Tuesday, March 19, 2013

States probing top U.S. banks over debt collection

From:  Thomson Reuters


By Aruna Viswanatha and Rick Rothacker

March 7 (Reuters) - The largest U.S. banks face a multi-state investigation into whether they helped debt collectors pursue faulty judgments against credit card customers, according to people familiar with the matter.

At issue is whether weak record-keeping by banks or a failure to pass accurate information to collection agencies harmed consumers.

The allegations against the banks echo those central to last year's $25 billion federal-state mortgage settlement to resolve charges that the banks "robo-signed" documents and pursued foreclosures with faulty information.

This latest probe targets the same banks, including Bank of America, JPMorgan Chase, Citigroup and Wells Fargo, said the sources who spoke on condition of anonymity because the investigations are continuing.

As with the mortgage cases, the investigation focuses on the banks' poor paperwork and their weak tracking of the debts.

When they sold delinquent credit card debt to the buyers, often at only a few cents on the dollar, they allegedly failed to provide them with the evidence that the borrowers owed the money. It is unclear, however, if the incomplete information was used to pursue borrowers who were not delinquent.

Representatives of JPMorgan, Bank of America, Citigroup and Wells Fargo declined to comment for this story. The American Bankers Association also declined to comment.
Mark Schiffman, vice president for public affairs at ACA International, an organization that represents debt collectors, said the industry agrees it needs proper information to pursue debts owed, but said policymakers could better define which documentation is necessary.
While states are still considering their options in how to proceed against the banks, the issue is "moving up in importance" and action could come soon, one state official said.

The probe against the banks marks an expansion of the scrutiny that to date has largely focused on the debt collectors.

Along with state attorneys general, federal agencies including the Federal Trade Commission and the Consumer Financial Protection Bureau (CFPB) have been investigating the firms who buy the delinquent debt and then seek to collect on it.

In one of the more notable cases, the FTC last year accused debt buyer Asset Acceptance of misrepresenting that consumers owed a debt when it could not substantiate its representations. The FTC also charged that the firm failed to disclose debts that were too old to be legally collected and repeatedly called third parties who did not owe a debt.

Asset Acceptance neither admitted nor denied the findings, but agreed to pay $2.5 million to settle the charges.

The FTC does not have jurisdiction over the banks who sold the credit card debt, but two sources familiar with the matter said the CFPB could join in the larger action being coordinated by the states.

FOLLOWING THE PAPERWORK

Investigators are finding that the banks often did not provide buyers of the debt with evidence that individual credit card accounts were delinquent. Instead the banks only provided basic information about how much money they thought was owed and who the borrower was, without providing original contracts, past statements, or other additional documentation.

In a speech last week, CFPB Director Richard Cordray told state attorneys general he wanted to work with them in addressing key priorities, including problems in debt collection.
A CFPB spokeswoman said the agency "coordinates closely with the prudential and state regulators to oversee consumer financial markets, with the goal of effectively using the combined federal-state resources to effectively oversee the markets."

The multi-state inquiry into the banks is led by Iowa, people familiar with the matter said, the state that also led state involvement in the mortgage deal.

"Our office is leading a multistate working group that is looking into debt buying and debt collection practices, and how these practices impact consumers," Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, said. "Because this is an open case, we can't discuss specifics."

Schiffman, the spokesman for the organization representing debt collectors, said the industry is limited by what information debt sellers, including banks, provide them with.

"The challenge for our industry is that, we're not in control of the documentation that's available," he said. "It comes from the creditor."

Banks could argue that they were not the ones who directly pursued the judgments, and were simply selling off bad debt for pennies on the dollar.  MORE

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