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Caveat Emptor: Beware of the Balance Transfer Scam

– Posted in: consumer news
Balance Transfer Scam

Old Debt is Transferred to New Card

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.

PA & NJ consumers who are experiencing problems with unfair debt collectionunfair credit reportingdebt collection lawsuits, or in need of a bankruptcy consultation, should consult with the Consumer Rights Attorneys at Consumer Litigation Group.

Comments on this entry are closed.

  • MaybeNot

    Balance transfer of old debt to new credit cards are like starting all over again in more ways than one. It also implies an acceptance of an old debt that might not even be yours to start with, like fees and rates you did not agree to. I’d say check the fine print and know what you’re doing.

  • Anonymous

     That is so true, Breanna. If we all educate ourselves and learn what is a scam and what isn’t, these companies won’t have anyone to prey on.

  • Jamie

    As long as it’s legitimate debt, then it could be a good deal.  The article is referring to the scammers who try to coerce people into signing up for something to pay off a debt that’s not existing.

  • Anonymous

    Well, obviously many people don’t know why these deals are too good to be true…hopefully the word will start to get around now, and people will avoid this trap. 

  • Anonymous

    Good question.  It will be interesting to see how courts answer that question.

  • Mimsey

    This new balance
    transfer scam is yet another way big banks and consumer lenders deceive the
    consumer into giving up his rights along with his hard-earned cash. People must
    learn their rights and be vigilant against all those unscrupulous money lenders
    out there eager to get into their pocketbooks.

  • Anonymous

    When does a debt become “legally unenforceable”? I thought that all debt was enforcable. I really thought that these transfers were great deals. I was paying on an old debt but the interest was racking up quicker then I could pay. I was hoping to transfer the debt to a new “no-interest” card.

  • CreatureComfort

    Once again, if it’s too good to be true, it probably is. Imagine a person who has not been able to get a credit card gets a call to tell him someone will let him have a new credit card. All he has to do is transfer his old balance to a new card. Then he can charge more. What ways will they think of next to dupe the gullible?

  • sellmore

    This is a scam that I hadn’t heard of yet but I will now be on the lookout for.  I’m in the process of fighting a couple of very old debts that I know were paid but I no longer have the proof of that.  Neither of the companies has been cooperative with proving the legitimacy of the debts (because they clearly can’t).

  • Anonymous

    This does not surprise me at all. Debt collectors are notorious for being up to no good and to find out they are involved in balance transfer scams is just one more reason not to trust them.

  • SweetPeaGreen

    Also, how can these gimmicks comply with TILA’s disclosure requirements when the offers may not be considered open credit accounts?

  • SweetPeaGreen

    I want you to explain why I should ever consider accepting this flim-flam. I’m very upset the law allows this. Please keep me posted.

  • KatrineM

    I heard a rumor that they are just doing this to restart the sol on old debts.  Now I know that this is the case!

  • Basil121

    Why would anyone fall for this joke?  To restart old debt is just dumb. 
    Great post!