Credit Card Debt Collection: The Next Financial Bubble?

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In a piece running on the New York Times‘s DealB%k section (…yeah: I don’t know what they think they’re doing with that percentage sign, either; but, it’s the New York Times so what are you going to do, right?), writer Jessica Silver-Greenberg draws a comparison between the mortgage meltdown and the current crisis among credit card debt collections.

“As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.”

The worry is: too many debts are being churned through the system too quickly, with little attempt to verify the validity of the debt. This, according to the Times and other pro-consumer groups, is a danger to consumers and in need of serious regulation.

(Which is not to suggest that the collection industry doesn’t have an issue, sometimes, with robo-signing. And this is not to suggest that there aren’t instances where that chain of ownership gets a little murky when it comes to debt porfolios. This is to suggest, however, that sometimes to tell a story we pick and choose the evidence we want to relate — and this piece is heavy on singling out only those instances that make their case.)

“Amid the surge in lawsuits, credit card companies are facing scrutiny. The Office of the Comptroller of the Currency is investigating JPMorgan Chase after a former employee said that nearly 23,000 delinquent accounts had incorrect balances, according to people with knowledge of the investigation.”

The article also brings up the new spectre of “robo-testimony”:

Last year, American Express sued Felicia Tancreto, claiming that she had stopped making payments and owed more than $16,000 on her credit card.

While Ms. Tancreto was behind on her payments, she contested owing the full amount, according to court records. In April, Judge Dear dismissed the lawsuit, citing a lack of evidence. The American Express employee who testified, the judge noted, provided generic testimony about the way the company maintained its records. The same witness gave similar evidence in other cases, which the judge said amounted to ‘robo-testimony.’

For those of you reading who primarily work credit card paper: are you seeing increased issues with consumers reporting that you’re pursuing debt that’s not valid? Are credit card companies — either wittingly or unwittingly — passing on bad paper to your agencies, in the hopes of recouping?

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Posted in Charge-off, Credit Card Receivables, Debt Collection, Debt Recovery, FDCPA, Featured Post .

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  • avatar Tony Waybright says:

    Retail collection attorneys have been facing this issue for years under the name of “meaningful involvement” before the mortgage foreclosure biz popularized the term robo-signing. Recent court decisions and related bar association rules/interpretations are threatening to remake that entire portion of the business.

    Interesting that the article focuses on the CC company witnesses and leaves the debt buyers (usually the one filing suit) out of the limelight.

  • avatar alamo says:

    The unchecked utilization of the court system for junk debt suits will be popular and profitable as long as it is allowed. There is only a head nod about due diligence and validation as the current system knowingly operates on no-documentation suing. The biggest names in banking are also the biggest names in collections through their 3 to 4 lettered subsidiaries that no one has heard of.

    The easy money is in default judgments, and there’s always plenty of legal set aside to take care of the few consumers who can or will fight. If you ever get your “day in court” you will have lost more than you will ever recover.

    The A/R industry is vital to the economy, the dirty side of it is not.

  • avatar John Schneider says:

    I’m waiting for a Class Action suit against the Credit Reporting agencies for reporting the same debt several times on a report. If each of those lowers the score it has to be illegal.

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