NEW YORK (
) -- Big banks are facing unprecedented pressure to rein in the behavior of buyers of their charged-off credit card debt. This pressure is coming from two sources, one well known and one almost no one has talked about -- yet -- and that will put fear into the heart of every banker who hears them: the CFPB and RICO.
Consumer Financial Protection Bureau
is the nation's protector of consumers in all matters financial. An outgrowth of the financial crisis beginning in 2008, the CFPB is charged specifically with supervision and regulation of two interrelated industries -- banking and private debt collection. This is the first time these two industries have been supervised by the same agency.
The intersection of banking and private debt collection rises when a bank sells defaulted credit card loans. The sale of these loans is common and serves a real purpose for the bank. According to the
, last year the banking industry sold $51 billion in delinquent credit card loans. Those loan sales produced approximately $5 billion in recoveries for the banking industry.
The CFPB sent a message recently that it
plans to hold banks responsible
for the actions of third parties, including those who buy delinquent loans. The agency has promised new regulations and enforcement actions in an effort to encourage major banks to reform their historical practices of selling charged-off debt to companies who
file millions of lawsuits each year
based on inadequate supporting information.
This practice, called robo-signing, gained infamy during the past few years'
mortgage loan crisis
, costing the banking industry more than $35 billion in fines and penalties from the
Office of the Comptroller of the Currency
. Essentially, the debt buying company, now the owner of the debt, files a lawsuit against a consumer and swears an oath to the court that all the claims made in the petition are true and accurate -- although there is frequently no documentation to support the affidavit.
More than 90% of the time
, the debt buyer is relying purely upon a string of digital data and has no proof of the facts of the debt.
Courts have ruled repeatedly that
robo-signing is illegal
and a fraud upon both the court and the consumer.