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Credit card company courts controversy over consumer collections

by Peter Andrew
Credit card company courts controversy over consumer collections

One of the nation’s biggest credit card companies last year was forced to stop suing delinquent customers after an investigation by the Office of the Comptroller of the Currency (OCC) found serious irregularities in its collection processes, according to a Mar. 13 report in Collections & Credit Risk (CCR), a trade journal for the debt collection industry. Worse, the irregularities could call into question the legality of some court judgments the bank has already won.

Credit card debt a headache for lenders as well as borrowers

The problems the issuer faced were a clear echo of those encountered by mortgage lenders in the recent robo-signing scandal. They seem indicative of a failing administrative system, rather than of genuine malignancy on the part of the bank. However, that thought may provide little comfort to those consumers who may have been victims of inaccurate claims.

CCR identified at least four key causes:

  1. The bank had three separate computer systems on which the collection process relied, but these had fundamental problems in “talking” to each other. As a result, different systems sometimes indicated different outstanding balances, and this may have resulted in some inaccurate claims.
  2. The bank outsourced some of its collection activities to third-party attorneys who were incentivized by results. Some of these were said to be notorious for their poor record keeping. At one point, in up to 20 percent of cases the amount claimed by external attorneys differed from the sum the bank itself believed was owed, sometimes by wide margins.
  3. The bank reorganized its collections department in 2008, and some allege that its new boss may have eliminated some of the old (and expensive) checks and balances that might have prevented certain inaccuracies arising.
  4. In the wake of the credit crunch and recession, the sheer volume of cases that the collections group had to process expanded so quickly that members of staff were allegedly encouraged to take shortcuts.

That last point seems especially important. One former employee, who headed a team that processed tens of thousands of credit card cases, claimed in an affidavit quoted by CCR that not a single one of those files was verified. He went on to describe the instructions he claims he and his team members received from their superiors: “We were told: ‘We’re in a hurry. Go ahead and sign them.'”

Credit card debt has to be collected

Collecting debt is hardly a pleasant business. It is, however, a very necessary one. This particular bank recently “charged off” $20 billion over two years, writing the debt off their books and passing it on for collection through legal action. Just imagine how high credit card interest rates and fees would have to be if banks couldn’t recover a large proportion of that money. And ask yourself how many borrowers would bother making payments if they thought those were optional.

In these circumstances, you can see why the executives charged by this bank with collecting credit card debt responded as they did to the tsunami of new cases that they faced. Some of their actions appear to have been clearly wrong, and are now, no doubt, regretted. But at the time they must have seen themselves as being uncomfortably situated between a rock and a hard place.

The bank in this case was Chase. But other major credit card companies must have faced at least some similar problems. Indeed, you may wonder if others aren’t dreading a visit from the OCC’s regulators.

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