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Unethical Practices? Problems in Credit Card Collections



Credit Card Collections

It’s no surprise to many that there are problems and inconsistencies in the credit card collection industry. Consumers have long since complained that their balances aren’t even remotely close to what banks and collection agencies are insisting they are.

The companies are often quite nonchalant when they inform those consumers that it’s the late fees and other charges that are accounting for the difference. Still, consumers aren’t convinced. Now it appears they might have been at least partially right.

While there are many stories of unethical and perhaps even illegal practices in this particular area of the credit card industry, it now appears there’s proof. Specifically, Bank of America is at the heart of this particular collections nightmare. It sold to collections agencies various rights to sue their one-time customers over credit card debts that it knows is either inaccurate or paid in full. Surprised? So were we.

CACH, LLC

American Banker got its hands on a number of transactions between 2009 and 2010 between the banking conglomerate and a collection agency, CACH, LLC. Every month, the agency purchased various amounts of past due credit card debt and often paid less than two cents on the dollar for those accounts. The face value of some of these monthly purchases were close to $70 million.

While many of the accounts were Bank of America credit card accounts, there were some from the days of MBNA, which Bank of America purchased years ago. The problem, it appears, is in the contractual fine print. In fact, there are several areas in those legal sections, including Bank of America’s many disclaimers that some of those accounts might not even be due – they could have been paid in full. In other words, Bank of America, it seems, just did a massive arm sweep into a box, handed it over to this collection agency with the contract on top, and said,

Deal with it – but some of this might not be accurate.

In one area of the contract, Bank of America makes the disclaimer that

any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever

regarding both the level of completeness and accuracy. It then goes on to say, deep in the contract, that it would be providing no further documentation that would justify or nullify the accuracies stated on the accounts. It does, however, acknowledge that some of the accounts might have been included on consumer bankruptcies. It wraps up its lengthy disclaimers by saying the balances were nothing but approximate.

Naturally, both Bank of America and CACH are mum on commenting.

Enter the Lawyers

It’s interesting to note many attorneys and other legal bodies are picking sides. Unfortunately, it doesn’t appear there are many lining up behind the consumer. It’s all about defending either Bank of America or the collection agency.

There are those who call it part of the legal lingo and this type of information is used in contracts every day, even when the seller won’t even confirm the accuracy of the accounts. Others are saying any lawsuits are determined by the buyer, in this case, CACH. They say it has more remedies at its disposal once it takes on the contracts.

Bank of America Practices

As mentioned, these practices occur every day with nearly every bank in the nation. It is customary for a credit card company or bank to sell its delinquent accounts. The banks are able to recoup some of the losses, usually, if the collection agency is successful in its efforts.

It should be noted that in 2010 and 2011, Bank of America charged off a staggering amount of $20 billion in delinquent card debt. Once sold, rights to such accounts are often resold within the industry multiple times over several years. This, of course, explains why those with delinquent accounts often receive phone calls and letters from multiple companies.

Bank of America isn’t the only one, though. Many more credit card companies and banks often include that degree of disclaimer in their own contracts. Some analysts are pointing to the JPMorgan Chase/Palisades Collection agreement of 2008. The $200 million contract came with disclaimers in the contract that said seller warns no less than half of the accounts have absolutely no further confirmation or record keeping than what was already being provided. All were charge-offs, but many could have been previously settled through other avenues, including bankruptcy.

Clearly, this is one of the industry’s best kept secrets – for now, anyway. So is the justification that even more transparency is needed in this financial sector?

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