Credit Card Collections Mirror Foreclosure Fiasco

As the Consumer Financial Protection Bureau (CFPB) rolls out new policies and expands the scope of consumer protections, the legal issues surrounding debt collection and debt buyers are getting an increasing amount of attention from the press.  At the same time, state Attorneys General and other agencies are taking a second look at issues that have long plagued consumers and have become an even more serious problem as the economy suffered and the amount of delinquent debt in the U.S. grew.

Beginning next week, we’ll take a closer look at the new CFPB policies and how they’ll impact consumers, create opportunities for consumer protection attorneys and impose higher standards on some creditors. First, though, let’s take a look at some of the side efforts in the works:

Iowa Attorney General Tom Miller—the same official who brought us the multi-state servicer settlement in early 2012—is at work with officials from other states to create a standard regarding the maintenance and transfer of data associated with charged-off debt. This stems from the recent discovery that a large percentage of credit card collection accounts were inaccurate; in some cases, there was no outstanding balance at all.

Chase whistleblower Linda Almonte, a speaker at our recent Debt Buyer seminar, was instrumental in uncovering the inaccuracies in allegedly delinquent accounts sold by Chase.  Recently, the Federal Trade Commission (FTC) reached a settlement with a debt collection firm backed by a Chase private equity unit over illegal harassment of consumers, but that’s only the beginning.  As we’ve previously reported, the California Attorney General recently filed suit against Chase, and the Office of the Comptroller of the Currency commenced its own investigation.

Chase reported that their own internal review of 1,000 lawsuits uncovered a 9% error rate.  And, while other banks haven’t made that type of information public, the problem is generally believed to be widespread within the industry.

It’s clear that the world of credit card collections is as replete with errors, inaccurate claims and even dishonest practices as the mortgage industry. Perhaps, with the CFPB getting into the game from the beginning, we can expect more serious efforts and better results in cleaning up the mess.