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Bank of America Sold Card Debts to Collectors Despite Faulty Records

Bank of America has sold collections agencies rights to sue over credit card debts that it has privately noted were potentially inaccurate or already repaid.

In a series of 2009 and 2010 transactions, Bank of America sold credit card receivables to an outfit called CACH LLC, based in Denver. Co. Each month CACH bought debts with a face value of as much as $65 million for 1.8 cents on the dollar. At least a portion of the debts were legacy accounts acquired from MBNA, which Bank of America purchased in 2006.

The pricing reflected the accounts' questionable quality, but what is notable is that the bank could get anything at all for them. B of A was not making "any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever" about the accuracy or completeness of the debts' records, according to a 2010 credit card sales agreement submitted to a California state court in a civil suit involving debt that B of A had sold to CACH.

In the "as is" documents Bank of America has drawn up for such sales, it warned that it would initially provide no records to support the amounts it said are owed and might be unable to produce them. It also stated that some of the claims it sold might already have been extinguished in bankruptcy court. B of A has additionally cautioned that it might be selling loans whose balances are "approximate" or that consumers have already paid back in full. Maryland resident Karen Stevens was the victim of one such sale, which resulted in a three-year legal battle (see related story).

Bank of America declined requests to comment for this story, other than to say through spokeswoman Betty Riess that it works with credit card customers to try to resolve delinquent debt issues. CACH did not respond to several phone and email messages seeking comment on the terms of its purchases.

Some industry observers said that the language in Bank of America's sales documents should be regarded as standard legalese intended to protect it against a disgruntled buyer's legal claims. And even though Bank of America refused to stand behind the accuracy of the records it sold, debt buyers are the ones who make the call to sue.

"The buyer has the primary responsibility to test the … quality of what they're buying," says Samuel Golden, a former OCC ombudsman who is a managing director at consulting firm Alvarez & Marsal in Houston, Texas.

Collectors' responsibilities aside, other banks' sales agreements suggest Bank of America's standards are emblematic of wider industry practice that raises risk management concerns. For less than $1.2 million a month — a rounding error on B of A's income statement — the company sold CACH accounts that raise regulatory and reputational questions about the accuracy of its records and its disclosures to courts.

Industry Practice

As the originators of credit card loans, banks are at the headwaters of the rivers of bad debt that flow into the collections industry. Over the last two years, Bank of America has charged off $20 billion in delinquent card debt. The bank settles or collects a portion of that itself and retires other accounts when borrowers go bankrupt or die. An undisclosed portion of the delinquent debt gets passed along to collectors. Once sold, rights to such accounts are often resold within the industry multiple times over several years.

Bank of America's caution that its card records may be incomplete or inaccurate suggests that documentation and accuracy problems may originate at the debt's source. Other banks' debt sale contracts acknowledge potentially large holes in their records as well.

One such example involves a 2009 U.S. Bancorp forward flow agreement, which outlines plans to sell a certain volume of delinquent accounts in the future. U.S. Bancorp's agreement states that it may have failed to credit borrowers for some payments and only guarantees the accuracy of account balances within a 10% margin of error.

Teri Charest, a spokeswoman for the bank, noted that the contract had expired and said that, regardless of such past contractual language, the bank scrubs its card data and that the claims it sells are accurate.

JPMorgan Chase, meanwhile, drafted an agreement to sell $200 million of credit card debt to Palisades Collection in 2008, even though records proving the debt might be unavailable for close to half the claims. "Seller represents and warrants that documentation is available for no less than 50% of the Charged-off Accounts," JPMorgan Chase's sales agreement stated.

The bank declined to comment. Palisades' chief counsel Seth Berman says the company has not bought Chase card debt in several years, but that its standards were always high.

The U.S. Office of the Comptroller of the Currency is already investigating JPMorgan Chase's handling of credit card debt records, as reported by American Banker earlier this month. A group of current and former employees described at the time how the bank had sold card accounts previously deemed "toxic waste" and which suffered from errors in the amounts being claimed.

