Bank of America’s foreclosure processes have been a wreck during the mortgage crisis — the bank has foreclosed on homes that no longer exist, used fraudulent procedures to speed through documents, and pushed borrowers into foreclosure because of small clerical errors. Now, the bank is apparently using its shoddy foreclosure practices on its credit card accounts too.

Kathy Stevens paid off nearly $2,000 in delinquent credit card debt to Bank of America in 2006. Since then, she’s been fighting collection agencies who want her to pay it off again. Bank of America allegedly sold Stevens’ account to outside collection agencies, but did not include documentation to show it had been “considered settled,” according to a lawsuit filed against the outside collectors.

Bank of America is not directly involved in the lawsuit, but it was the mega-bank’s actions that set off the case, American Banker reports:

Shortly after Stevens paid off her debt, Bank of America appears to have sold rights to her account to outside debt collectors affiliated with CACH LLC. The collectors began calling Stevens and sending her collection letters, according to Stevens’ state court filings. They demanded she pay off — with interest — the B of A card account that Plaza had assured Stevens in writing she’d covered.

“They would constantly call, they would constantly mail stuff to me,” Stevens says. Even when she sent the collectors proof of having paid her debt, “that just didn’t seem to be good enough for them. They still ended up taking me to court. The proof is in the paperwork, what more do I have to present to you?”

As American Banker notes, most of the accounts Bank of America sold off to outside collection agencies were legitimately delinquent. But similar to the robo-signing scandal that enveloped it and other banks during the mortgage crisis, the bank’s oversight failures led to the inclusion of accounts — like Stevens’ — where it had incomplete records or where the borrowers owe nothing. Stevens’ attorney said he has represented nearly 500 clients with cases similar to Stevens’, and more often than not, collections agencies fail to produce complete documentation on the accounts in question.

While much of the attention on big banks has centered on fraudulent mortgage practices, government regulators are increasing scrutiny on credit card procedures as well. The Office of the Comptroller of the Currency is investigating credit card practices at banks like JPMorgan Chase, and the newly-formed Consumer Financial Protection Bureau has vowed to investigate fraudulent and predatory credit card lending practices as well.

Back in January, American Banker reported that JP Morgan Chase — the nation’s biggest bank — was potentially robo-signing credit card documents. Robo-signing, of course, is the pernicious practice banks used to approve foreclosures without verifying basic information about borrowers or complying with property law.

Today, American Banker is back with allegations from former JP Morgan employees that the bank did indeed robo-sign documents when suing delinquent credit card borrowers, enabling it to run up its credit card collections into the billions of dollars, while short-circuiting the legal process:

JPMorgan Chase & Co. took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years, current and former employees say. [...]

“We did not verify a single one” of the affidavits attesting to the amounts Chase was seeking to collect, says Howard Hardin, who oversaw a team handling tens of thousands of Chase debt files in San Antonio. “We were told [by superiors] ‘We’re in a hurry. Go ahead and sign them.‘”

In many instances, the records of the firms that JP Morgan had contracted with to handle the documents did not match the records that the bank itself had, but the lawsuits against borrowers went ahead anyway. Some firms’ records didn’t match the banks in 20 percent of cases. In many instances, a whistleblower alleged, the bank was claiming borrowers had much more debt than they actually had.

Two former employees also allege that the bank directly destroyed borrowers’ records. “I understand there were documents trashed, yes,” one said. An internal Chase document also shows that borrowers’ correspondence with the bank was being dumped onto an unmanned desk and left unanswered.

Last year, a former JP Morgan Chase employee candidly admitted that commercial bankers see customers simply as people to be “exploited” via fees. “I don’t say this lightly, but the consumer is simply an income stream and exploiting that is the purpose of the banking organization,” he added. And when it comes to collecting on credit card debt, it seems there are no lengths to which the bank will not go, legal or not, to make sure it gets paid.

Bank of America has been involved in a slew of consumer catastrophes recently, from stealing a woman’s pet parrot and foreclosing on a home that had literally been destroyed by a hurricane to putting an elderly couple into foreclosure for paying their mortgage too early. This week, Bank of America agreed to a $410 million settlement for charging excessive overdraft fees (which won’t even cover the money the average BofA customer lost unfairly).

