The Commercial Appeal
Debt collection practices targeted
Regulators step up probes
More than a year after regulators cracked down on Wall Street’s flawed home foreclosure procedures, authorities are stepping up pressure on debt collectors over a flood of lawsuits rife with unsupported allegations against delinquent credit card holders.
State and federal regulators are increasingly alarmed that banks and debt collectors appear to be using faulty records in litigation against borrowers having trouble paying what they owe on their credit cards.
In some cases, authorities said, the paperwork and the procedures have been so defective that borrowers weren’t even given notice of lawsuits against them until judges rendered default judgments for their failure to appear in court to defend themselves.
Those judgments opened the doors to wage garnishments, asset seizures and other actions lenders and collectors could take.
The concerns of authorities echo the questionable records and so-called robo-signing in the nationwide foreclosure litigation, which led to last year’s $25 billion settlement with five of the nation’s biggest banks.
A broad investigation of the debt-collection industry by the California attorney general’s office is focused partly on companies that buy delinquent credit card accounts from lenders at a discount, then sue to get borrowers to pay up, said a person familiar with the matter who was not authorized to speak publicly and did not want to be identified.
That i nvestigation, which is ongoing, already led to the state’s civil lawsuit last month against JPMorgan Chase & Co., the nation’s biggest banking firm.
California Atty. Gen. Kamala D. Harris accused the company and its Chase Bank of running a “massive debt collection mill” that flooded California’s courts with more than 100,000 lawsuits based on shoddy documents, including those signed by low-level employees posing as assistant treasurers and bank officers.
Meanwhile, attorneys general from more than a dozen other states have launched a joint investigation into similar issues in the debt-collection industry.
“We’re concerned about the debt buying that’s occurring, concerned about the quality of the information that’s turned over to
cially the Chase affidavit, which was created after he was sued.
Typically, such docuthe purchaser, concerned ments are inadmissible, that there’s not a lot of due but debt collectors comdiligence on the names monly rely on them and and the amounts,” said other incomplete inforIowa Atty. Gen. Tom Millmation, said Meg Ryan, er, whose office is leading supervising attorney of the inquiry. the law center.
“Some of the names “The big problem in are incorrect. Some of these third-party cases the amounts are incoris that the plaintiff never rect. And sometimes the brings a Chase witness to debts aren’t valid and testify,” she said. “Comare still turned over and panies like Midland are sold,” said Miller, who winning by relying on led the coalition of state bad affidavits from Chase, attorneys general in the and the defendant has no foreclosure cases. opportunity to cross-ex
At least three federal amine a Chase witness at agencies also are looking trial.” into the practices of debt Sexton and Midland collectors. eventually settled.
“We are on the verge Midland remains conof a sea change,” said Sufident that its documents zanne Martindale, a staff “clearly established” that attorney in San Francisthe company owned the co for consumer advoaccount, said Greg Call, cacy group Consumers Midland’s general counUnion. “The writing is sel. on the wall. … ConsumEven so, shoddy docuers are being wrongfully ments such as those pursued.” alleged in Harris’ suit
William Black, a former against JPMorgan are top banking regulator, “ubiquitous” in the debtsaid the debt- collection collection industry, said industry is “massively Peter Holland, an assisscrewed up.” Debt collectant professor at the Unitors, he said, “buy stuff on versity of Maryland law the basis of shockingly school. “And if the big bad due diligence.” banks are not engaged
Tommie Sexton, a directly in what (Harris) 43-year-old waiter from is alleging, they are cerOakland, Calif., knows tainly selling off junk debt firsthand how convoluted that falls into the hands of the system is. predatory debt buyers,” he
During the Great Resaid. cession, Sexton fell beJPMorgan, for one, hind on payments for his has feet on both sides of Chase credit cards. Last the fence. Besides Chase year, Chase sold the acBank, it has an investcounts to Midland Fundment unit that owns NCO ing in San Diego, one of Group, a major player in the nation’s largest buythe debt-collection industry.ers of debt, and Midland quickly sued Sexton for NCO has been the tar$7,000 in unpaid bills, inget of federal and private cluding interest and other legal actions, including a charges. federal class-action suit
As evidence of its right alleging that NCO atto collect, Midland filed torneys sue consumers copies of Sexton’s credit for debts they don’t owe. card statements and an NCO spokesman Tom affidavit from Chase that Hoy said that the suit, it had sold the account to filed in December, lacks Midland. merit and that the com
Sexton, with help from pany would vigorously the East Bay Community defend itself. The case is Law Center in Berkepending. ley, Calif., argued that Separately, JPMorgan the documents were not signaled in a regulatory enough to prove Midland filing last month that it exowned the debt, espe- pects regulators to smack it with an enforcement action over its debt-collection practices. The Office of the Comptroller of the Currency started examining the bank’s practices two years ago, said a congressional aide who was briefed on the matter but was not authorized to speak publicly.
After broadening its inquiry to other banks, the OCC also may force banks to ensure accuracy of account records that they sell to debt firms and use in lawsuits, the aide said. An OCC spokesman declined to comment.
Some debt collectors conceded that the industry has problems but said that many deals aren’t tainted by questionable practices.
Michael Brkich, a former accountant who heads the 704 Group in Orange County, Calif., said the Chase debt his small firm has purchased came with “impeccable” records.
The bank bundles credit card statements and a chain of titles so debt firms can prove they have the legal right to sue debtors, he said. “Chase is actually really good about it,” Brkich said. “A lot of other institutions, they sell it and forget about it.”
After the Federal Trade Commission in 2010 cited problems with collections litigation, some state and county governments around the country have tightened rules to block faulty lawsuits from clogging courts.
This year, the Consumer Financial Protection Bureau started to examine debt collectors on a regular basis.
Christopher Koegel, assistant director of the FTC’s division of financial practices, said regulators have had “limited success” in solving the problem. The debt-collection industry continues to be the subject of more complaints to the agency than any other industry.
“It’s very much still a work in progress,” Koegel said. “I can’t say that it’s been fixed. We’re still in the infancy of the efforts to fix it.”