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An unusual series of credit card offers has started arriving in the mailboxes of Americans with past defaults and delinquencies, according to news reports. However, these offers of credit cards for bad credit scores come with an unexpected downside. Offered through partnerships between regional banks and debt collection agencies, these accounts require consumers to pay past debts that have likely expired under state statutes of limitations.

Writing for the Wall Street Journal, Jessica Silver-Greenberg profiled the activities of CompuCredit, a company that used the technique to collect more than $15 million in expired credit card debt using balance transfer credit card offers. The Federal Trade Commission already forced CompuCredit to refund over $100 million in collections from a similar program involving a sponsored Visa card, citing failure to disclose the full consequences of accepting such an offer.

Debt collectors play on consumers' need for credit cards

A patchwork of state and federal laws regulate banks' relationships with consumers, forcing many lenders to write off bad debts as uncollectible after a length of time ranging from 3 to 10 years. Although a charged-off debt can remain on a credit report for up to a decade, banks relinquish the right to collect on debt when an account remains dormant for the length of the statute of limitations in a cardholder's home state.

Mainstream banks rarely wait to write off bad debts, often selling rights to collect on closed accounts after about six months. Private debt collectors pay pennies on the dollars for portfolios that don't always include accurate account information. If a debt collector can convince a borrower to make even a partial payment on an alleged balance owed, that debt "re-ages" and the statute of limitations period starts over. In fact, making a payment on an expired debt can revive an entire portfolio of accounts, based on varying interpretations of state rules.

Despite industry leaders' pledges of fairness and accuracy, regulators remain wary of companies that often headline lists of consumer complaints. A Newsweek investigation found many debt buyers working portfolios that had been resold so often that original contracts no longer existed for alleged balances. West Virginia's attorney general has already banned debt collector-sponsored credit cards there, citing agencies' "abusive" practices.