Personal Finance

Are debt collection agencies committing fraud?

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  • Oct 25th, 2020 7:59 am
[OP]
Newbie
Feb 4, 2019
4 posts

Are debt collection agencies committing fraud?

I don't have any debt but I sometimes hear of others with credit card debt that was sent to collections even though they were making the minimum payments on their Home Depot credit card.

Do these credit card companies right off the debt as capital loss on their taxes?

If yes, then these credit card companies don't lose any money and them selling the debt and collection agencies trying to collect on debt is fraud. In my view anyways.

Two wrongs doesn't make a right scenario.
14 replies
Deal Fanatic
Jul 1, 2007
8446 posts
1496 upvotes
The credit card companies get something for selling the debt, so it's not a complete loss for them. Bottom line for the collection agencies is then the difference between the discount they paid for the debt and what they collect (face value), if they collect.

It's a pretty scammy business, collections. Honestly I don't see what right they have to collect anything. They scare and badger people into paying eventually though.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Sr. Member
Sep 14, 2012
875 posts
533 upvotes
Montreal, QC
Thalo wrote: It's a pretty scammy business, collections. Honestly I don't see what right they have to collect anything. They scare and badger people into paying eventually though.
If you were owed the money, you would think otherwise.

I've been lucky/careful that I've never defaulted on any loan and every credit card that I've ever owned in my life has either had the statement balance paid in full before the statement due date or at least the minimum monthly amount paid before the statement due date. Where the statement balance or the minimum monthly payment was paid because of an oversight which has I can count on my fingers on 1 hand how many times it happened to me in my life, I've paid the entire statement off the following month and their interest.

If someone owed me money that they borrowed from me, I would want to be paid.
[OP]
Newbie
Feb 4, 2019
4 posts
I don't know if the following applies to Canada. Debt collection companies are committing fraud by collecting on some imaginary debt.

www.nolo.com/legal-encyclopedia/what-is-credit-card-debt-write-off.html
lmcjipo wrote: If you were owed the money, you would think otherwise.

If someone owed me money that they borrowed from me, I would want to be paid.
Passing the debt around as some hot potato isn't right either. Like I said initially two wrongs don't make a right.

Credit card companies don't care about teaching people responsible spending. They want people to not pay off their credit cards and pay the interest every month. How else are they making money? Other than the small percentage from every transaction.
Sr. Member
User avatar
May 18, 2019
749 posts
365 upvotes
I know of one collection agency that alters the date of last activity on its collection accounts so that it could continue to report them to the credit bureaus and thus continue to ruin the debtors' financials and press them into paying. According to one of their CSRs it was a known "glitch" in their system. Now that is fraud.
Newbie
Nov 23, 2014
75 posts
83 upvotes
Regina, SK
Consistency wrote:
Do these credit card companies right off the debt as capital loss on their taxes?

If yes, then these credit card companies don't lose any money and them selling the debt and collection agencies trying to collect on debt is fraud. In my view anyways.
You seem to misunderstand what writing off means. They do still lose money. Writing something off reduces tax owing but not by the full amount.

For example, if a company writes off $100, it may reduce their tax owing by about $30. Then if they sell the debt to a collection agency for about $15, they have still lost $55 on the transaction.

The only “wrong” in the situation is the person who didn’t pay for something they committed to.
Deal Addict
May 12, 2014
2608 posts
2343 upvotes
Montreal
Consistency wrote: I don't have any debt but I sometimes hear of others with credit card debt that was sent to collections even though they were making the minimum payments on their Home Depot credit card.

Do these credit card companies right off the debt as capital loss on their taxes?

If yes, then these credit card companies don't lose any money and them selling the debt and collection agencies trying to collect on debt is fraud. In my view anyways.

Two wrongs doesn't make a right scenario.

If they're making the minimum payments it doesn't get sent to collections. If it's in collection they have stopped paying altogether, and for a while.

Writing off just means you lost money. It doesn't mean you get to deduct the entire amount from your taxes. It just means you don't pay tax on that amount (since obviously you didn't receive the money).

There is no fraud whatsoever here, except from people who knowingly borrow money which they know they can't repay. This increases costs for us all.

And there's nothing wrong with selling a debt. A debt is an asset to someone else, just like a house or a copyright to a song.
Sr. Member
Nov 6, 2015
904 posts
508 upvotes
Guelph, ON
Consistency wrote: Do these credit card companies right off the debt as capital loss on their taxes?

If yes, then these credit card companies don't lose any money and them selling the debt and collection agencies trying to collect on debt is fraud. In my view anyways.
Oh no, not another person who thinks a "write off" somehow means a company isn't loosing money!
Deal Addict
May 16, 2017
1442 posts
1798 upvotes
Consistency wrote: I don't have any debt but I sometimes hear of others with credit card debt that was sent to collections even though they were making the minimum payments on their Home Depot credit card.