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Comments (9)
So long as federal regulators impose monetary penalties that amount to tiny fractions of ill-gotten returns AND fail to prosecute individual Banksters running nefarious businesses, there is absolutely no economic reason for the Too Big To Behave Banks to cease these deplorable practices.

Reform of the mega-banks is likely to begin only after a CEO or other senior officer is shown on TV being led from a courtroom in handcuffs, on his way to jail -- exactly the way it worked in ending the S&L Crisis.
Posted by jim_wells | Monday, March 02 2015 at 10:04AM ET
Thanks for this post. Allow me to share something about Bank of America. Most charge card rewards programs pay card holders for spending and adding to debt. However, Bank of America recently issued a brand new card that rewards people for paying off debt. The BankAmericard Better Balance Rewards card incentives consumers for paying their monthly bills on time and for throwing in just a little more over their minimum charge.
Posted by fionagirl101 | Saturday, June 14 2014 at 3:35AM ET
Thank you for posting this story. I am an unwilling long-time customer of Bank of America in San Diego, CA. I had a Visa credit card at BofA for many years, and the bank now services my former Countrywide first mortgage. My payment record on these accounts is flawless, and until recently my credit scores were stellar.

In 2009 I discovered that my name had been linked to a Visa card held by my former wife. We divorced in 2000. The account had been acquired by BofA probably from MBNA. I immediately asked BofA for a copy of the signed, dated credit agreement for the account. BofA was unable to furnish a copy, but has steadfastly refused to remove my name from its electronic records for the account. Within the last year my ex became unable to pay her debts, and declared Chapter 13 bankruptcy recently. The account became a charge-off on my credit history at the big 3 bureaus. At no time has BofA or anyone else ever asked me to pay any of the large balance.

I have been continuously disputing the item. It is now gone from one bureau and has been watered down on another to the point where it doesn't seem to affect my scoring, but it remains on the third bureau.

BofA has used a variety of dishonest tactics to evade responsibility for actions that I believe are clear violations of the Fair Credit Reporting Act. I have escalated the matter to the Federal Consumer Financial Protection Bureau and my state's Attorney General. The playing field is slanted heavily against consumers, but I believe that I can win with persistence.

I think Bank of America has been managed poorly and has implemented customer-hostile policies that by all rights should cause it to fail. I am not surprised that it treats businesses with the same callousness as it does consumers. I hope the legitimate debt collectors who have been victimized by the banks have their day in court.
Posted by davidvoth | Wednesday, June 06 2012 at 4:08PM ET
And, this is not just happening with credit card collections, there is just as big a mess in the health care collections industry as well.
Posted by Nick G | Tuesday, April 03 2012 at 12:00PM ET
This is a replay of the mortgage foreclosure fiasco. As with that mess, the abuse wouldn't be happening if the consumers were represented by lawyers. Some lawyers are making a bundle off this credit card repeat of the mortgage foreclosure fiasco of the last few years. If I represented one of these consumers I would tell the debt collectors "so, sue me." No judge is going to allow a judgment against a consumer for tens of thousands of dollars based on a BofA affidavit signed by someone who has no records to review that says "we can't find the original documentation, trust us."

Then there's the Fair Debt Collections Practices Act, which last I heard, hasn't been repealed.

