Credit Store Inc. has acquired four portfolios of defaulted and past- due credit card and installment loan receivables through its subsidiary, Service One International Corp.
Service One, based in Sioux Falls, S.D., markets credit card programs under different trade names nationally to the subprime market.
The portfolios purchased last week at a "substantial discount," according to Credit Store, included $600 million in defaulted credit card receivables and installment debt and $15 million in outstanding credit card and past-due receivables.
"This is just another way of collecting debt, and companies that buy the discounted paper are betting that the importance of the credit card will persuade a consumer to pay back their debt," said Steven J. Smith, president of Scarsdale, N.Y.-based S.J. Smith & Associates.
One of Service One's programs, Amcredit, targets consumers who have gone through bankruptcy.
Amcredit buys defaulted debt at discounts and offers these bankrupt customers the opportunity to repay all or a portion of their discharged debt in return for receiving a line of new credit, ranging from $1,000 to $2,500.
"The arrangement can be very beneficial for the issuer because they are paying less than a 100 cents on the dollar," said Mr. Smith. However, he added, "Incremental risk and operating costs will reduce the amount of money they actually make."