In the latest example of BofA’s consumer ineptitude, the Chicago Tribune reported that the bank charged a man $39.23 in interest on a credit card bill of $0:

Roger Greenwood thought he had heard of every conceivable bank fee. Then he received his September credit card bill.

Bank of America charged the Jacksonville, Ill., man $39.23 in interest — on a $0 balance…His statement clearly showed that between the credits and his payment, Greenwood paid off the entire $5,734.13.

Of course, if there is a $0 balance, there is nothing on which to be charging interest. Both the Tribune and the Consumerist contacted the bank, which said the problem arose when one of the merchants Greenwood interacted with credited his account with $1,450. Bank of America, for whatever reason, decided that the merchant’s credit didn’t count towards Greenwood’s balance, and therefore charged him interest. As the Tribune explained, Greenwood “would have had to overpay his balance by $1,450 to avoid the interest charge.”

Bank of America is a huge institution, so some mishaps are almost inevitable. But the bank has shown an extremely consistent pattern of incompetence, which has manifested itself not just in headaches like the one Greenwood faced, but in improper foreclosures and seizures of property. As one BofA customer put it, “Bank of America is ruthless in their incompetency.” (HT: Huffington Post Business)

Back in May, Congress approved and the President signed legislation reforming the credit card industry, ensuring that credit card companies couldn’t raise rates for no reason or retroactively increase rates on existing balances. However, most of the new rules don’t go into effect until February, 2010.

In the interim, banks have been jacking up rates left and right. In fact, half of Americans report that their credit card rates have been raised in the past six months. According to Pew Charitable Trusts’ Safe Credit Cards Project, the lowest interest rates offered on most bank cards “jumped by more than 20 percent” in that time.

To deal with this problem (which is significantly of their own making), Democrats crafted a bill bumping up the implementation date of the new regulations and freezing interest rates until the new laws come into effect. The bill was approved by the House on a vote of 331-92 earlier this month.

Due to a packed floor schedule, there was no stomach in the Senate for a prolonged fight over credit cards. So, as Ryan Grim noted “the only way Democrats could pass the bill in time for the holidays would be with the support of the GOP.”

Sen. Chris Dodd (D-CT) tried to do just that yesterday, with the support of Sen. Mark Udall (D-CO), by asking for unanimous consent to bring the bill to the floor. However, Sen. Thad Cochran (R-MS) objected “on behalf of several senators on this side of the aisle,” killing the whole effort. Watch it:

According to Pew, none of the credit cards currently offered online by the 12 largest U.S. banks “would meet requirements of new federal curbs on the industry’s rates and fees.” But Republicans still saw fit to allow the credit card companies to do whatever they want until the new rules comes into effect next year.

As the Coloradoan reported, “Republicans didn’t explain their decision to block a vote…beyond Cochran’s short objection.” Dodd, clearly expecting an objection, lamented that a bill “that would really have allowed us to do something meaningful” was being derailed.

This is, sadly, exactly how the rest of the financial regulatory reform debate is going. Yesterday, Senate Republicans said that “there is no support within the GOP for the financial overhaul plan outlined last week by Democrats.” “My understanding is that it’s not acceptable to any of the Republicans on the [banking] committee as it now stands,” said Minority Leader Mitch McConnell (R-KY).

That’s right. In the wake of the financial crisis, not one Republican is prepared to vote for regulatory reform. And the reason is that “they think the plan goes too far by putting onerous restrictions on Wall Street that could limit the availability of credit.” So by preventing the credit card bill from going forward — and by uniting in opposition against wider regulatory reform — the GOP is endorsing the credit card companies’ actions and the wider return to rampant risk on Wall Street.

For years, the banking industry has padded its profits by forcing consumers to sign a “forced arbitration” agreement denying them to right to sue the bank in a real court, and instead forcing any disputes between the bank and a lender into a biased, corporate-run forum that rules in favor of the banking industry 95% of the time. As the Wonk Room reported last month, however, this practice was dealt a severe blow after the industry’s principal accomplice in this scheme, an arbitration firm known as the National Arbitration Forum (NAF), shut down its consumer arbitration business as part of a settlement with the Minnesota Attorney General. A few days later, the NAF’s main competitor announced that it was also no longer take most of the banking industry’s cases.

