Credit card debt law­suits flawed like fore­clo­sure fil­ings

The Pak Banker - - COMPANIES/BOSS -

It's well known that credit card debt, like mort­gage debt, is sold off to Wall Street, pooled, then diced and spliced into dif­fer­ent parts that are sub­se­quently sold to in­vestors.

But lately credit card debt re­sem­bles mort­gage debt in another ma­jor way: Lenders are su­ing bor­row­ers who have fallen be­hind on their pay­ments and judges are re­ject­ing some of those suits, cit­ing in­ac­cu­ra­cies and other flaws. State civil court judge Noah Deah in Brook­lyn said that "roughly 90% of credit card law­suits…can't prove the per­son owes the debt."

Michael Ci­affa, a dis­trict court judge in Nas­sau County, NY, said that one doc­u­ment in a suit brought by Cit­i­group had "the look and feel of a robo-signed af­fi­davit," ac­cord­ing to court records cited in the NY Times story. Delin­quent credit card debt cur­rently to­tals $18.7 bil­lion, ac­cord­ing to Equifax and Moody's An­a­lyt­ics."No­body is dis­put­ing that con­sumers bor­rowed money and now are not pay­ing so some­body has a right to come in and col­lect," says The Daily Ticker's Henry Blod­get.

Cit­i­group, JPMor­gan Chase, Amer­i­can Ex­press and other lenders be­lieve they do, and they're su­ing to re­coup monies owed on credit cards they is­sued. But some con­sumers are fight­ing back and find­ing that judges are on their side. Reg­u­la­tors are also weigh­ing in on the con­tro­versy.

The Fed­eral trade Com­mis­sion has found that some credit card is­suers are bas­ing law­suits on in­com­plete or false doc­u­men­ta­tion and it's work­ing with the courts to im­prove the ways lenders pur­sue those delin­quent bor­row­ers. The Comptroller of the Cur­rency, which reg­u­lates the na­tion's big­gest banks, is also fo­cus­ing on the debt col­lec­tion meth­ods of the credit card in­dus­try.Judges say con­sumers need to show up in court to con­test lenders' law­suits so that they, the judges, can ques­tion the lenders or look for sus­pi­cious doc­u­ments.

There are other op­tions for con­sumers. Blod­get says they could do what cor­po­ra­tions do: ne­go­ti­ate to pay less than 100% on the dol­lar, or de­clare bank­ruptcy to write off a lot of those debts."It works, you re­struc­ture ev­ery­ get stung but it's an op­tion open to a lot of peo­ple," he says.

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