Credit Card Debt Collection: The Next Financial Bubble?

In a piece running on the New York Times‘s DealB%k section (…yeah: I don’t know what they think they’re doing with that percentage sign, either; but, it’s the New York Times so what are you going to do, right?), writer Jessica Silver-Greenberg draws a comparison between the mortgage meltdown and the current crisis among credit card debt collections.

“As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.”

The worry is: too many debts are being churned through the system too quickly, with little attempt to verify the validity of the debt. This, according to the Times and other pro-consumer groups, is a danger to consumers and in need of serious regulation.

(Which is not to suggest that the collection industry doesn’t have an issue, sometimes, with robo-signing. And this is not to suggest that there aren’t instances where that chain of ownership gets a little murky when it comes to debt porfolios. This is to suggest, however, that sometimes to tell a story we pick and choose the evidence we want to relate — and this piece is heavy on singling out only those instances that make their case.)

“Amid the surge in lawsuits, credit card companies are facing scrutiny. The Office of the Comptroller of the Currency is investigating JPMorgan Chase after a former employee said that nearly 23,000 delinquent accounts had incorrect balances, according to people with knowledge of the investigation.”

The article also brings up the new spectre of “robo-testimony”:

Last year, American Express sued Felicia Tancreto, claiming that she had stopped making payments and owed more than $16,000 on her credit card.

While Ms. Tancreto was behind on her payments, she contested owing the full amount, according to court records. In April, Judge Dear dismissed the lawsuit, citing a lack of evidence. The American Express employee who testified, the judge noted, provided generic testimony about the way the company maintained its records. The same witness gave similar evidence in other cases, which the judge said amounted to ‘robo-testimony.’

For those of you reading who primarily work credit card paper: are you seeing increased issues with consumers reporting that you’re pursuing debt that’s not valid? Are credit card companies — either wittingly or unwittingly — passing on bad paper to your agencies, in the hopes of recouping?