Robo-signing enters a new field: credit cards

Published August 14 2012
Updated August 15 2012

Robo-signing is back. The kind of fraudulent activity that banks and loan servicers used to facilitate foreclosure actions is now taking place in cases involving credit card debt, according to federal regulators and state judges. This has serious consequences for people who fall behind on their credit card bills, because consumers who lose in court can see their wages garnisheed and bank accounts frozen.

It was only six months ago that a $26 billion settlement was announced between state attorneys general, including Florida's, and the nation's biggest banks for the banks' robo-signing practices. Low-level employees attested to foreclosure-related documents of which they had no knowledge. Some employees signed thousands of documents each week without reading the contents. The faulty paperwork amounted to a massive fraud upon the courts and struggling homeowners. But those headlines, and the hit to the financial industry's pocketbook, apparently didn't get across the message.

The same kinds of practices are now being used by credit card companies in lawsuits against consumers, according to interviews with dozens of state judges, regulators and lawyers by the New York Times. Evidence has emerged that some lenders are trying to collect from people who are paid up, or they are adding unjustified fees or interest charges to credit card accounts in arrears. In some lawsuits, credit card statements have been falsified or fabricated after the fact.

A former employee and whistle-blower at JPMorgan Chase said that after she discovered and reported to managers that inaccurate balances were found in nearly 23,000 delinquent accounts, she was fired from her assistant vice president job. The U.S. Office of the Comptroller of the Currency is investigating the claim. In a review of lawsuits filed by credit card and other companies, the Federal Trade Commission's division of financial practices found some of the industry's lawsuits were based on incomplete or false paperwork.

Lenders deny wrongdoing, and it isn't clear how widely the problem is impacting state courts. Pinellas-Pasco Chief Judge Thomas McGrady says that while there is the potential for robo-signing issues to arise in credit card lawsuits — since judges rely on company documents and affidavits on what is owed by whom — his courts haven't seen it. But since consumers rarely come to court to challenge the actions against them, it's hard to tell. Default judgments are the norm.

Credit card suits are typically against cash-strapped consumers with little access to legal representation. These people are easy targets for fraudulent collections practices by an industry known for its hidden fees and other efforts to take advantage of its customers. If robo-signing-type practices are widespread, this may be another area ripe for the country's state attorneys general to investigate.