Robo-Signing for Credit Card Debt Collection Could Land Banks in Hot Water

When big banks were exposed for falsely attesting to the underlying paperwork in delinquent mortgage lawsuits in the fall of 2010, the resulting robo-signing scandal called into question the legitimacy of roughly two million foreclosures and eventually led to ongoing settlement talks between banks and the federal government now estimated at $25 billion.

But if you think banks have a problem with shoddy documentation when it comes to delinquent mortgages, you should hear how bad they’ve been with delinquent credit cards.

According to one source, tens of millions of credit card accounts are improperly documented, leading to a massive epidemic of robo-signing and falsely-attested statements in millions of credit card lawsuits filed in courtrooms across the country by banks seeking to win judgments against delinquent credit card debtors.

Lawsuits against delinquent borrowers require precise documentation, including original credit agreements and accurate payment histories. But it turns out that documentation isn’t being provided. Credit card lawsuits are being attested to by banks with what one judge referred to as “robo-testimony.” As a result, judgments already granted banks could be overturned and the banks could be sued by state attorneys general or the Consumer Financial Protection Bureau. It’s possible that those same banks could also be charged by the Justice Department under the Racketeer Influenced and Corrupt Organizations (RICO) Statutes for knowingly selling improperly documented accounts to third-party debt collection agencies, which could themselves sue the banks.

Of course, some third-party debt collection companies that buy credit card debt from banks for pennies on the dollar aren’t exactly innocent in all this. Since much of the debt sold to debt collectors is both improperly documented and not legally enforceable because the statute of limitations on the debt has expired, some firms routinely resort to deceptive and illegal tactics to collect the debts. Some of the tactics include failing to tell debtors they can’t be sued, tricking debtors into making a single payment on their expired debt (which restarts the clock on old debts), and seemingly offering debtors some debt relief by offering to forgive a portion of the debt and settle for less than what was owed even though, legally, the debtor owes nothing (“Robo-Signing is the Tip of the Iceberg for the Banks,” Money Morning, Feb. 3, 2012).

Slowing Lawsuits Could Be a Sign That Banks are Preparing for Legal Battle

The specter of legal action faced by the banks because of the extent of improper documentation and robo-signing in credit card debt lawsuits may already be having an effect on some of the larger lenders. For example, JPMorgan Chase & Co. abruptly abandoned over 1,000 debt collection lawsuits in April 2011. And Erik Kardatzke, a prominent debtor-rights defense attorney of the Florida-based law firm Debt Defense P.L., said in a recent interview that the banks had suddenly stopped filing credit card lawsuits.

“I don’t see any pending suits by JPMorgan Chase or any of the attorneys or law firms that usually work for them,” he said. “I mean, not a single one. This is highly unusual.”

Big banks are already facing stiff legal challenges over the way they robo-signed foreclosure documents. And it’s possible that they’re slowing credit card lawsuits in preparation for a huge legal battle over using similar tactics in credit card debt cases. If that’s so, with millions more lawsuits in question, the results could have enormous bottom-line consequences for banks and debt collectors alike.

Further Reading

The New York Times, “Foreclosures (Robosigning Scandal and Settlement Talks).”

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