How can a default on a credit card be recovered?
Patrick McKenzie, a financial business specialist, summarizes
Credit card debt collection
https://www.bitsaboutmoney.com/archive/the-waste-stream-of-consumer-finance/
The majority of debt defaults in the United States are due to revolving payments. Most non-fraudulent credit card debts occurred in the relatively distant past, and it appears that revolving payments increase the amount that must be repaid over the years, leading to default.
Only a small number of borrowers, about 2.5% to 5% of the economy as a whole, become delinquent on their credit card debts. Delinquency rates vary widely depending on the credit card issuer; American Express, for example, has a delinquency rate of nearly 1%.
Default usually begins with a missed scheduled payment. Although late payments are a breach of contract, they are not all that unusual for credit card issuers. Typically, most borrowers pay the specified amount within 30 days and the credit card becomes usable again.
After 30 days of delinquency, credit card issuers use a combination of communication methods to prompt users to pay. The issuance of consumer debt is considered the exclusive privilege of financial institutions regulated by law, and in order to become a ``regulated financial institution,'' it is required to have accurate bookkeeping.
Financial institutions are required to record debts due to delinquencies in their books, so they are required to set aside such debts by setting aside reserves for delinquencies. Therefore, financial institutions are able to reliably recover debts by packaging them and selling them to non-financial institutions. As a result, the debt due to delinquency of credit card users will be reduced to zero on the books.
The debt collection industry purchases debt packages issued by financial institutions. When a debt is handed over to the debt collection industry, the debtor is obligated to pay not only the original late payment fee but also ``fees stipulated in the contract that are legal'' and ``fees not stipulated in the contract that are highly questionable.'' It happens. Then, the amount collected from the debtor minus the purchase price of the debt package becomes the profit for the debt collection industry. The average amount of credit card default is about $2000 (about 300,000 yen).
Many credit cards are co-branded, and some credit cards are linked with services from major companies such as Amazon, Best Buy, and Apple. These brands are so concerned that their credit card business will damage their brand value that they don't tell the financial institutions they jointly issue credit cards with which debt collectors they partner with. Mr. McKenzie points out that there are cases in which contracts require this.
As a result, debtors may suddenly be asked to repay their debt by an unknown institution, and they may misunderstand that the debt has been deliberately fabricated against them.
As for why debt collectors are bad at collecting debts, McKenzie says, ``Part of the reason is that credit card issuers are large national corporations, and they have a legacy of corporate acquisitions and IT migrations that have led to large-scale automation. This is because we have built a process that is extremely fragmented with information that is not particularly important.And this unnecessarily complex information is passed through a very small conduit called a CSV file to the debt collection industry. 'It will be thrown at you,' he pointed out.
Three-quarters of the debt packages issued by financial institutions are bought by the 10 biggest debt collection companies, while the remaining one-quarter are bought by smaller companies, such as family-run businesses. Large companies resell the debt packages they have purchased that they are unable to collect on, and these are then reacquired by smaller companies, but at this time the debt packages are sold at a deep discount. It seems that it will be resold at a reasonable price.
Debt collectors first check the data using automatic or semi-automated processes and prioritize debt collection. For example, by associating a credit profile with as many debts as possible, it becomes possible to identify 'debtors who have the ability to pay their debts' based on credit scores, or by excluding deceased debtors, This can improve collection efficiency.
Debt collectors must comply with
Debt collectors understand that they are committing illegal acts, so they convert information such as ``which debtors have sued debt collectors'' into data based on documents submitted to the court. It seems like there is. By doing this, you will be able to collect debts while avoiding unnecessary risks.
In addition, the data handled by debt collection agencies is complicated and fragmented, and people with debts tend to change their contact information and addresses frequently, so debt collectors are forced to force another person with the same last name to repay their debts. It seems that there are cases where it goes away.
Once the debt collector has access to the debtor's contact information from the database linked to the debt package provided by the financial institution, the debt collector will call the debtor directly. If it is not possible to contact the debtor himself/herself, we may contact someone related to the debtor, such as a friend or relative. This telephone response is carried out at call centers, etc., and it seems that the number of calls that collection agencies can handle has increased significantly in recent years.
Call centers are now receiving calls about twice a day, and this number can increase even more if the same debt is being collected by multiple different agencies. In other words, if you default on one debt, you will receive constant calls from multiple debt collectors.
The purpose of the debt collector's call is to obtain a verbal agreement to pay the debt and obtain payment credentials. The most convenient method is to obtain the account number of the bank used by the debtor, and in some cases it is also possible to obtain the card number of the debtor's credit card or debit card.
Promising to pay a debt does not mean paying it in full, but rather making a plan for how to pay the interest that accumulates over time. However, it seems that few debtors successfully pay off the payment plan that they orally agreed upon at this time.
McKenzie called the debt collection industry 'a home to some of the most abhorrent scum and villainy in America, and despite decades of effort, this business remains vile and virtually untouched by reform.' '' he criticizes. In fact, debt collectors are underpaid and under high stress, and even in major companies, the annual turnover rate is said to be extremely high, ranging from 75% to 100%.
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