Considering how banks got away with submitting false documents to state courts on mortgage and foreclosure issues, why should we be surprised that they brought the same eye for detail to credit card debt collection?
We’ve known this for a while – back in March, JPMorgan Chase was found to have robo-signed documents and shredded others in their credit card debt collection process. Bank of America also kept dodgy records on credit card debt. American Banker did a great series on this. Now this rises to the New York Times‘ level, with a takeout on the problems credit card companies are having in courts with bad documentation. Again.
The same problems that plagued the foreclosure process — and prompted a multibillion-dollar settlement with big banks — are now emerging in the debt collection practices of credit card companies.
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.
Lenders, the judges said, are churning out lawsuits without regard for accuracy, and improperly collecting debts from consumers. The concerns echo a recent abuse in the foreclosure system, a practice known as robo-signing in which banks produced similar documents for different homeowners and did not review them.
“I would say that roughly 90 percent of the credit card lawsuits are flawed and can’t prove the person owes the debt,” said Noach Dear, a civil court judge in Brooklyn, who said he presided over as many as 100 such cases a day.
I don’t know if we can pinpoint the day when banks and financial firms decided they didn’t have to care anymore about accurate record-keeping. But clearly, that day came long ago, and the companies believe that their political power can inoculate them from any damage caused by lying to courts, stealing from their customers without verifiable information, and basically making a mockery of the longstanding system of debt that goes back to the 1677 Statute of Frauds.
The Consumer Financial Protection Bureau has done a lot of work in this space, and maybe on a going-forward basis we can restore some of the integrity to the system. CFPB’s first enforcement action got a full refund for Capital One customers ripped off by add-on credit card fees. But this is a far more fundamental problem. Credit card companies cannot verify their customers’ debts. That’s kind of the whole point of a credit card company!
The Times article adds some new details. Credit card firms use “robo-witnesses” in these debt collection court cases, who testify generically about record-keeping. Companies routinely try to collect money from people who have already paid. They add on fees into the final debt amount without justifying them. They file robo-signed documents with the court without proof of the underlying debt. In many cases, the documents are falsified or back-dated. And the defendant almost never shows up in court to defend themselves, leading to a default judgment despite the documentation problems.
Many judges said that their hands are tied. Unless a consumer shows up to contest a lawsuit, the judges cannot question the banks or comb through the lawsuits to root out suspicious documents. Instead, they are generally required to issue a summary judgment, in essence an automatic win for the bank.
“I do suspect flaws,” said Harry Walsh, a superior court judge in Ventura, Calif. “But there is little I can do.”
In the end, this is the reason banks don’t care about accuracy. They often win by default, and can just bull through the courts without a problem. The default judgment is a holy grail, that they can use to garnish wages or freeze a customer’s bank account.
The breakdown of simple records in debts and promissory notes has turned into a epidemic.