By guest blogger Peter A. Holland
I have covered the NCLC's excellent proposal to ban the sale of time-barred debt here.
The NCLC recommendations point to the larger problem that some banks sell off their worst, most unreliable, least collectible, most dubious accounts for literally pennies on the dollar (sometimes less), pursuant to broad disclaimers of accuracy and reliability. I have written about this here. The problem, in the words of Jeff Horwitz in an American Banker article is that, "Bank of America Sold Card Debts to Collectors Despite Faulty Records." You can read what some of the typical disclaimers of accuracy in Forward Flow Agreements are here, including the revelations that the accounts being sold may not be legally enforceable (see page 4), and that (page 26, Schedule 1), the balance of each account is only "approximate."
Banks should not be allowed to sell their worst, most unreliable accounts as junk debt for junk prices to junk purchasers who will then file junk lawsuits. If one reads the broad disclaimers of warranty in any of the Forward Flow Agreements, one has to wonder, why is this not already explicitly banned? In her excellent article, "Dirty Debts Sold Dirt Cheap" UConn Law Professor (and former CFPB staffer) Dalie Jimenez has rightly called for the CFPB to declare that the selling such accounts under such circumstances is an unfair or deceptive trade practice. (A sampling of over 80 Forward Flow Agreements is available from Dalie Jimenez, here ). I have written about the lack of proof in these junk lawsuits here, and about the "junk justice" effect of these lawsuits here.
While banning the sale of time-barred debt as recommended by the NCLC, and declaring the sale of junk debt to be a UDAP violation as recommended by Dalie Jimenez are both excellent and realistic proposals, the CFPB should also consider going further and calling for an outright ban on the sale of any debt which is not accompanied by affirmative representations and warranties of completeness, accuracy, reliability and enforceability. Further, the Forward Flow Agreements should be made publicly available on a website, so that consumers, consumer attorneys and judges can decide for themselves just how reliable accurate and reliable are the claims of the debt buyers.
Currently, we are living under a system where banks are knowingly selling inaccurate, unreliable junk accounts which are then used to extract money from consumers, some of whom do not owe any amount at all, and many of whom owe considerably less than the "approximate" amount being sued on. We need to move from a business model where it is perfectly acceptable to sell false, incomplete and unreliable accounts, to a model where the only accounts which may legally be sold are those accounts which are true, complete and accurate. Banning the sale of time-barred debt is an excellent start, as is declaring the sale of such junk debt to be a UDAP. Perhaps in the current political climate, that is all we can hope for. But the only way to stop these practices altogether is to invert the current model: mandate that banks sell only legitimate accounts, and institute an outright ban on the sale of the bogus, "dirty" accounts.