Attempts to collect bad debts are flooding the courts.
The same problems that plagued the mortgage-foreclosure process -- and prompted a multibillion-dollar settlement with big banks -- are emerging in the debt-collection practices of credit card companies.
As they work through a glut of bad loans, companies such as American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.
Lenders, the judges said, are churning out lawsuits without regard for accuracy and improperly collecting debts from consumers. The concerns echo a recent abuse in the foreclosure system, a practice known as robo-signing in which banks produced similar documents for different homeowners and did not review them.
"I would say that roughly 90 percent of the credit-card lawsuits are flawed and can't prove the person owes the debt," said Noach Dear, a state civil court judge in New York, who said he presides over as many as 100 such cases a day.
Last year, American Express sued Felicia Tancreto, claiming that she had stopped making payments and owed more than $16,000 on her credit card. While Tancreto was behind on her payments, she contested owing the full amount, according to court records.
In April, Dear dismissed the lawsuit, citing a lack of evidence. The American Express employee who testified, the judge noted, provided generic testimony about the way the company maintained its records. The same witness gave similar evidence in other cases, which the judge said amounted to "robo-testimony."
American Express and other credit card companies defended their practices. Sonya Conway, a spokeswoman for American Express, said that "we strongly disagree with Judge Dear's comments and believe that we have a strong process in place to ensure accuracy of testimony and affidavits."
Interviews with dozens of state judges, regulators and lawyers, however, indicated that such flaws are increasingly common in credit card suits. In certain instances, lenders are trying to collect money from consumers who have already paid their bills or are increasing the size of the debts by adding erroneous fees and interest costs.
Some consumers dispute that they owe money at all. More commonly, borrowers are behind on their payments but contest the size of their debts. The problem, according to judges, is that credit card companies are not always following the proper legal procedures, even when they have the right to collect money.
Certain cases hinge on mass-produced documents because the lenders do not provide proof of the outstanding debts, like the original contract or payment history. At times, lawsuits include falsified credit card statements, produced years after borrowers supposedly fell behind on their bills, according to the judges and others in the industry.
"This is robo-signing redux," said Peter Holland, a lawyer who runs the Consumer Protection Clinic at the University of Maryland.
Lawsuits against credit card borrowers are flooding the courts, according to the judges. While the amount of bad debt has fallen since the financial crisis, lenders are trying to work through the soured loans and clean up their books. In all, borrowers are behind on $18.7 billion of credit card debt, or roughly 3 percent of the total, according to Equifax and Moody's Analytics.