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Credit Card Balance

Mark Cappel
UpdatedJan 31, 2011
Key Takeaways:
  • Parties can assign the rights to a contract.
  • Narrow exceptions apply to the assignment rule.
  • Collection agents have the right to collect the balance due.

Who much can a collection agent demand from me on a credit card account?

If my credit card debt is sold to a collection agency, what powers do they have in order to receive compensation for the debt I didn't pay with the original creditor?

The short answer to your question is, "The collection agent has the right to collect the balance due plus whatever interest and fees are allowed by state's laws."

In the common law of contracts, it is well established the parties can assign their rights under the contract, unless a narrow set of exceptions apply. These are:

  • The contract states no assignment of rights are allowed
  • The assignment changes either party’s duties in a material manner
  • The assignment changes the element of risk to the parties
  • The assignment impairs either party’s chance to obtain the other's performance

Otherwise, the parties are free to assign their rights under the contract.

You may ask, "Doesn’t assigning my account to a collection agent count as ‘changing either party’s duties in a material manner’?" No. This exception is for so-called personal services contracts where there is a special relationship of trust or confidence between the parties.

A delinquent credit card account, which is called a collection account in the trade, is nothing special. You and I are just numbers on the screen to our credit card issuers. As special as we might be to our families and friends, our credit card accounts are just rows and columns in a computer database.

Now let us look at a separate but related issue. A creditor has the right to hire a collection agent on a contract basis to act on the creditor’s behalf and pester a delinquent debtor into paying the amount owed. A creditor also has the right to assign its rights to collect the account to a collection agent. As an assignee, it has all of the rights the original creditor had.

The assigned collection account can be bare, or fully documented. A bare account is worth far less than a fully documented account. When an unknown person calls seeking to collect a debt, it is always a good idea to validate the debt.

Your Questions

If your credit card contract is silent on assignments, the presumption is that assignment is allowed. If the contract mentions assignments, then review what you agreed to when you signed the contract. However, if the contract states that assignments are not allowed, then you have no liability to the collection agent or law firm that purchased the rights. However, if the collection agent is only a contractor, then no assignment has been made, and any "no assignments" clause in your credit card contract do not apply.

You used the word compensation in your question. If the collection agent is a contractor, then it and the original creditor will agree to a compensation plan. Typically, it is a percentage of the amount collected, but it could be a time and materials contract, too.

As discussed, if the collection agent was assigned the collection account, it has the right to collect the entire balance due at the time of the assignment. If, for example, you charged $50,000 on a credit card, paid the card issuer $45,000 and ignored the rest, then the balance due is $5,000 plus the state-allowed interest and fees.

To learn more about your rights as a debtor, read the resource Collections Advice.

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