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Collection Industry Braces For CARD Act Challenges

The US debt collection industry is wired as the implementation of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act moves closer. Many debt collectors are expecting large changes as of Feb. 22, when many provisions of the Act take effect, with the primary focus now on adapting to what is soon to be a new landscape – without experiencing a drop in revenue. That could be challenging.

What the CARD Act does is to limit the amount of credit that is available to a consumer after they havetravelled down all other avenues. As a result, the credit crackdown is directly impacting the debt recovery industry.

With the main focus of the CARD Act being to rein in credit card practices and limiting fees, a wide range of card issuers and banks have looked to change their business model to compensate by actively reducing risk. They are tightening credit lines, dropping or restricting some borrowers and marketing less aggressively.

The credit-limit reductions by many of the banks will have two major impacts: reduce the average balance size of accounts placed for collection; and remove some liquidity from the market, making it more difficult to collect.

These changes are running headlong into the consumer behavior of the past several years, when many people typically spent their savings and maxed out home equity and personal loans. For many consumers, credit cards are the only short-term credit available.

But the CARD Act includes one very significant and far-reaching change for consumers: they can no longer pay off a credit card debt using another card.