Do these credit card companies right off the debt as capital loss on their taxes?

If yes, then these credit card companies don't lose any money and them selling the debt and collection agencies trying to collect on debt is fraud. In my view anyways.

Two wrongs doesn't make a right scenario.
1st statement - false. Home Depot (or their card issuer) does not send accounts to collection for no reason.

2nd statement - Uncollectable debts do appear on the financial books as a loss.

3rd statement - Any amount collected, INCLUDING the amount the debt may have been sold for, offsets any previously claimed loss. There is no double-dipping.

There isn't even one wrong in the above scenario, never mind two.
Sr. Member
Aug 14, 2015
852 posts
561 upvotes
Burnaby, BC
lmcjipo wrote: If you were owed the money, you would think otherwise.

I've been lucky/careful that I've never defaulted on any loan and every credit card that I've ever owned in my life has either had the statement balance paid in full before the statement due date or at least the minimum monthly amount paid before the statement due date. Where the statement balance or the minimum monthly payment was paid because of an oversight which has I can count on my fingers on 1 hand how many times it happened to me in my life, I've paid the entire statement off the following month and their interest.

If someone owed me money that they borrowed from me, I would want to be paid.
Trust me, you're just lucky - not careful.

A lot of cases isn't related to customer deliberately not paying for received service. It's related to not paying for service not rendered and subsequently gets sent to debt collectors.
Deal Fanatic
Dec 5, 2006
8585 posts
3976 upvotes
Markham
spiritsBB wrote: Trust me, you're just lucky - not careful.

A lot of cases isn't related to customer deliberately not paying for received service. It's related to not paying for service not rendered and subsequently gets sent to debt collectors.
You mean credit card companies ? I don't think so

Individual case, sure. Majority of collection cases, no way
Sr. Member
Sep 14, 2012
875 posts
533 upvotes
Montreal, QC
spiritsBB wrote: Trust me, you're just lucky - not careful.

A lot of cases isn't related to customer deliberately not paying for received service. It's related to not paying for service not rendered and subsequently gets sent to debt collectors.
I guess it depends what you mean by "lucky". For me, where something happens most of the time and I'm one of the people that it happens most of the time with, I wouldn't consider myself "lucky" or "unlucky".

In my family of my parents, brothers, sister, niece, and nephews that live in the same city as myself and have credit cards in their name, what you've indicated didn't happen to any of us so while I don't doubt that it happens occasionally to some customers, it is a small percentage of customers that this will happen with. If I were to take an informal survey by asking my friends who either pay their entire balance or pay the minimum monthly amount prior to the due date, I'm sure the majority of them never had the issue that you're referring to.
Deal Fanatic
Nov 22, 2015
5685 posts
5087 upvotes
Consistency wrote: I don't know if the following applies to Canada. Debt collection companies are committing fraud by collecting on some imaginary debt.

www.nolo.com/legal-encyclopedia/what-is ... e-off.html



Passing the debt around as some hot potato isn't right either. Like I said initially two wrongs don't make a right.

Credit card companies don't care about teaching people responsible spending. They want people to not pay off their credit cards and pay the interest every month. How else are they making money? Other than the small percentage from every transaction.
Most credit card companies do NOT make much profit from interest payments... most, if not all of it is offset by the loss they take when people default on their credit cards.

And yes, the 1-2% transaction fee IS exactly what the game is all about. The vast, vast majority of a credit card company's profit comes from those transaction fees. That's why they are constantly trying to sign up new clients and offer incentives for big spending.
Sr. Member
Sep 14, 2012
875 posts
533 upvotes
Montreal, QC
RubiconX wrote: Guys I recently started receiving emails from BMO that my MasterCard is due past payment, they have never sent me notices before, I have set my online banking profile to pay MasterCard $50 every 11th of the month, the billing cycle is the 13th, so minimum payment is covered all the time, why would they send me notices now? BTW I am late in paying off my full amount but only for days, it's not that I have 2 or 3 months accumulated.
I can see you occasionally being late in terms of paying using your set up but I don't see BMO sending you a notice that you're late unless there is something else up. You can be late for example if you make the payment automatically on the 11th of each month and they expect the money on the 13th of every month. If one of those days have a bank holiday and comprises of the weekend, your payment will be considered late. Not only that but if you're not using BMO to make your payment, it can also take 1-3 business days for BMO to receive the payment (generally it is only 1 business day).

My parents have occasionally missed an entire credit card bill payment (they aren't with BMO) due to oversight and the following month would get a surprise interest charge on their credit card. There was no notice sent.

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