Consumer Comeback Blog

Faulty Credit Card Debt Collection Lawsuits Flood Courts

As the recession slowly recedes, millions of Americans are gradually getting back on their feet. Going beyond past due notices and collections phone calls, many consumers are still feeling the sting of their financial failures as credit card companies take their debts to court.

But debt collection practices are being called into question as companies like American Express, Citigroup, and Discover Financial have allegedly tried to collect debt from consumers by filing credit card lawsuits with little evidence to back up their claim, the New York Times reports.

Similar problems emerged after the mortgage crisis when banks were accused the abusive practice of “robo-signing” foreclosures based on “incomplete records and generic testimony.”

“I would say that roughly 90% of the credit card lawsuits are flawed and can’t prove the person owes the debt,” Noach Dear, a civil court judge in Brooklyn, told the New York Times. Dear said he presided over as many as 100 such cases a day.

Other law enforcement and legal authorities report that credit card suits that are backlogging the courts are becoming increasingly based on flawed data, even with lenders suing consumers who have already paid their debts. Because many borrowers fail to report to court, these faulty lawsuits are not reported, so lenders win about 95% of the default lawsuits, after which they can garnish wages or freeze bank accounts to recoup the debt.

The Federal Trade Commission helps consumers who suspect they have been victims of fraudulent credit lawsuits and offers advice on how to deal with debt collectors.