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What Every Collection Agency Should Know About The CARD Act

July 18, 2010 · Collection Agencies, Credit, Credit Cards · (No comments)

A Complete Step-by-Step Guide To Successful In House Debt Collection

On February 22nd, 2010, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act took effect. The CARD Act had one major purpose: to attempt to put a curb on credit card practices and set limits to the fees that credit card companies charge consumers. It was created with consumers in mind, setting limits to the amount of credit that will be available to them in this recession “for their own good.”

Due to the life changing CARD Act, a number of financial institutions have modified their business models by reducing potential risk to cardholders. They have dropped or restricted some borrowers with a poor financial history, tightened up credit lines, and are marketing less. Analysts predict credit limit reductions to have two main impacts for the collection industry.

One impact of the CARD Act has been the restriction of the average size of accounts that are placed for collection. This, coupled with consumer behavior these past few years, where people in general spent savings and maxed out personal loans and home equity, raises concern and eyebrows, because for many debtors, credit cards are the only short term credit that is available to them at this moment.

Another giant impact of the CARD Act is a result of the provision that consumers are not able to pay off one credit card debt using a different card. While this may help debtors to be more fiscally responsible, this obviously has massive ramifications for the collection industry. Experts and leaders in the field hypothesize that the best way to deal with the enormous changes that have ensued is to remain flexible and to be creative. In addition to the same old telephone calls and collections letters, the internet can be seen as a good option for payment.

Experts also remind us of a few ideas that we, as collection professionals should keep in mind about the CARD Act. Extra payments must go to pay off the accounts with highest interest balances first. The CARD Act also gives consumers the ability to set their own credit limits that might be less than those set by the creditors, and marketing credit to college students and giving credit card access to people under twenty one will now be severely restricted.

Mallory Megan works for Rapid Recovery Solution and writes articles on national collection agencies.

A reference book for every business owner who is dealing with slow, non-paying customers, would like to improve their in house debt collection, and increase cash flow.

The Credit Score Basics

July 16, 2010 · Credit, Credit Score · (No comments)

Your credit score, and your criminal record. Both depend on your past, both can make you or break you, and both follow you around for a really long period of time. But, only you, and maybe your attorney, know the details of your criminal record. Your credit score is a whole different story. It can be pulled when you apply for a new credit card, go for that new job, try to get a new car, or even try to move in to a new place.

For starters, I wrote a brief summary and explanation. Your credit score is based on a number system that ranks between 300 and 850. A mysterious secret formula (OK, OK a mathematical algorithm that you can look up on the FICA website) will ultimately determine what your score, and your financial fate, will be. Both experts and creditors alike will tell you that they believe your score will be a very accurate prediction of how good a job you are going to do when it comes to paying your bills on time.

And don’t think you’re off the hook, even if you are not trying to get a new job, car, or credit card, your credit score is important. That is because if you already have a credit card, your creditor will glance over your credit score to decide whether it’s a good idea to decrease your credit limit and make you pay less, or give you a higher interest rate and make you pay more. Those financially savvy chosen ones with the highest scores will obtain the lowest rates.

However, don’t despair just yet if you have a crummy credit score. The money gods say you can redeem yourself. A few basic rules of thumb: try to pay your bills on time. Paying a bill late, or even worse, letting one of your accounts go delinquent and into collection will have a negative impact on your credit score. That being said, it logically follows that the longer and more consistently you pay your bills on time, the better your credit score will be.

If you currently have debt, just try to pay it off rather than moving it around. The experts can tell when you’re trying to pull a fast one. It might seem like a good idea to close credit cards you’ve had for a while but haven’t used- less temptation right? But don’t! For credit scores, it looks good to have a lot of credit available for you to use, and for you to use only a little of this credit. Also, that old card leads me to my final tip: maintain longevity. Try your hardest to keep your oldest accounts active, because that’s what looks the best. My final word of advice for people looking to improve their credit score is: for the love of God, don’t open any new accounts. They will lower your average account age, and reduce your account longevity (we just talked about that) and racking up bills and not paying them was what got you into trouble in the first place! Good luck and happy spending.

Mallory Megan works for Rapid Recovery Solution and writes articles on credit collection agencies.

Credit Card Business Model Tested In Current Downturn

July 16, 2010 · Credit, Credit Cards, Debit Cards · (No comments)

Discover Financial Services, facing the demand for added funding while profits are diminishing and credit card charge offs are amplifying, received only a indifferent response from the equity market as a public offering last week of its ordinary shares had to be priced at a 12 percent markdown to the market.

Right now there is a great deal of risk aversion when it comes to credit cards, said Dan North, chief economist at Euler Hermes ACI, a trade credit insurance firm.

The credit fright started last fall. As a result, people have begun employing their credit cards less, meaning less interchange proceeds from transactions. The credit card firms have also become watchful, carving credit lines, hiking up fees and altering interest rates from fixed to changing, both in response to the need for more revenue now and to prepare for the restrictions from the Credit Cardholders Bill of Rights, which goes into effect next year.

According to North, Discover cardholders have fragile credit ratings, on a whole, than holders of MasterCards, Visas and American Express cards, though those companies are struggling the same financial challenges.

All of those factors have also made it difficult for a new competitor in the market, Revolution Money, a payment platform complete with credit card and money transfer service designed to compete with major card companies Visa, MasterCard, Discover and American Express. Revolution LLC, headed by AOL founder Steve Case, had hoped to compete mainly by offering better security through a chip-based card and lower interchange fees to merchants.

A group of niche players that are getting more traction now, according to a Scripps Howard News Service report, is peer-to-peer lending (P2P), which entirely goes around traditional financial institutions. P2P lending services bundle pledges from individual investors and offer small loans to other individuals at attractive rates, a model that could evolve into direct competition for credit cards.

Mallory Megan works for Rapid Recovery Solution and writes articles on new york collection agencies.