Where's our new Consumer Protection agency? This is exactly the type of scam they were created to handle. Like the mortgage situation, individual consumers can't handle this abuse, it has to be addressed by the states or the feds.
Posted by Amity F | Tuesday, April 03 2012 at 9:36AM ET
A more than deserving area for renewed scrutiny. As with mortgages, it was easier to ignore problems in the handling of bad accounts before the bubble burst: only about 2% of home loans were seriously delinquent or in the process of foreclosure in 2006. Credit card chargeoff rates pierced the 10% mark in late 2009 and early 2010 - close to twice the level that prevailed for the preceding 20 years - making collections more of a mass phenomenon, and, presumably, proliferating abuses and instances were existing consumer protections seem inadequate. Harry Terris, data editor, American Banker
Posted by hterris1 | Friday, March 30 2012 at 12:08PM ET
Bank of America is not alone in this kind of practice and the credit reporting bureaus aid and abet. The worst thing a consumer can do is say "It isn't worth the effort," or "It won't make a difference" when it comes to filing claims and complaints. I caught both GE Money Bank and World Financial Capital Bank in blatant lies, which they even admitted to their regulators. In the former, FSLIC, there was an admission there was little they could do about a bank lying to a consumer. In the latter, even though WFCB lied on three separate occasions to FDIC, that regulator said it could do nothing about a bank's consumer relations. However, if every consumer who is victimized filed, forcing regulators to act, then and only then, would these institutions stop acting with impunity. Finally, voters need to go to the polls every election day and demand true political reform. Without pro-consumer legislation, we will always be victims.

PS: I'm surprised to see this sort of article from a person who views the banking public as peasants who should be ignored when it comes to crafting any sort of financial services "reform."
Posted by RSE Journal | Friday, March 30 2012 at 9:50AM ET
I am a national media journalist and I recently wrote a major article on these guys (which has not appeared yet) and also noted the recent investigative piece in Rolling Stone. Bank of America is a criminal organization and these guys need to go to jail. I would like help in organizing a social media campaign to hold them accountable for their massive and ongoing frauds. The world needs to be rid of B of A. It will be a better place.
Posted by john b | Friday, March 30 2012 at 8:53AM ET
Do yourself a "HUGE FAVOR" and carefully read this:

The 21st Century Act: Final Amendments to Regulation CC Section:
"Prohibits" reimbursement of Credit, Loan, and Finance Balances to a "Bank Entity" leaving only "Nonbank Consumers" able to receive reimbursement, as specified on Pages 85 and 86.

The 21st Century Act states on pg. 85 and 86 that "Only Nonbank Consumers can suffer losses and File for
Re-credit or Re-claim on any Accounts under the Federal Reserve System" also "Any Second or Third Party Presenters utilizing a Banks Documentation, Contracts and/or Agreements to seek Claims shall be considered to be that Bank under the Rules and Regulations", the Expanded Definitions also includes Credit Cards and Home Equity Lines of Credit.
Also on Pages 100 and 101 "In any Financial Claims the Indemifying Bank (Parent Bank) must be Identified".

(Left-Click to Search Link)
21st Century Act: Final Amendments to Regulation CC http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

This Federal Law signed January 1, 2006 makes it "Fraudulent" and therefore "Illegal" for the 3 Major Personal Credit Reporting Agencies: Equifax, Experian, and TrasUnion to allow the Banks and the Banks "Third Party Presenters" to place any claim of "Negative" or "Potentially Negative" Accounts on your Personal Credit Based upon the fact that they have no "Legal Grounds or Claim" to the Money.

This is an "Unfair Practice" that diminishes our Financial ability to support ourselves and adversely affects our ability to gain work in many areas which breaks "Antitrust Laws".

These Rules also back claims of: "Aiding and Abetting" Racketeering and Extortion (of Finance Accounts and Personal Credit Reports), Pandering (of Credit and Loan Accounts, and Conspiracy to wit), Theft, Fraud, Federal Mail Fraud, and Telephone Harassment. Also "Threatening of the U.S. Financial Infrastructure", which is a "Capital Crime".

In order to engage the Federal Trade Commission to act against this injustice we must File many Claims, as these Reports must be Filed by a large number of people in order for the Federal Trade Commission to pursue
"Legal Action".

(Left -Click to engage Email Address)

antitrust@ftc.gov

This is way easier than "Occupying Wall Street"!
Posted by Dereck D | Thursday, March 29 2012 at 8:52PM ET
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