| December 21, 2010

Credit card industry could soon face robo-signing crisis

Companies that collect consumers’ defaulted credit card debt may soon be facing a meltdown similar to the one recently experienced by mortgage lenders, according to a new report.

In recent years, the credit card debt collection industry has been flooding the courts with cases meant to reap additional funds from delinquent consumers.

The success rate for debt collection firms in these cases has often been as high as 90 to 95 percent, The New Jersey Newsroom reports. However, the recent influx of collection cases has created a desire among the companies to expedite these legal proceeds.

This may mean that many collection cases took shortcuts with documentation or were perhaps made on unsubstantiated claims, the news source says. While the law varies from state to state, creditors must prove a loan agreement between a consumer and a creditor and demonstrate that they failed to pay the debt.

Some experts say this may cause another ‘robo-signing’ crisis, creating months of litigation, which must then be sorted out in already crowded courtrooms.

Typically, these organizations buy up consumer debt for as little as 10 cents on the dollar, in an attempt to garner substantial returns from those with outstanding credit card payments.

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