By Andrew R. Johnson
A Florida firm allegedly created thousands of fake legal
documents bearing the forged logos of banks including Wells Fargo
& Co. (WFC) and U.S. Bancorp (USB) to pursue consumers for
past-due overdraft fees, Minnesota Attorney General Lori Swanson
said Wednesday.
United Credit Recovery LLC, the company in question, purchased
debt portfolios from banks -- and then used computer software to
copy and paste images of bank employee signatures and bank logos to
make the company's legal affidavits seem legitimate, Ms. Swanson
alleged in a lawsuit filed in Minnesota state court.
The company used the documents to pursue collections cases
against borrowers and often resold the portfolios it acquired to
other firms, which also used the "false affidavits to collect money
from consumers, both directly and through court judgments," the
suit said.
Minnesota's suit does not name any bank as a defendant, though
Ms. Swanson said her office is scrutinizing the role financial
institutions play in the sale of charged-off debt to third parties,
such as United Credit Recovery.
"The banking institutions do have responsibilities to their
customers to help police this industry, especially knowing that
[debt portfolios] are often resold over and over again," Ms.
Swanson said in an interview.
The case is the latest to highlight alleged problems that have
come to light in the debt-collection industry, which consumer
advocates have accused of using faulty documentation to pursue
legal judgments against borrowers. Such complaints mirror the
"robo-signing" accusations lodged against large banks in the wake
of the mortgage meltdown.
A group of 13 state attorneys general, including Ms. Swanson's
office, are investigating debt-collection practices in the
industry. That group is being led by Iowa Attorney General Tom
Miller.
The Consumer Financial Protection Bureau is also reviewing
industry practices, including allegations that firms misrepresent
the amount of debt that consumers owe and failing to post payments
made by borrowers.
United Credit Recovery specializes in buying charged-off
overdraft debt from banks, typically paying pennies on the dollar
for portfolios that can total hundreds of millions of dollars. Such
debt stems from fees that banks typically charge their customers
when they overdraw their bank accounts.
Throughout its history, United Credit Recovery has bought debt
from Wells Fargo, U.S. Bancorp, Bank of America Corp. (BAC), Fifth
Third Bancorp. (FITB) and Huntington Bancshares Inc. (HBAN),
Minnesota's complaint said. It often quickly resells portfolios to
other debt-buying firms, expanding the potential for the company's
allegedly fake legal documents to be used in suits against
consumers.
Minnesota plans to ask a judge to require the company to provide
an accounting of all the firms it sold portfolios to, Ms. Swanson
said.
"It's hard to put spilled milk back in the bottle," Ms. Swanson
said. "That's why we're asking for the court's intervention."
United Credit Recovery did not respond to a request for comment
Wednesday.
Wells Fargo and U.S. Bancorp, which have large presences in
Minnesota, sold more than $1.5 billion of charged-off debt to the
company before ending their relationships with the firm, the suit
said.
In U.S. Bancorp's case, United Credit Recovery forked over $31
million to the bank to acquire more than $820 million in overdraft
debt between 2007 and 2011. It also paid Wells Fargo about $19
million for $700 million of overdraft debt between 2010 and
2012.
Wells Fargo sued United Credit Recovery in federal court in
Florida last month, accusing the company of creating fraudulent
affidavits by forging its employees' signatures. The San Francisco
bank stopped selling debt to the company in 2012, citing concerns
about the company's operations, according to court filings.
Attorneys representing United Credit Recovery in that suit did
not respond to a request for comment, nor did a spokesman for Wells
Fargo.
A spokeswoman for U.S. Bancorp said in an email that it has not
sold the type of debt referenced in Minnesota's lawsuit since March
2012.
"While we collect the vast majority of delinquent debt
internally, we do maintain relationships with a small number of
agencies who collect on our behalf," the spokeswoman said. "Those
agencies are required to meet very strict compliance, ethical and
customer service standards."
U.S. Bancorp will also work with the Minnesota Attorney
General's Office to provide additional support in its case, the
spokeswoman said.
Among the focus areas for federal and state regulators looking
at the debt-collection industry is the integrity of documents used
in suits against borrowers as well as what information banks
provide third parties who purchase debt portfolios.
The Office of the Comptroller of the Currency last month ordered
J.P. Morgan Chase & Co. (JPM) to overhaul its debt-collection
practices, alleging the bank made errors in hundreds of thousands
of debt-collection lawsuits against borrowers.
The bank's settlement with the OCC requires J.P. Morgan to
notify consumers when their debt is sold to a third party and
verify that information provided to those buyers about the accounts
is accurate, among other steps.
J.P. Morgan said at the time that it had taken several steps to
address affected customers and change its practices, including
halting credit-card collections suits and dismissing other
lawsuits.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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