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Big banks eyed in multi-state collections probe

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By Reuters
Friday, March 8, 2013, 12:01 a.m.

The largest banks face a multi-state investigation into whether they helped debt collectors pursue faulty judgments against credit card customers, according to people familiar with the matter.

At issue is whether weak record-keeping by banks or a failure to pass accurate information to collection agencies harmed consumers.

The allegations against the banks echo those central to last year's $25 billion federal-state mortgage settlement to resolve charges that the banks “robo-signed” documents and pursued foreclosures with faulty information.

This latest probe targets the same banks, including Bank of America, JPMorgan Chase, Citigroup and Wells Fargo, said the sources, who spoke on condition of anonymity because the investigations are continuing.

As with the mortgage cases, the investigation focuses on the banks' poor paperwork and their weak tracking of the debts.

When they sold delinquent credit-card debt to the buyers, often at only a few cents on the dollar, they allegedly failed to provide them with evidence that the borrowers owed the money. It is unclear, however, if the incomplete information was used to pursue borrowers who were not delinquent.

Representatives of JPMorgan, Bank of America, Citigroup and Wells Fargo declined to comment for this story, as did the American Bankers Association.

Mark Schiffman, vice president for public affairs at ACA International, an organization that represents debt collectors, said the industry agrees it needs proper information to pursue debts owed, but said policymakers could better define what documentation is necessary.

While states are considering their options in how to proceed against the banks, the issue is “moving up in importance” and action could come soon, one state official said.

The probe against the banks marks an expansion of the scrutiny that has focused largely on debt collectors.

Along with state attorneys general, federal agencies including the Federal Trade Commission and the Consumer Financial Protection Bureau (CFPB) have been investigating the firms that buy delinquent debt and then seek to collect on it.

In one of the more notable cases, the FTC last year accused debt buyer Asset Acceptance of misrepresenting that consumers owed a debt when it could not substantiate its representations. The FTC charged that the firm failed to disclose debts that were too old to be legally collected and repeatedly called third parties who did not owe a debt.

Asset Acceptance neither admitted nor denied the findings, but agreed to pay $2.5 million to settle the charges.

The FTC does not have jurisdiction over the banks that sold the credit-card debt, but two sources familiar with the matter said the CFPB could join in the larger action being coordinated by the states.

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