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Citi makes the case for stronger rules on debt collection

Fred Williams

Wildly inflated interest rates. Altered court documents. Consumers kept in the dark.

The settlement Citi signed with regulators last week presented a combination of shocking debt collection practices.

Inadvertently, the bank and its collectors make a strong argument for new rules on debt collection — rules which regulators are expected to propose as soon as this month.

For a three-year period ending in mid-2013, Citi sold 128,809 unpaid credit card accounts to debt buyers with wrong, inflated information on the accounts’ APRs, according to court papers signed by Citi. Some accounts were described as having 29 percent interest when in reality the interest rate was 0 percent.

What the 16 debt buyers got was a spreadsheet with information about the accounts, not account documents. In fact, debt buyers who requested account records had to pay $10 each for them, over a certain threshold of requests.

Citi also had no policy to let cardholders know when their debt had been sold. Thinking they still owed the debt to Citi, people sent payments to the bank. But the bank wasn’t very quick about forwarding those payments to the new owner of the debt. Sometimes Citi sat on the money for over a year. As a result, people were subjected to wrongful collection attempts and demerits on their credit reports that they didn’t deserve. In all, about 14,000 customer payments were held up.

Citi is refunding $4.9 million paid by 2,100 people whose APRs were inflated. That suggests that few of the 128,809 accounts with exaggerated interest rates actually paid to debt collectors. But those who did paid a lot — the average refund is $2,380.

Citi is the good guy in another order the CFPB filed last week. Two debt collection law firms working on the bank’s behalf altered affidavits — the bank’s sworn statements — and filed them in New Jersey courts, the CFPB said. The law firms, Solomon & Solomon P.C. and Faloni & Associates, altered the amounts owed in the affidavits, and the dates. About 6,700 debt collection cases based on the altered documents were pending in 2011 when Citi discovered that its sworn statements had been altered. Citi moved to refund the $11 million collected and drop lawsuits attempting to collect another $34 million.

The consumer protection bureau says debt collection is on its list of priorities for new rulemaking. About one-third of consumers who have a credit report have at least one debt in collections, averaging $5,178.

It is about time they stop being hounded for error-riddled debts propped up by shaky court documents.

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