Justice Department Settles Capital One Debt Collection Complaint

A division of the U.S. Justice Department announced Thursday that it has settled a debt collection case with Capital One over allegations that the credit card issuer sought to collect debts that had been discharged in prior bankruptcy cases.

The U.S. Trustee Program said that it filed a complaint against the bank alleging that Capital One (NYSE: COF) filed 5,600 proofs of claim for money that had already been paid in prior bankruptcy cases. Of those, the bank received about $340,000 in payments from estates that had filed chapter 13 bankruptcy.

But Capital One told insideARM that it had identified the problem before the DoJ probe and had already taken steps to fix the issue and pay money back to the affected consumers.

“In early 2007, we identified inconsistencies in a limited number of bankruptcy Proof of Claim (POC) filings,” said spokesperson Tatiana Stead. “Our policy is to file POC’s only on debts that are not discharged. We immediately initiated a process review.”

Stead noted that Capital One was not approached by the Trustee Program until November 2007. “We cooperated fully with their inquiry and briefed them on the status of our internal review and the subsequent customer reimbursement,” she said.

Under the settlement, the Trustee Program will assign an independent auditor to examine approximately 650,000 Capital One customer accounts to ensure that any monies improperly received by Capital One have been or are immediately returned to debtors or their bankruptcy estates. Capital One must pay for the services of the auditor.

The auditor will review all Proofs of Claim filed between January 1, 2005 and the two years following the date of the consent decree to be entered by the Bankruptcy Court. The settlement requires that the audit period be extended if more than 100 erroneous claims are found in one year.

But DoJ did not impose any fines or sanctions against Capital One in conjunction with the settlement.

Stead noted, “The lack of sanctions and fines in the Consent Order is evidence of a successful, cooperative negotiation process.”