Credit Card Issuers Finally Get Roughed Up

NEW YORK (TheStreet) -- A dirty little secret in banking has been splattered all over the front pages recently: the entire home-foreclosure process is FUBAR.

But this isn't new. A great judge in Queens, N.Y., named Arthur Schack was writing scathing legal opinions on skuzzy foreclosures years ago, long before he gained notoriety for tossing foreclosures out of court.

If you put your head down on the tracks, you can hear another legal rumbling. Only this time, the approaching express isn't screwed-up foreclosures but screwed-up credit card collection lawsuits. Tied to the tracks, metaphorically speaking, are every major bank that has significant credit card exposure: JPMorgan(JPM), Bank of America(BAC), Citigroup(C), Capital One(COF), American Express(AXP) and so on. It's a rumble of consumers fighting back, and judges refusing to be an extension of the big banks' collection departments. It's a lovely sound.

You can see evidence of it on the Internet, on consumer- and debtor-oriented Web sites -- such as this one that's not too fond of Bank of America. Delinquent credit card customers, who are often subjected to thuggish collection tactics and fraudulent "sewer service," are finding that credit card companies have the same Achilles heel as the mortgage bankers. The paperwork that accompanies credit card collection lawsuits can be as screwed-up and deficient as the famously loosey-goosey foreclosure documents.

I'm not saying there are phony signatures and stuff like that out there (though it wouldn't surprise me). Like mortgages in foreclosure, defaulted credit card accounts are often pushed into court without proper paperwork. This is especially so when credit card receivables are sold to collection agencies for pennies on the dollar, often -- as in the secondary mortgage market -- without proper paperwork being forwarded, so there isn't always evidence that the money is actually owed.

Courts are getting so picky that even the heinous mandatory arbitration system -- in which cardholders, like brokerage customers, are dragged into "kangaroo court" proceedings -- is being thwarted by conscientious jurists. To which I can only say, "Bravo!" The playing field has tilted too far in favor of the banks, and this can help counter that trend. It's also a kind of rough justice -- the price that bankers pay for sending credit cards to anyone with a heartbeat. When the customers they try to screw with the "sweat box" and other usurious tactics fight back -- well, what can I say? My heart goes out to those poor, downtrodden bankers.