB- Consumer Financial Protection Bureau, the FTC- Federal Trade Commission (
http://en.wikipedia.org/wiki/Federal_Trade_Commission
), the Federal Debt Collection Procedures Act (
https://www.govtrack.us/congress/bills/101/hr5640
), etc.

Credit card debt settlement & lawsuits

Debt settlement is usually performed by a debt collection agency, hired by the original creditor. It is usually offered as a negotiation plan to the debtor, when he cannot afford to pay the default amount in full (e.g. due to pecuniary difficulties). If the lender agrees to such debt settlement option, the debtor will have to pay a lump sum, which is less than the total debt amount. After this sum has been paid, the rest of the default amount is forgiven, the consumer becomes debt-free, the creditor marks debtor’s profile in his system as clear, and the debt- as settled.

If the debtor does not agree to a debt negotiation plan and the amount is still due to be paid, the credit card debt collection will enter its final stage- lawsuit or the so-called legal actions. First a debt collection attorney will be sent to attempt final negotiations with the debtor. If this method is not successful, the debt lawyer can request different law documents from court and perform legal actions, such as small claims court procedures, wage garnishment, seizure of property or personal goods, etc.

[1] FDCPA – Fair Debt Collection Practices Act, valid for U.S. and its states (
http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text#801
); OFT- Office of Fair Trading, valid for United Kingdom & Wales

[2] FCA – Financial Conduct Authority (
http://www.fca.org.uk
); PRA- Prudential Regulation Authority (
http://www.bankofengland.co.uk/pra/pages/default.aspx
)


Used literature & external links

http://en.wikipedia.org/wiki/Credit_card_debt
 

http://www.federalreserve.gov/
 

http://uk.creditcards.com/credit-card-news/uk-britain-credit-debit-card-statistics-international.phphttp://www.wisegeek.com/how-do-i-get-credit-card-debt-forgiveness.htm
 

http://www.nolo.com/legal-encyclopedia/creditor-lawsuits