A New, Slightly Different Robo-Signing Scandal

Robo-signing is in the news again, and in a big way. For one thing, the New York Attorney General's office is suing Bank of America and Wells Fargo for allegedly failing to follow the conditions of the $26 billion settlement over shabby foreclosure practices, which featured the mindless signing of foreclosure documents.

The second thing is just as odious: Banks have apparently been using the same robo-signing techniques in the collection of credit card debt -- and further investigation may find other credit card issuers are involved, too.

Robo-signing, "sewer service"
The Attorney General's office announced late last week that it is bringing charges against JPMorgan Chase for using a slew of illegal maneuvers to wring non-existent debt from at least 100,000 credit card users in California. Among the dastardly procedures used by JPMorgan, the AG's office alleges, are the famous robo-signing of fraudulent documents, while neglecting to notify targeted consumers of the fact that they were being sued -- a tactic known as "sewer service."

Regulators have been eyeballing JPMorgan for some time now, ever since the Office of the Comptroller of the Currency got wind of these shenanigans from former employees. Those involved noted discrepancies such as computer databases showing different card balances than the bank was alleging, and work of dubious quality by the outside attorneys used in the debt collection process.

Last summer, The New York Times published a story about this very issue, noting that Citigroup , American Express , and Discover Financial were also being scrutinized for similar behavior. The accounts of consumers being sued for amounts that they claim they do not owe are harrowing, particularly since the article notes that, in credit card cases at least, many defendants don't show up in court -- resulting in an automatic win for the credit card issuer. Considering the fact that JPMorgan is accused of being remiss in notification of these suits, it's no wonder consumers aren't defending themselves.

A far-reaching problem
Doubtless, this is just the tip of the iceberg, with sanctions against Citi, American Express, and Discover sure to follow. Bank of America is likely to get tagged, as well: American Banker noted early last year that B of A sold credit card debt acquired with its MBNA purchase to a collection agency back in 2009 and 2010, even though there was evidence that the debt had dicey paperwork attached.

The U.S. Census Bureau estimated that approximately 160 million citizens used credit cards last year, and Nerdwallet notes that indebted households chalked up over $15,000 of their overall debt to credit cards. Obviously, this type of problem has the potential to touch many more consumers than did the mortgage fraudclosure scheme.

Banks aren't doing a very good job of regaining Americans' trust, and this brewing scandal certainly won't help. I would include investors in that group, as well, as many might feel increasing discomfort with the notion that some of their bank's profits are acquired in this manner. I know I would.

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The article A New, Slightly Different Robo-Signing Scandal originally appeared on Fool.com.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends American Express and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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