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Robo-Testimony: The Newest Credit Scandal

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Last week, it was revealed that a scandal similar to the robo-signing issue experienced in the mortgage industry may be taking place for credit cards as well, and more details have emerged since.

The original report from the New York Times showed that some of the nation’s largest credit card lenders have been sending consumers’ balances to collections agencies and suing borrowers despite not properly vetting the cases. This results in a large number of suits over debts that have not been accurately stated or reviewed by the lender. One Brooklyn, N.Y.-based judge said he hears as many as 100 of these cases every day.

Often, the evidence the lenders do have for these suits is limited or even incorrect, the report said. Dozens of legal and regulatory experts told the newspaper that this problem is becoming more pervasive as well.

However, the stakes for this situation are understandably high, according to a separate editorial in the Times. As much as $21 billion in outstanding debts are currently considered delinquent, spread across as many as 10 million credit cards.

Fortunately for consumers, a new bill in the New York legislature would allow for greater protection of borrowers when it comes to this sort of robo-signing practice on the part of lenders. The Consumer Credit Fairness Act is designed to prohibit lenders from chasing down old debts through court, or selling it to collections agencies, without first notifying the borrower and giving them more information about their total outstanding balance.

Instead, the best strategy for borrowers who have been hit with these suits is to show up in court, the report said. Often, because there is limited evidence that a borrower actually owes the total amount the credit card company says they do, these cases can be dismissed by the judge with some ease.

“You have to file a formal written response to the debt collector’s claim with the Court,” Fred Martens, a Washington-based attorney, told TIME. “In a debt collection lawsuit, if you don’t file a formal written response with the Court, it’s like admitting that you owe everything they sued you for.”

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The robo-signing scandal in the mortgage industry was extremely widespread and may have improperly cost millions of Americans their homes, which were put into foreclosure without their cases being properly reviewed. A similar problem in the credit card industry could likewise play havoc on borrowers’ credit, though to a lesser extent.

Image: Crysti, via Flickr

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