The same problems that plagued the foreclosure process — and prompted a multibillion-dollar settlement with big banks — are now emerging in the debt collection practices of credit card companies.

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.

Lenders, the judges said, are churning out lawsuits without regard for accuracy, and improperly collecting debts from consumers. The concerns echo a recent abuse in the foreclosure system, a practice known as robo-signing in which banks produced similar documents for different homeowners and did not review them.

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.”

American Express and other credit card companies defended their practices. Sonya Conway, a spokeswoman for American Express, said, “we strongly disagree with Judge Dear’s comments and believe that we have a strong process in place to ensure accuracy of testimony and affidavits provided to courts.”

Interviews with dozens of state judges, regulators and lawyers, however, indicated that such flaws are increasingly common in credit card suits. In certain instances, lenders are trying to collect money from consumers who have already paid their bills or increasing the size of the debts by adding erroneous fees and interest costs.

The scope of the lawsuits is vast. Some consumers dispute that they owe money at all. More commonly, borrowers are behind on their payments but contest the size of their debts.

The problem, according to judges, is that credit card companies are not always following the proper legal procedures, even when they have the right to collect money. Certain cases hinge on mass-produced documents because the lenders do not provide proof of the outstanding debts, like the original contract or payment history.

At times, lawsuits include falsified credit card statements, produced years after borrowers supposedly fell behind on their bills, according to the judges and others in the industry.

“This is robo-signing redux,” Peter Holland, a lawyer who runs the Consumer Protection Clinic at the University of Maryland Francis King Carey School of Law.

Lawsuits against credit card borrowers are flooding the courts, according to the judges. While the amount of bad debt has fallen since the financial crisis, lenders are trying to work through the soured loans and clean up their books. In all, borrowers are behind on $18.7 billion of credit card debt, or roughly 3 percent of the total, according to Equifax and Moody’s Analytics.

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.
Linda Almonte, a former assistant vice president at JPMorgan, claimed in a whistle-blower complaint that she had been fired after alerting her managers to flaws in the bank’s records.

Banks Under Scrutiny for Debt Collection Practices

The Office of the Comptroller of the Currency (OCC), which oversees the nation’s largest banks, is reviewing the industry’s debt collection practices. The investigation focuses on the accuracy of documents used in lawsuits against borrowers. A JPMorgan spokeswoman declined to comment on the matter.

FTC Working to Improve Consumer Litigation

The Federal Trade Commission (FTC) is collaborating with courts across the country to improve how borrowers behind on credit card, mortgage, and other payments are pursued. In a recent review, the FTC found that many lawsuits were filed using incomplete or false paperwork.

“Our concern is that debt collection lawsuits have become a pure volume business,” said Tom Pahl, assistant director for the FTC’s financial practices division. “The documentation is often very basic.”

Lenders, however, disagree with these claims.
“We verify the accuracy of account information before any affidavit or testimony is filed,” said Ms. Conway, spokeswoman for American Express.

Parallels to the Foreclosure Crisis

Critics compare these practices to those seen during the housing crisis. At that time, banks were accused of using faulty foreclosure documents and seizing homes without proper review. In 2012, five major banks paid $26 billion to settle those allegations.

In debt collection suits, errors often go unnoticed. Borrowers rarely appear in court to defend themselves, leading to 95% of cases ending in default judgments. These judgments allow lenders to garnish wages or freeze bank accounts.

Real Cases Raise Questions

In one case, Discover Bank sued Taryn Gregory, a child care assistant from Georgia, for over $7,000 in debt. She claimed her balance was only $4,000. When she requested proof, Discover sent documents that showed inconsistencies — one statement appeared to be from 2004, but it contained ads from 2010. The case remains pending, and Discover declined to comment.

In another case, Judge Michael A. Ciaffa of New York questioned a Citigroup affidavit signed by an employee in Missouri. He said the document “had the look and feel of a robo-signed affidavit.” Citigroup spokeswoman Emily Collins responded that the company continually reviews its policies and ensures affidavits are accurate and verified.

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