Collection Agency Getting Paid by Issuing Credit Cards

A collection agency in Oregon is using a unique business model to ensure the money they are going after gets collected: they’re extending credit cards to debtors. The cards not only guarantee a monthly payment, they give those with very poor credit a chance to obtain a low-interest credit card.

Beaverton, Ore.-based Genesis Financial Solutions has been extending credit to their debtors for years (“Debt Purchaser Joins Forces with WebBank for Consumer Lending and Credit Card Opportunities,” Sept. 26, 2006). The collection agency, debt buyer and consumer lender now thinks it has found a niche with subprime borrowers, according to a feature article running Monday in the Christian Science Monitor.

The card program works by transferring a debtor’s balances onto a MasterCard issued by Genesis. The cards, atypical of subprime credit, usually have interest rates between 11 and 19 percent. The debtors then make monthly payments on the cards that are applied to the original debt until it is paid off.

If it sounds like a typical payment plan that most collectors would be familiar with, there is a catch that makes it different. The interest rate is not on the original debt; those balances are carried interest-free. Debtors who have a Genesis MasterCard can actually use the card to make purchases, once they’ve freed up enough credit.

They obtain credit simply by paying the original debt as agreed. Each month, Genesis applies 150 percent of the payment to the credit line. So for example, if a debtor has $1,000 transferred to a Genesis card and makes $50 payments each month, $75 is applied to the account, shifting the credit limit. So the debtor still owes $950 on the original debt, but they can now charge $75 on their MasterCard.

Irving Levin, CEO of Genesis, told the Christian Science Monitor that the arrangement not only produces an incentive for the consumer to make the monthly payments, but also offers them a chance to have a credit card – something that is necessary in today’s world – for a “fair” interest rate.