A large, multi-state probe is currently underway to determine if major U.S. banks knowingly provided debt collectors and debt buyers with bad information about charged-off accounts that was then later used as the basis for debt collection lawsuits.

A report in Reuters, using anonymous sources familiar with the action, claims that major U.S. banks – including Bank of America, Chase, Citibank, and Wells Fargo – are the targets of the investigation.  At issue is whether weak record-keeping by banks or a failure to pass accurate information to collection agencies harmed consumers.

None of the banks named, nor the state or federal agencies involved, would confirm or comment on the probe for the Reuters article.

The piece notes that the investigation has shades of the mortgage foreclosure documents “robo-signing” probe that resulted in a $25 billion settlement agreement between federal and state law enforcement and the major banks last year.

As with the mortgage cases, the investigation focuses on the banks’ poor paperwork and their weak tracking of the debts, according to Reuter’s sources.

While the probe is currently being spearheaded by state attorneys general, the CFPB could get involved in the future.

Documentation requirements, especially information provided to debt buyers when accounts are exchanged, have been a top priority on the state regulatory level for years. The information received from creditors is often used as the basis for debt collection lawsuits by debt buyers and collection law firms.

Many states, and even some local governments, have already passed laws that require specific information to be provided by ARM firms filing collection lawsuits. Minnesota is the most recent state to move on the issue, with twin chamber bills currently under consideration. Other states to address debt documentation recently include California, Maryland, and New Jersey.


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