West Virginia AG to Cancel $6.6 million in Card Debt in Settlement with Debt Buyer
West Virginia Attorney General Darrell McGraw announced Wednesday that his office entered a settlement agreement with Financial Credit Services (FCS) that netted canceled debts of $6,675,474 for 1,451 West Virginia consumers.
FCS, a debt purchaser based in Palatine, Ill., said that most of the debt in question was held in credit card accounts from major issuers such as Bank One, Citi, Chase, GE Capital, Household, MNBA, and Providian.
The settlement comes after an investigation initiated by McGraw’s office in January 2007. The investigation was triggered by complaints against FCS that it was collecting in the state without a proper license.
In addition to relieving consumers of the indebtedness, FCS also agreed to refund all payments it collected, $2,481. The amount collected was likely small because FCS said it only contacted three per cent of the consumers.
McGraw said in a statement, “My office remains concerned about the debt purchasing industry, which typically purchases accounts for pennies on the dollar and rarely obtains any proof of the debt that would be admissible as evidence in a court. This practice is troublesome because state and federal laws require that collection agencies be able to verify a debt when disputed by consumers, an important obligation to consumers that debt purchasers can rarely meet. Notwithstanding our concerns, I commend FCS for granting this important relief to West Virginia consumers despite the fact that so few consumers were contacted.”
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Comments
Comment from Anonymous on October 23, 2008 at 10:15AM EST
I find it amazing that it's not about the fact that the debt is owed...but the fact that something isn't done by the books. If FCS did something wrong, then they should be fined but there is no way that the consumers who owe debts should be "forgiven" for the debt. THAT is ludicrious and exactly why this country is in the financial mess it's in.
Comment from Anonymous on October 23, 2008 at 11:13AM EST
Perfectly put!!!
Comment from Jeff Schultz on October 23, 2008 at 11:36AM EST
Your point is valid and the remedy seems severe, however the point of not having supporting documents provided at the point of sale is a critical and valid issue. It seems that the ARM industry needs to do more to mandate that original creditors provide proper documents at the point of sale. Our industries deals with billions of dollars in transactions and rarely are the documents provided that are necessary to go into a court of law and prove the debt is owed.
Comment from not a fool on October 23, 2008 at 10:45PM EST
The debts were written off once by the banks as non collectable, therby generating a tax deduction.
The "amount" of the debts were artifically inflated at a default rate of interest by the banks so they could write off a greater amount.
It also inflated the "account recievables" which artifically inflated the stock price.... look up "credit default swaps"
I would be surprised if the principle on these debts were 15 %of the value stated.
Furthermore FCS only paid pennies on the dollar for those debts, so the "Actual" amount lost was most likely less than the possible fine....
Comment from just an ordinary joe on November 24, 2008 at 1:05PM EST
Interesting but factually incorrect premise posted by "Not a fool". I am guessing you are not very close to the accounting policy at a bank. Most reputable banks adhere closely to my comments below.
"The debts were written off once by the banks as non collectable, therby generating a tax deduction."
Banks write off charged-off debt for tax reductions as any bad debt should be in any industry. GAAP, OCC mandate this. Also all revenues from sale of bad debt are taxable. No bank would want to raise the bad debt inordinately by charging more interest. All of them have to reserve a loan loss against bad debt. Higher the bad debt more the loan loss and hence lower the current earnings. Also with high bad debt, cost of funds increases in the best case and worst case- there is no funding available. Bad debt account is closely monitored by OCC, trustees etc. No reputable bank wants to monkey with this."
"The "amount" of the debts were artifically inflated at a default rate of interest by the banks so they could write off a greater amount."
See above comments. Also repricing typically happens fairly soon when an account is delinquent or late. Generally an account is not repriced when it is severely delinquent or about to charge-off. Late repricing hurts the bank more than benefits them- by raising Charge off dollars. Also, high interest rate will lower the price that buyers pay for these accounts.
It also inflated the "account recievables" which artifically inflated the stock price.... look up "credit default swaps"
You seem to be on a single track
"I would be surprised if the principle on these debts were 15 %of the value stated."
You will be surprised.