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Credit Card Collections to Continue

Stocks in this article: COF JPM WFC BAC AXP AACC ECPG

NEW YORK ( TheStreet) -- A recent decision by JPMorgan Chase (JPM) to drop more than a thousand credit card debt collection cases has thrown a spotlight on another area of potential trouble for the banking industry.

Despite the move by JPMorgan, other banks will plough ahead on existing collection cases.

JPMorgan would not confirm or deny the dismissals, reported by The Wall Street Journal on Friday, though the newspaper quoted Thomas Donnelly, an Illinois state-court judge in Chicago, who said he allowed the bank to withdraw all the pending collection cases in his courtroom this month, though they will be allowed to re-file them later.

"We consider our collections strategy to be proprietary and therefore have no information or comment to share at this time," wrote Paul Hartwick, a JPMorgan spokesman, in an email to TheStreet. Capital One Financial (COF) is not withdrawing credit card debt collection cases, spokeswoman Pam Girardo told TheStreet via email.

Lisa Westermann, a Wells Fargo (WFC) spokeswoman, said the bank has made no changes to its credit card debt collection activities, which she describes in an email message as "business as usual." She would not say whether the bank is withdrawing cases.

JPMorgan's decision to dismiss the cases raises the question of whether the banking and credit card industries will face similar difficulties with regard to credit card debt collection to those it has faced regarding mortgage servicing. Mortgage servicers, including JPMorgan, Bank of America (BAC), Wells Fargo, Citigroup (C) and others, have faced lawsuits and regulatory inquiries accusing them of sloppy mortgage foreclosure practices, and are trying to negotiate a settlement with attorneys general and other regulators that worst-case estimates put at $20 billion. The best known of this type of issue is "robosigning," where middle managers at the banks signed off on hundreds or thousands of foreclosures a month, claiming falsely to have personally reviewed each case in detail.

While those banks and other big credit card lenders, such as Capital One, American Express (DFS)and Discover Financial Services (DFS) sell debt to independent collection companies like Asset Acceptance Capital Corp. (AACC), Encore Capital Corp. (ECPG) and Portfolio Recovery Associates (PRAA), they usually try to recover the debt themselves, or they hire a company to do it for them, according to Lawrence Berlin, analyst at First Analysis Securities.

Berlin, who follows the independent companies, says they are unlikely to be caught off guard by legal challenges or regulatory inquiries into their processes and procedures for collecting debt.

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