Banks are sticklers in their dealings with customers. Overdraw your bank account by even a buck, and you could get dinged with an overdraft charge. Pay a bill just minutes past 5 p.m. on the due date? Expect a hefty late fee.
But when it comes to holding themselves to exacting standards for collecting old debts from credit card customers, some major banks get all loosey-goosey.
The nation's two largest banks allegedly cut corners — using shoddy procedures and flimsy records — when moving to collect credit card debts or selling bundles of them to outside collectors known as debt buyers, according to a series in American Banker, which covers the industry.
Bank of America sold bundles of old debts "as is" to debt buyers, with the proviso that its records might be incomplete or inaccurate, that some of the debts might have been wiped out in bankruptcy or that some might even have been paid off.
Did the bank care that the buyers would set packs of debt collectors on supposedly delinquent customers despite potentially flawed records? A bank spokesman would only say the language is fairly standard in the industry … to protect the buyer and seller on changes that occur after the loans are sold.
That's probably not much comfort to customers such as a Maryland resident. After getting behind on her credit card, she paid it off in 2006 with a $1,872.70 check made out to Bank of America and sent to a debt collector. But after her "debt" was sold to a debt buyer, she spent three more years battling collection efforts. She finally hired a lawyer and counter-sued to end the harassment.
JP Morgan Chase was accused by a whistle-blower of going after delinquent customers based on similarly lax records. According to the whistle-blower, the bank sold a bundle of court judgments against credit card customers that its own lawyers had labeled "toxic waste" because the debts were so lacking in documentation, they were considered uncollectible. Chase wouldn't comment on the American Banker stories, but it said the "overwhelming majority" of credit card collections were correct.
Much of this avalanche of debt is fallout from the go-go years before the financial meltdown, when banks extended credit and granted mortgages to practically anybody with a pulse. People got in over their heads, and when the housing bubble burst and the recession hit, banks were faced with a wave of defaults.
The problems with credit card collections are reminiscent of the recent scandals in which major banks used "robo-signed" documents to push through foreclosures without proper legal review. Just weeks ago, Bank of America, JP Morgan Chase and three other financial institutions agreed to pay a $25 billion settlement.
It's unclear how widespread the abuses are with credit card collections, but the reports are yet another reason it's important to have a federal bureau protecting the interests of consumers in their dealings with financial institutions. In 2009, it took a new law to force banks to halt egregious abuses of credit card customers, who had been hit with sky-high fees and interest rate hikes for the flimsiest of reasons.
The easiest way to avoid collections is, obviously, to pay your bills. And banks have a right to collect what they're owed. But they also have a legal duty to have accurate records to back up their claims. Selling off the debts to other businesses that will chase down customers with calls, letters and lawsuits doesn't absolve banks of that responsibility.
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