Carrying unpaid accounts on its books is unprofitable for a credit card company. Your credit card company provides you with a certain amount of time in which to pay off or make payment arrangements on your delinquent account before selling or transferring your debt to a collection agency. Credit card companies typically sell unpaid accounts to collection agencies after 180 days.
How It Works
If your credit card company sells your credit card balance, it loses its right to collect the amount you owe. The collection agency assumes legal ownership of your account and has full rights to your debt. Thus, if you make a payment on your delinquent credit card debt, you must pay the collection agency directly rather than your original creditor.
Not all credit card companies sell unpaid debts to collection agencies. Some merely transfer consumer debts. When a credit card company transfers your debt, it retains legal ownership of your account but agrees to pay the collection agency a percentage of any balance it collects.
Purchase Price
Collection agencies purchase debts from credit card companies for far less than consumers owe. The sale price of your account depends upon your credit card provider and the collection agency it conducts business with. The longer your account has been delinquent, the less collection agencies pay to purchase it. In some cases, debt collectors pay mere pennies on the dollar for defaulted debts.
Collection Activity
Collection agencies use information about you provided by the credit card company, such as your telephone number and address, to contact you and demand payment. Although a collection agency has the legal right to contact you about your debt, the Fair Debt Collection Practices Act mandates that debt collectors may not use obscenities or physical threats, disclose your debt to anyone other than you or threaten to take any recourse against you, such as garnishing your wages, if the action is not legal in your state of residence.
Additional Charges
The FDCPA notes that certain restrictions apply to collection agencies when levying additional charges against consumers. Although debt collectors can add fees to your account, they cannot charge you interest unless your original creditor charged you interest. Because credit card companies routinely charge customers interest, however, a collection agency that purchases your delinquent credit card account can add additional interest charges to your debt.
Credit Damage
The fact that you defaulted on your obligations to your credit card company appears on your credit report -- lowering your credit rating. After purchasing your debt, a collection agency also reports the debt to the credit bureaus. All collection accounts are derogatory and have a negative effect on your credit score. The Fair Credit Reporting Act permits derogatory notations to remain within your credit file for seven years.
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