As Americans struggle in this slow economy, debt collectors are finding creative ways of separating struggling debtors from their dollars. One way is the use of so-called “balance transfer programs.” Many debts are legally unenforceable due to the expiration of the statute of limitations. A legally unenforceable debt is less valuable to a debt collector so they are using balance transfer programs to breathe life into old debts.
Debt collectors have been teaming up with banks to offer debtors new credit cards. Yes, just what struggling debtors need; more credit cards. The catch is that the debtor is required to transfer the balance of the old (legally unenforceable) debt onto the new card. How convenient? The result is that the old debt which could not hold up in court is now part of a brand-spanking new account and completely enforceable. If the debtor falls behind on the new card, the debt collector can now pursue a lawsuit against them in court. Badda bing, badda boom, the dead debt is born again. Unfortunately, the legal significance of this transaction is often not fully and clearly explained to the consumer by the debt collectors and financial institutions involved. As such, unsuspecting consumers are being wooed into accepting new credit cards to transfer their old debts onto.
Not surprisingly, the federal government has taken issue with this practice. Last year, the Federal Deposit Insurance Corporation (“FDIC”) went after the Monterey County Bank (“bank”) in Monterey, California when it had reason to believe that the bank was involved in this practice through its relationship with Tighorn Financial Services, L.L.C. d/b/a New Horizons Financial Services, a debt collector. The result was that the bank, without admitting to wrongdoing, agreed to a Consent Order and to pay penalties and restitution to victims who were issued its debt-collection motivated credit cards. The FDIC ordered, among other things, that the bank “refrain from offering credit cards which are intended for the transfer and payment of charged-off consumer debt without disclosing the age of the debt and the fact that the transferred debt is time-barred and/or no longer reportable by credit reporting agencies.”
You should be wary of debt collectors who give you a credit card offer. The debt collector is probably not chiefly concerned with your legal and financial well-being but may instead be pulling a fast one. You may be giving up important rights and the debt collector may be violating the Fair Debt Collection Practices Act (“FDCPA”) if they are deceptive.