Multi-State Probe Targets Banksters' Role In Collecting Delinquent Consumer Debt Peddled Out To Collectors For Pennies On The Dollar; Investigators Round Up The Usual Suspects

Reuters reports:

• The largest U.S. 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 (BAC.N), JPMorgan Chase (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N), 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 the evidence that the borrowers owed the money. It is unclear, however, if the incomplete information was used to pursue borrowers who were not delinquent.

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

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• Investigators are finding that the banks often did not provide buyers of the debt with evidence that individual credit card accounts were delinquent. Instead the banks only provided basic information about how much money they thought was owed and who the borrower was, without providing original contracts, past statements, or other additional documentation.

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• Despite a lack of documentation, consumer advocates and people familiar with the investigations say debt buyers still pursued court rulings that allowed them to potentially garnish wages and debit bank accounts.
  
  Consumers usually fail to contest the court proceedings, these people said, because they often don't receive the notices, don't know how to respond, or cannot take the day off work, and courts enter default judgments against them.
  
  "A lot of these debt buyers are flooding state courts attempting to collect debts that they've bought for pennies on the dollar," said Ira Rheingold, executive director of the National Association of Consumer Advocates. "They're filing these affidavits about how much is owed, and who owes it, but the reality is, they have no information."

For the story, see States probing top U.S. banks over debt collection.