I’m not suggesting that anyone here do this, nor am I condoning it (because I think it might be illegal), but I want to know if it works.
This fellow I know claims he makes a lot of money buying other peoples’ credit card debt. It works like this: Credit Card Debtor pays him $1500 to “buy” the debt (assuming, of course, the debt is > $1500), and he then proceeds (or instructs the Debtor to proceed) to cut a check for $10 to the bank. On the check he writes something like:
By cashing this check, you agree to these new terms for paying off the debt-- ie, a monthly payment of $10 will be made.
Now, according to this guy the banks give up after a few months and stop cashing the checks, presumably because the administrative costs exceed $10. And so the debt is effectively wiped off the books.
This guy claims to have done this a number of times, and it “always works”. I’m suspicious. Thoughts?
I don’t have a cite but I read somewhere that you can’t unilaterally change terms of a contract based on scribbling new “terms” on your check.
I don’t remember if it was court case decisions or actual law but it didn’t work with sending partial payments to IRS or mortgage companies. I don’t see how the situation as you’ve described it is any different.
I remember a similar question was posed in reverse: “If someone owes me money ($1000) and they send a check of partial amount ($200) with memo saying ‘payment in full’, does that mean I lose my rights to collect the rest ($800)?” The answer was no.
However, the above answers seem to be in contradiction of all the various “promotional checks” I get in the mail saying, “by cashing this $10 check, you agree to sign up for 2 years of credit-fraud protection at $49.95 a year blah blah blah.”
That sort of endorsement can be valid (as in the promotional checks example). However, your credit card is governed by a contract, which probably disallows any changes to the terms except by actually amending the agreement.
It works for a short period of time, then you need to move out of town and change your name.
Here is how it works.
You give me $1500 to take your $2000 credit card debt. I make a min payment to the bank for a month or two. Change the billing addrress. Telling you it is ok the bank is happy. Then I stop paying. When I have enough people giving me nomey, I get out of town before before anyone realises that it is not working and I have scamed them…
How in the world is this anything but a low level scam based on the insane fantasy that there’s some fancy kitchen table legal jujitsu you’re going to be able to pull on billion dollar credit card companies and their fancy-pants lawyers by writing in the memo section of a check.
Seriously… this acquaintance is a straight up con artist. You can get away with this for several months as the wheels of bill collection and legal procedure grind slow, but at some point he’s going to have to beat feet out of town when the pigeons realize they’ve been taken and there is no magical credit card fairy.
Well, collection agencies and the like will often buy distressed debt (i.e. overdue accounts) from card companies for some relatively low number of cents in the dollar. This is because the card company figures it is better to e.g. clear $5K of bad debt off their books and bank $1500 in the process rather than spending months trying (and often failing) to get the money from the cardholder. So it can sorta be done.
But whoever bought the debt then needs to get their money back, plus some profit. So they tend to spend lots of time knocking on doors, towing cars, phoning people late at night, and so on.
At best the guy is exaggerating. In order for that trick to work in most jurisdictions, the debt must be unliquidated (claims on open accounts are usually considered liquidated)* or subject to a bona fide dispute.
Your cite looks authoritative, but I’m more confused.
There must be another component of law somewhere that reconciles the inconsistencies of my experiences.
If you owe the IRS or bank that holds your mortgage $100,000 – you can’t just send them a partial check for $1 and scribble “payment in full” in the memo section expecting to get a free ride of $99,999. Maybe the 90-day return of partial payment is the key component. However, I don’t remember the IRS or mortgage company having to return any money. I guess I have nothing to back it up unless I can find a cite saying those companies don’t have to return partial payments in 90 days and they’re still within rights to expect the remaining $$$ owed.
Ah, wait, I misread the OP. Let me take another whack at it. Nope the guy’s just full of crap.
A modification of a contract must be supported by consideration. The debtor already owes the bank more than ten bucks, so the payment doesn’t count as consideration for the modification.
I guess I echo Hank Beecher’s question. If I owe a bank $2000 in credit card, I can pay Joe Blow $1500 (without consulting the bank) and then tell my bank “It’s not my problem any more; talk to Mr. Blow.”?
How can this scheme ever work? The bank’s response would be (I’d think) something like, “Whatever, sir. As far as we’re concerned you still owe us $2000. Your dealings with Mr. Blow are not our problem. If Mr. Blow feels like paying us on your behalf we’ll accept the money and credit your account, but if he doesn’t we’re coming after you.”
If a bank holds a mortgage on your home, the debt is “liquidated” and without more, not “subject to a bona fide dispute.” So sending them a satisfaction and accord check does no good. They get to cash the check and keep the money because UCC section 3-311 only applies if:
Right. What we’re talking about here is delegtion of a contractual duty. Basically, delegations only work (when they work) if he delegatee actually performs the contract. For lack of a better cite:
So not only does the trick not work, it does nothing to extinguish the original obligor’s liability, and it might subject the genius to liability as well.
The debtor doesn’t have anything to sell…he’s the one that owes the money. If he’s paying $1500 to John Mace’s friend on a $2000 debt, expecting this friend to somehow extinguish the debt, he’s a fool. He’d be better served to give the $1500 to the creditor, reducing his balance. Really curious about how the friend explains that he’s “buying” the debt, but the debtor has to pay him to do it. Things simply do not work that way.
The creditor can sell or assign its right to collect to a third party, and they sometimes do. They are not going to be bound by some terms imposed by a third party with whom they have no contractual ties. I see nothing here that would prevent them from pursuing the card holder for the balance due.
Sounds to me like John Mace’s friend is committing fraud.
There are two versions here. In one JM’s friend gets paid by the obligor and cuts a check himself, in the other the guy has the obligor cut the check.
As I pointed out above, if the obligor sent a good fact accord and satisfaction check (a one time payment) and managed to comply with 3-311 (or convince a judge that he did), he might get away with it. OTOH, if JM’s buddy writes the check, there’s an argument that 3-311 doesn’t apply. And the OP doesn’t deal with accord and satisfaction checks because the checks in question here involve a modified repayment arrangement–not a full satisfaction of the debt. You can’t unilaterally modify a contract, and sneaky notes on backs of checks without consideration won’t work. So no, the deal described in the OP won’t work. The obligor and JM’s friend might both be sued.
If JM’s friend is advising the obligor to try the check trick and taking money for it, he’s probably practicing law without a license. If he’s taking the guy’s money and promising the guy he’ll make the debt go away, he’s probably committing fraud, depending on what he actually tells the obligor.
The OP’s terminology is confusing. You can “buy” debt, but it’s the bank/lender that owns the debt and the one selling it, not the debtor. If you are a bank, a loan you extend to a borrower is an asset (i.e. you pay a lump sum up front and get a stream of income in return) and of course can be bought and sold like any other asset.