Robo-Signing Is Back: Credit Card Bank Lawsuits Rely on Flawed Docs

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Credit card lawsuits
Robo-signing is back -- but with a new set of players and victims.

The first robo-signing iteration hit during the mortgage crisis, as banks and their contractors fraudulently mass-produced forged, unverified, or otherwise false legal documents relating to foreclosures. In autumn 2010, major lenders like JPMorgan Chase (JPM) and Bank of America (BAC) had to suspend their foreclosure operations altogether after widespread robo-signing was revealed. Eventually, a $26 billion settlement was reached between the big banks and aggrieved borrowers.

Now, credit card companies like American Express (AXP), Citigroup (C) and Discover Financial (DFS) are going to court to collect money they say is owed to them, and The New York Times reports that their legal processes are just as faulty as the earlier attempts to turn people out of their homes. Problems include "erroneous documents, incomplete records and generic testimony from witnesses," according to the paper.

One civil court judge in Brooklyn, who presides over as many as 100 credit card debt collection cases a day, told the Times, "I would say that roughly 90 percent of the credit card lawsuits are flawed and can't prove the person owes the debt."

He's not alone: The Times cites "dozens of state judges, regulators and lawyers" as indicating "that such flaws are increasingly common in credit card suits," which are inundating the system: "In all, borrowers are behind on $18.7 billion of credit card debt, or roughly 3 percent of the total, according to Equifax and Moody's Analytics."

In some cases, lenders are going after customers whose bills have already been paid, or bulking up balances by tacking on bogus fees and interest charges. In other instances, the companies have the right to collect the money, but still seem unable to follow proper procedures.

"This is robo-signing redux," said attorney Peter Holland, head of the Consumer Protection Clinic at the University of Maryland Francis King Carey School of Law.

Adam Levin, co-founder of Credit.com, told ABCNews.com that he was unsurprised to hear of this latest malfeasance. "[The credit card companies] are in a frenzy right now to make up for money they're losing after the government restricted the insane fees these institutions were charging," he said. Consumers should contact an attorney or their state consumer affairs agency if they are told they owe money and suspect something amiss about the debt, Levin said.

Unfortunately, borrowers usually don't show up in court to contest these suits, which means that an estimated 95% of cases are resolved by default judgement in favor of the credit card companies -- with any errors or irregularities in documentation going unnoticed. "I do suspect flaws," said one superior court judge in Ventura, Calif. "But there is little I can do."

The lesson: Be sure to show up for your day in court; you never know how weak your lender's case against you might be.

New York-based consumer attorney Brian Bromberg told Marketplace he used to avoid taking on clients who were being sued by credit card companies, but no longer. "What were finding more and more is, once you start taking depositions of the people who are signing off on the original documents, they know nothing." Bromberg says the courts are catching on, demanding stronger evidence even though the enormous volume of cases leaves little time to examine documents.

If you've been served with a spurious lawsuit, or faced any fraudulent effort at debt collection, tell us about it in the comments below.




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