Accounting Experts Opine On Credit Card Debt Collection Dispute

Case Overview

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.

Questions to the Accounting expert and their responses

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

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 is 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. 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).

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

When a debt is classified as non-performing, the bank typically stops accruing interest on it.

About the expert

This highly qualified expert has 30 years of experience in forensic accounting, fraud examination, and financial forensics. He specializes in auditing, corporate financial investigations, and litigation consulting support services. He obtained his BS in industrial management from the Georgia Institute of Technology, before receiving his MS in accounting from Pace University. Today, he is a certified public accountant in New York and a certified board advisor and fraud examiner. This expert is also certified in financial forensics. He is an active member of several professional organizations, including the Anti-Fraud Task Force, the Association of Certified Fraud Examiners, the Forensic and Litigation Services Committee, and the American Institute of Certified Public Accountants. This expert previously served as a senior associate of litigation consulting at Coopers and Lybrand LLP, as the manager of forensic accounting and corporate investigative services at Deloitte and Touche LLP, as the principal of litigation and forensic services at Lazar Levine and Felxi LLP, as the associate director of financial investigations at Protiviti, Inc., as the director of RGL Forensics, and as a senior forfeiture financial specialist for the US Department of Justice. He is currently the managing partner of a forensic accounting firm, an adjunct instructor of accounting at a top university, and the principal of a forensic accounting and consulting firm in New York.