In today’s economy, it’s not uncommon for individuals to rely on credit cards to pay off debts — whether they’re facing unexpected medical bills or trying to pay down student loans. However, while using credit cards can provide temporary relief, it can also lead to long-term financial challenges.
Using credit cards to pay off debt can create a cycle of debt if debtors continue to accumulate new debt while trying to pay off old debt. This can make it difficult to achieve financial stability and improve the credit score over time.
Visa’s new rules are designed to help individuals make more informed decisions when paying off debts and reduce the risks associated with credit card payments.
In this article, we’ll look closer at Visa’s new rules for debt collection and repayment of overdue receivables. We’ll examine how these changes will impact collection agencies and individuals alike.
Visa Rule Updates for Debt Collection Agencies
Previously, Visa allowed people to repay back their debt using credit cards. But this changes with the new rule in force from April 15, 2023. These new rules are intended to enhance transparency and protect cardholders from potentially unfair debt collection practices.
The crux of the rule?
Debt collection agencies can no longer accept Visa card payments for overdue receivables transactions.
And overdue receivables mean the money owed that has yet to be signed off to a third-party, crossed 120 days past the due payment date, classified as a collectible, or subjected to court orders for bankruptcy or insolvency.
One of the major changes that Visa is introducing is a new Merchant Category Code (MCC) specifically for collection agencies, MCC 7322 – Collection Agencies. This was introduced in October 2022, and it will become mandatory for collection agencies to use this MCC from April 15, 2023. This means that debt collection agencies will now have to disclose their business type and will be more easily identifiable by their merchant code.
Any agency collecting the debt on behalf of another organization must disclose important information to the cardholder before the transaction occurs. This information includes:
- The name of the creditor
- The relevant account/reference number
- Description of the debt and date of the repayment information
- Instructions on obtaining additional information about the transaction.
How Does the New Visa Rules Benefit Consumers?
The new Visa rules for debt collection and overdue receivables provide several benefits to consumers.
- The new rules ensure that collection agencies operate transparently by fully disclosing all information related to the debt or overdue receivables. This transparency allows consumers to verify the legitimacy of the collection agency and the debt asked to pay.
- Since collection agencies require using the new Merchant Category Code (MCC) 7322 for transactions related to debt collection, it helps ensure that consumers are not misled by unclear or ambiguous merchant descriptions, making it easier for them to identify and avoid any unauthorized or fraudulent transactions.
- The new rules protect consumers from excessive credit risk by prohibiting merchants from accepting credit or charge cards for overdue receivable transactions. This ensures that consumers are not tempted to take on additional debt by using their credit cards to pay off overdue receivables, which can lead to further financial hardship.
How Should the Debt Collectors Implement the Rule?
Visa expects the debt collection agencies to do two main things when accepting an overdue receivable transaction:
- First, the collection agency shouldn’t accept credit or charge card payments.
- Second, they should include the debt repayment indicator in the authorization request and clearing record. This indicator will help issuers assess credit risk associated with overdue receivables and enable cardholders to understand the nature of the transaction better.
So, now debt collection agencies should update their payment processing systems to ensure they can identify and decline credit card payments for overdue receivables. They may also need to implement changes to ensure the debt repayment indicator is included in all authorization requests and clearing records.
Debt collection agencies should ensure that their staff are trained on the new rules and requirements, particularly regarding the disclosure of information to cardholders before a transaction occurs. This may involve updating scripts or training materials and providing additional support to customer service representatives.
Debt collection agencies should communicate the new rules to their clients, including lenders and creditors, to ensure they know the requirements for disclosure of information to cardholders and the prohibition on accepting credit card payments for overdue receivables.
In Conclusion
Visa’s goal with these updates is to ensure that cardholders are protected from excessive credit risk and have greater transparency around their transactions, particularly when it comes to overdue receivables.
It is essential for merchants and collection agencies to stay up to date with the latest Visa regulations and compliance requirements to ensure that they are operating legally and ethically while protecting the interests of their customers. By complying with these rules, merchants and collection agencies can build customer trust and promote a healthy financial ecosystem.