Big banks are facing unprecedented pressure to rein in the behavior of buyers of their charged-off credit card debt. This pressure is coming from two sources, one well known and one almost no one has talked about — yet — and that will put fear into the heart of every banker who hears them: the CFPB and RICO.
The pressure is coming mainly due to the practice of robo-signing which gained infamy during the past few years’ mortgage loan crisis, costing the banking industry more than $35 billion in fines and penalties from the AGs and the Office of the Comptroller of the Currency. Courts have ruled repeatedly that robo-signing is illegal and a fraud upon both the court and the consumer.
There is a simple and elegant solution to this risk of CFPB action and exposure to RICO: Banks should sell their delinquent loans only to those debt-buying companies who have pledged not to use litigation as a collection technique — there are plenty of them and they are capable. If the debt buyer does not sue, there can be no robo-suing, no concerns about inadequate documentation and no vicarious liability for the seller.
Simple and elegant wins every time.
Do Good and Make Money