The Minnesota interest rate for debts due to overdrawn bank accounts is 6%. Bradstreet & Associates was trying to charge 21.75%. According to Minnesota Attorney General Lori Swanson,
Since 2009, Bradstreet and its predecessor company bought at least $18 million in debt that originated with Wells Fargo and U.S. Bank. This affects, we believe, at least 16,000 Minnesota consumers.
The StarTribune article is also illuminating when it comes to the going rates for bad-debt portfolios. Bradstreet & Associates apparently paid about $1,080,000 for about $18,000,000 in bad debts, or about 6 cents on the dollar. But at 21.75% interest, those debts are growing fast. By 2013, about four years later, Bradstreet’s portfolio would be worth over $39.5 million. Change the percentage to 6%, and that number drops to a bit more than $22.7 million.
Sure, the debts are bad, which means Bradstreet will only collect a fraction of the portfolio’s paper value. But would you rather collect, say, 5% of $39.5 million, or 5% of $22.7 million?
Now, put yourself in the shoes of a consumer. Let’s say you had a $100 overdraft in 2009. (For now, we won’t include late fees and overdraft fees, which would jack up your debt to something more like $200 by the time the was sold.) By Minnesota law, that should be about $126 by 2013. But Bradstreet would have called demanding nearly $220 — $100 more.
All told, if my math is right, it looks like Bradstreet could be on the hook for as much as $16.8 million in damages.