Accounting Experts Opine On Credit Card Debt Collection Dispute

This case involves a dispute over tracking and collection of interest on charged-off credit card debt. An expert with a strong accounting background was sought to explain the process that credit card companies use to remove charged-off debt from their balance sheets and how debt is sold to third-party debt collectors in detail. Additionally, the expert was asked to discuss the difference between accrued and unaccrued interest and how interest may be sought from the date of delinquency through the date of collection.

Question(s) For Expert Witness

1. Can you explain the process of selling charged-off debt from a credit card company to a third party collector?

2. Can you explain the timing of bank reporting and balance sheet requirements with respect to charged off debt and related interest amounts?

Expert Witness Response E-011940

I am a certified public accountant and I am also certified in financial forensics and fraud examination. I have conducted audits of financial institutions, including banks, brokers, dealers, and insurance carriers, and I have also provided litigation consulting services to them as well. When debt is recorded at net realizable value (NRV), it is discounted by an estimate for non-collectability, which recorded as a valuation adjustment. After 60 days, the debt removed from the entity's balance sheet and the valuation adjustment is removed, along with the total value of the debt being written off as an expense for that accounting period. Any proceeds from the sale of the debt to a third-party would be an offset against the expense. When a debt is classified as non-performing, the bank typically stops accruing interest on it. After the debt is sold, the bank has no residual financial interest in it (this may be subject to specific stipulations in the sale and debt assumption agreement).