Karen Stevens spent nearly $1,900 paying off delinquent credit card debt she owed Bank of America in 2006. She then spent another three years fending off demands from collections agencies that she repay the debt all over again. Neither a cancelled check or creditor's letter stating that she'd fulfilled her obligations deterred the collectors.
Stevens ended the nightmare only by hiring a lawyer and counter-suing her pursuers. Bank of America was not directly involved in the legal contretemps, but it appears to have set them off by selling rights to Stevens' account, even after assuring her she'd paid up in full.
Bank of America and other large institutions have for years sold off batches of charged-off accounts to outside collections specialists. The practice usually generates relatively small amounts of revenue and in many cases is entirely appropriate.
However, Stevens' case appears to be an example of what happens when banks sell batches of accounts without sufficiently scrubbing them of errors and discrepancies (see related story). Such oversights are drawing into collections quagmires an unknown number of consumers who owe nothing, or for whom debt records are incomplete or nonexistent. For banks, it's a problem that threatens to spark a legal or regulatory backlash or to do further damage to already tarnished reputations.
In the wake of the mortgage robo-signing scandal, the Office of the Comptroller of the Currency dispatched enforcement staff to a JPMorgan Chase card processing center late last year as part of a card collections investigation. The Consumer Financial Protection Bureau has also expressed its intention to look into collections practices.
Stevens, now 42, is a Hagerstown, Maryland resident who has spent the last dozen years working in a nearby warehouse for office supply retailer Staples. Around the time her mother died several years ago, Stevens says she lost track of how much she owed Bank of America in credit card debt. She was later contacted by Plaza Associates, a collection agency under contract with the bank.
Stevens sent Plaza a check for $1872.70 made out to B of A. It cleared on October 19, 2006, according to a copy of the check she later filed in Maryland District Court for Washington County. Plaza responded by sending Stevens a letter dated Dec. 20, 2006 that stated her account was "considered settled" by Bank of America.
Shortly after Stevens paid off her debt, Bank of America appears to have sold rights to her account to outside debt collectors affiliated with CACH LLC. The collectors began calling Stevens and sending her collection letters, according to Stevens' state court filings. They demanded she pay off — with interest — the B of A card account that Plaza had assured Stevens in writing she'd covered.
"They would constantly call, they would constantly mail stuff to me," Stevens says. Even when she sent the collectors proof of having paid her debt, "that just didn't seem to be good enough for them. They still ended up taking me to court. The proof is in the paperwork, what more do I have to present to you?"
Bank of America declined to comment through a spokeswoman. Plaza Associates also declined to comment.
In December 2006, Stevens received a collection letter from Bronson & Migliaccio LLP, a collector affiliated with CACH, according to Stevens' state court filings. Stevens says she responded by faxing the firm a copy of Plaza's letter.
Three months later, Stevens received a letter demanding payment from another collector affiliated with CACH called Pentagroup Financial LLP. She responded by faxing it a copy of Plaza's letter as well, Stevens says. In June, 2007, she obtained a copy of the check paying off her debt and faxed it and the Plaza letter to a different Pentagroup representative.
Debt collectors continued demanding payment throughout 2008, according to Stevens' state court filings. All told, she received six collection letters between February and August of that year from Northland Group, Inc., a debt collector affiliated with CACH. Stevens did not respond to those letters, she says.
Lance Black, president of Northland Group, confirmed that his firm does work for SquareTwo Financial, the owner of CACH. He declined comment on Stevens' case or to discuss how frequently his firm discovers it is seeking to collect debt that has already been repaid.
Representatives for SquareTwo, Pentagroup Financial and Bronson & Migliaccio (now known as Cawley & Bergmann) did not respond to messages left on their voicemail systems.
"They don't know what they're doing. They're just pulling stuff off the shelf," says Douglas Bowman, the Middleton, Md. lawyer whom Stevens eventually hired to counter-sue.
Bowman says he's defended more than 500 people facing demands similar to those Stevens received. He's won all but about 20 of those cases and attributes his high success rate to collections agencies' inability to produce paperwork to support their demands.
"This industry does business in a certain way and they've done it for a long time," Bowman says. "As long as nobody points out that the emperor has no clothes, they're good."
CACH appears to have sold rights to Stevens' account in early 2009 to Pasadena Receivables. A deal between the two collectors closed in April 2009, according to a bill of sale that later became part of a Pasadena court filing. The document did not include specifics of the accounts CACH sold Pasadena.
However, shortly after the purchase from CACH closed, Pasadena sued Stevens, demanding $3,058.87 in principal, plus interest and legal fees. Pasadena made that demand despite the fact that a worksheet attached to its lawsuit acknowledges Stevens' $1872.70 payment to B of A in 2006.
It was Pasadena's demand that ultimately prompted Stevens to hire Bowman. In 2009 he counter-sued Pasadena on Stevens' behalf in Maryland state court. That suit accused Pasadena of violating the Maryland Consumer Debt Collection Act, Maryland Consumer Protection Act and the Fair Debt Collection Practices Act.
"Pasadena knew or should have known that the account had been settled, but proceeded to file this suit for judgment against Stevens on a non-existent debt anticipating that Stevens would not defend herself," the suit claimed.
It was settled for unspecified terms in July, 2009. Bowman and a representative of Pasadena Receivables declined comment on the specifics, citing a confidentiality agreement.
The ordeal has lost Bank of America at least one customer.
"I used to bank with them, but I don't have anything more to do with Bank of America," Stevens says.