What Every Debt Collector Should Know About The CARD Act

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 harness in credit card practices and set limits to the fees that credit card companies charge consumers. It was designed with credit card holders in mind, limiting the amount of credit made 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 result of the CARD Act has been the setting of restrictions on the average size of accounts that are placed for collection. This, coupled with debtor’s behavior these past couple of years, where people generally spent savings and maxed out personal loans and home equity, raises eyebrows and concern, because for many consumers, credit cards are the only short term credit that is available to them at this moment.

Another major impact of the CARD Act is a result of the provision that consumers are not able to pay off one credit card debt using another card. While this may help consumers to be more fiscally responsible, this obviously has massive ramifications for the collection industry. Researchers 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 looked into as an 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 third party collection agencies.