October 17, 2012

Credit card debt collection lawsuits surge

'Flooding the courts'

In August, The New York Times reported that "while the amount of bad debt has fallen since the financial crisis, lenders are trying to work through the soured loans and clean up their books" - and as a result, "lawsuits against credit card borrowers are flooding the courts."

Many of the nation's largest banks and debt collection companies have filed hundreds of lawsuits in Lancaster County. Of the 708 credit card lawsuits filed here through the end of October, both Citibank and FIA Card Services (Bank of America) filed more than 100 apiece; Discover Card filed 62.

Messages to Citibank and Bank of America seeking comment were not returned.

While many lawsuits are filed by the credit card issuer itself, others are filed by collection agencies such as LVNV Funding LLC or Asset Acceptance LLC, which purchase "charged off," unpaid debt from credit card firms, sometimes for pennies on the dollar, and then seek to collect.

Courthouse records show a majority of those sued simply don't respond to the lawsuit. When that happens, the credit card company can receive a "default judgment," which permits them to garnish bank accounts.

"It was rare back in the 1990s to see a credit card company bother to sue," said Lancaster attorney Elizabeth Bartlow. "They also wouldn't try to put liens against people's personal bank accounts. But it's not uncommon now, certain credit card [companies] are more aggressive, and when they get a judgment, they'll freeze people's checking accounts."

Attorney Leonard says he's seen suits filed for as little as $900 in unpaid credit card debt.

"Debt collection lawsuits are a pure volume business," Tom Pahl, assistant director for the Federal Trade Commission's division of financial practices, told The New York Times for its August story.

But Pahl said the FTC had grown concerned that the documentation in credit card cases "is very bare bones," and the agency is working with courts around the country in an attempt to improve the process for "pursuing borrowers" who are behind on credit card payment and other consumer debt.

Leonard, the local attorney, said errors are common in the cases he defends.

"Especially after years of litigating, you'd think credit card companies would have their act together more," he said. "If they produce an account agreement [between the debtor and company] usually they just throw a generic boilerplate form at you, and you can't tell if there's any connection," if his clients have actually agreed to those specific conditions.

In particular, he said, debt collection companies that buy unpaid debt from credit card issuers tend to be thin on documentation. "They typically don't have the records," he said, and without the records, the case falls apart.

"Those cases are slam-dunk defendable," he said.

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