State attorneys general and the Federal Trade Commission have regularly skirmished with the debt collection industry over what they regard as the use of aggressive legal tactics supported by scanty records.
Now the banks that originally created the debts are at risk of being drawn into the fray.
Many of the authorities’ concerns about collection practices bear a resemblance to the mortgage market’s so-called robo-signing scandal, which ultimately cost banks $25 billion to settle. Alleged problems in both markets include the use of mass-produced affidavits, piecemeal or nonexistent account records and haphazard quality controls.
Much of the regulatory controversy surrounds how banks and debt buyers extract residual value from these accounts. When banks sell accounts to outsiders, they often provide limited supporting documentation. It typically includes only a spreadsheet identifying individual debtors and a general outline of their debts. Account statements, cardholder agreements and other contractual details are often lacking, raising questions about whether collections agencies are basing their claims on shaky legal and factual grounds.
Because the FTC provides supervision for only debt collectors and not banks original creditors generally stayed out of the discussion. But with the CFPB now empowered to regulate banks and major debt collectors, the dynamic between regulators and the collections industry is on the cusp dramatic change.
It can’t happen soon enough!
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