Can Credit Card Companies Sell Your Debt?
Understand if credit card companies can sell your debt. Learn the implications for consumers and your rights as a debtor.
Credit card companies can sell your debt, a common and legal practice. This process involves the original creditor transferring ownership of your outstanding balance to another entity. This is a permissible action, carrying distinct implications for consumers. Even when debt is sold, consumers retain specific rights and protections under federal and state laws.
Understanding Debt Sale
Selling debt is a legal and established practice for credit card issuers, regulated by statutes like the Fair Debt Collection Practices Act (FDCPA). This practice allows original creditors to remove non-performing assets from their balance sheets, recover a portion of the outstanding capital, and reduce the costs associated with in-house collection efforts. This enables credit card companies to focus on their core lending activities.
The debt sold consists of accounts that are significantly past due, often “charged-off” by the original creditor. A charge-off occurs when an account becomes 180 days past due, indicating the creditor considers the debt unlikely to be collected. Specialized entities, such as debt buyers, third-party collection agencies, or investment firms, commonly purchase these debts. These buyers acquire the debt at a substantial discount, aiming to collect a higher amount than their purchase price.
The process involves the original creditor transferring ownership of large portfolios of debt, rather than individual accounts, to these debt buyers. Once the sale is complete, the debt buyer becomes the legal owner of the debt, acquiring the right to collect the full amount owed, and in some cases, pursue legal action.
Implications for Consumers
When your credit card debt is sold, the original credit card company is no longer the creditor; the debt buyer now legally owns the debt. Your financial obligation shifts from the issuer to the new entity. You will receive notification of this debt sale from both the original creditor and the new debt owner. These notices confirm the transfer and identify the new party to whom the debt is owed.
After the debt is sold, payments should be directed to the new debt owner, not the original credit card company. Continuing to make payments to the original creditor after receiving notification of the sale can lead to confusion and misapplication of funds. Communication regarding the debt will also change, as you will begin receiving calls or letters from the new company. The communication style from debt buyers may differ from that of original creditors.
The sale of debt does not create a new negative entry on your credit report. However, the original delinquency and any charge-off would already be reflected. The reporting entity for the debt on your credit report might change from the original creditor to the debt buyer. The debt remains on your credit report for seven years from the original delinquency date, with the new owner listed.
Your Rights as a Debtor
When dealing with a debt buyer, consumers have important rights and protections, primarily under the Fair Debt Collection Practices Act (FDCPA). One right is debt validation, which allows you to request proof that the debt is legitimate and that the debt buyer owns it. The FDCPA mandates that a debt collector must send you a written validation notice within five days of their initial communication, detailing the amount of the debt, the creditor’s name, and your right to dispute. To request validation, send a written request to the debt buyer within 30 days of receiving their initial communication. If the debt buyer cannot provide validation, collection activities must cease until they do so.
The FDCPA also prohibits certain collection practices. Collectors cannot harass you, make false or misleading statements, or engage in unfair practices. They cannot call you before 8 a.m. or after 9 p.m. without your permission, contact you at work if disallowed, or discuss your debt with unauthorized third parties. Misrepresenting the amount owed or falsely claiming you will be arrested are prohibited.
The statute of limitations sets a time limit for a debt collector to sue you to collect a debt. This time limit varies by state, ranging from three to six years, depending on the type of debt and the state’s laws. While a debt collector may still attempt to collect a time-barred debt, they cannot pursue legal action in court once the statute of limitations has expired.
If you believe the debt is incorrect, not yours, or the amount is wrong, you have the right to dispute it. It is advisable to formally dispute the debt in writing, clearly stating your reasons for the dispute. Maintain detailed records of all interactions, including dates, times, names, and summaries of conversations. You can send a written cease and desist letter to a debt collector to stop them from contacting you; this does not eliminate the debt.