The Learning Curve

New tricks for an old dog.

Who owns this credit card account?

Who owns a credit card account and does it make any legal difference ?

Normally you’d think that the credit card company owns  the receivable, but with the fairly recent practice of securitized debt pools reduced to market investments, it could be anybody at all that now “owns” the account.  It may very well make a difference too, who owns it.

Not just anyone can get into the credit card business.  Credit card companies can get away with doing what they do because of their status.  They are National Banks, or Federal Savings and Loan Associations theoretically regulated by some branch of the U.S. Treasury Department, or they are some stripe of State chartered financial institution.

To paraphrase Chevy Chase from the original cast of Saturday Night Live, “Hi! I’m J.P. Morgan Chase, a National Bank, and you’re not.”

The terms and conditions of a Chase credit card, made possible by the laws of Delaware,  are enforceable nationwide due to the National Banking Act.  Can they continue to be administered as such when the underlying obligation is sold off to an investor who is not also a National Bank?

It seems conceivable that the laws that apply to a credit card obligation may change when ownership of the account changes.  I have seen from reading various documents from the Office of the Comptroller of Currency (OCC) the value of securitized credit card accounts are removed from the credit card company’s balance sheet.  The balance is no longer “owned” by the card company. They sold it, somehow.

Trying to figure out the complexity of securitized debt instruments would be a mind-numbing, if not downright mystical, undertaking, and not worth my time.  However, the selfsame legal issue has immediate practical implication in more mundane debtor-creditor relationships.

I have seen instances where a defaulted credit card account that is written off by the card company is then  sold at a discount to debt collectors.  The non-bank collectors have sometimes sought to accrue interest charges as if the original card terms and conditions still applied.

In that circumstance, at least, I cannot see how the new owners of the account, the debt collectors, can rightfully claim the same rights as accrue to a company with the status of a regulated financial institution.

In legal term, the issue might be listed under key phrase “real party in interest.”

Another legal key phrase is “choice of law.”  With respect to credit card receivables, choice of law issues are related to the preceding key phrase, real party in interest.  In a two-tiered Federal system, with many inconsistent sets of state rules and priorities in competition with each other and with an over-arching national set of laws, it is frequently not so clear which set of rules apply to any given circumstance.

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