We learned a few weeks ago about the JPMorgan Chase debt collection scandal, which featured robo-signing, shredded documents, and loads of criminal activity. Now there’s evidence that this was more of an industry standard, as Bank of America suffers from similar problems in their debt collection business. Here’s the story from American Banker, which has done good work on this issue:
Bank of America has sold collections agencies rights to sue over credit card debts that it has privately noted were potentially inaccurate or already repaid.
In a series of 2009 and 2010 transactions, Bank of America sold credit card receivables to an outfit called CACH LLC, based in Denver. Co. Each month CACH bought debts with a face value of as much as $65 million for 1.8 cents on the dollar. At least a portion of the debts were legacy accounts acquired from MBNA, which Bank of America purchased in 2006.
The pricing reflected the accounts’ questionable quality, but what is notable is that the bank could get anything at all for them. B of A was not making “any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever” about the accuracy or completeness of the debts’ records, according to a 2010 credit card sales agreement submitted to a California state court in a civil suit involving debt that B of A had sold to CACH.
Now, in this case, BofA at least made the company buying the debt aware of the potential pitfalls, or rather, they didn’t attest to the accuracy of the debt they sold. But I’m more focused on the faulty record-keeping. Bank of America simply had no idea how to keep track of their credit card accounts, it appears. Individuals who fail to do that are called deadbeats. Banks which do the same thing are not.
Given the JPMorgan Chase history, we can confidently say that the too big to fail banks have as many problems with record-keeping in their credit card business as they do in their mortgage business. They have no problem misrepresenting documents to their customers, to purchasers of their services, or to courts. This is emblematic of the simple fact they they consider themselves bullet-proof. Why invest in quality control when there are no consequences? If you can just buy your way out of trouble on the cheap – and if you have a captured Congress and captured courts (BofA just won a major decision on its $8.5 billion settlement with its mortgage-backed securities investors, preventing some investors from suing to block the deal) – why invest in any of the actual functions of the business?
I’m not hopeful that this will change in the near future, but there are a couple signs. Moody’s will likely downgrade BofA and other big banks today, as investors lose confidence in the TBTF banks. And Matt Taibbi brings up that remarkable Dallas Fed document calling for a breakup of the big banks.
Much of (the Dallas Fed) report sounds like it could have been written by Dylan Ratigan, Nomi Prins, Tyler Durden, Barry Rithotz, or any of the other countless critics of Wall Street that have grown out of the crisis era.
On what we call the far ends of the political spectrum, in Occupy and the Tea Party, there are people who obviously have sharply contrasting views on all sorts of things. Your average Occupy protester and your average Rand Paul devotee probably couldn’t make it through a game of Boggle without getting in a loud scrap about something, whether it’s Obamacare or gay parenting or whatever.
But whether you think modern American capitalism needs to be fundamentally reformed or whether you think it just needs a few tweaks here and there, you probably can at least agree, for starters, that our system definitely can’t work if corrupt, failing companies escape consequence by leaning on an endless supply of bailouts and low-interest financial patronage by the Federal Reserve.
The conservative argument on TBTF is beginning to blend in with, and become indistinguishable from, the progressive argument. You can say the current system is private enterprise corrupting government, or you can call it repressive government corrupting private enterprise, but it increasingly amounts to the same thing.
We’ve seen these movements come together in a transpartisan coalition before. Maybe we’ll see more of that down the road.