Last week, consumers scored another victory as Bank of America announced that it “will no longer require credit card, bank account and auto loan customers to sign away their right to sue.”  Bank of America is the nation’s third-largest credit card company, and the first major credit card provider to quit using forced arbitration to immunize itself from accountability under the law.

Hopefully, Bank of America’s decision will lead the remainder of the industry to stop using forced arbitration in order to compete.  Certainly, informed consumers should prefer a credit card company that doesn’t think that it is immune from the law.  But even if the entire banking industry abandons forced arbitration, this toxic practice remains pervasive. Many employers refuse to hire workers unless they sign away their right to sue the employer for anything from wage discrimination to creating an unsafe workplace; cell phone companies sneak forced arbitration clauses into their contracts as a matter of practice; some nursing homes have even been caught tricking their residents into signing them immediately after they suffer a stroke. After KBR employee Jamie Lee Jones was gang raped by her co-workers in Iraq, KBR tried to shut down Jones’ suit against the company by invoking an arbitration clause in her contract.

Worse, the imposition of forced arbitration on consumers should never have even happened. In the 1920s, Congress unanimously passed a law called the Federal Arbitration Act to allow sophisticated merchants to arbitrate their disputes in fair and neutral forums. Sixty years later, the Supreme Court twisted this law to allow companies to force consumers and workers into biased arbitration. Bank of America’s step away from forced arbitration is a good step; but it ultimately will rest with Congress pass legislation protecting consumers from widespread and pervasive forced arbitration clauses.

Minnesota Attorney General Lori Swanson

The bedrock of America’s legal system is an impartial judiciary; if judges are in the pocket of an industry, then laws regulating that industry simply cease to exist.  This is why the credit card industry absolutely loves a company known as the National Arbitration Forum (NAF), which for years has allowed this industry to effectively write and enforce its own laws against consumers.

The scam works like this:  beginning in the 1980s, the Supreme Court rewrote federal law to endorse a practice known as “forced arbitration.”  Under this practice, companies ranging from nursing homes to cell phone companies to employers can refuse to do business with anyone who doesn’t give up their right to sue or be sued in a regular court presided over by a neutral judge.  Instead, consumers and employees are shunted into a privatized, corporate-run judicial system, which overwhelming favors corporate parties.

No one has taken greater advantage of forced arbitration than the credit card industry–it may now be impossible for consumers to get a credit card in the United States without signing a forced arbitration agreement–and the industry’s most important partner in this shell game has been the NAF.  According to one study, which examined over 20,000 NAF cases between a credit card company and a consumer, the credit card company won an incredible 95% of the time.  In one case, NAF ordered a woman to pay the credit card company MBNA almost $8000 because she had the same name as another woman who owed MBNA money.  Conversely, when a Harvard Law Professor named Elizabeth Bartholet, who used to work part-time as an NAF arbitrator, handed down a single decision against a credit card company she was immediately stripped of her caseload by NAF at the request of the credit card industry.

The credit card industry’s halcyon days as judge, jury and victorious litigant may be numbered, however, thanks to a lawsuit brought against the NAF by Minnesota Attorney General Lori Swanson.  Under a settlement announced yesterday, the NAF will cease accepting any new consumer arbitration cases by the end of this week (NAF’s entire business will now be limited to arbitrating Internet domain disputes).  In other words, the credit card industry will need to find a new train conductor if they want to keep railroading consumers into lawless corporate tribunals.

For their part, NAF complained that they are being forced to shut down because “the Forum lacks the necessary resources to defend against increasing challenges to arbitration on all fronts, including from state Attorneys General and the class action trial bar,” but this simply shows that our court system worked.  Thanks to suits brought by Swanson and others, the cost of NAF’s lawbreaking finally became greater than the cost simply shutting down their corrupt business.

Unfortunately, NAF was vulnerable to this kind of attack because the evidence against it was so overwhelming–not every forced arbitration company has a Harvard Law professor prepared to testify about how they were strongarmed into shafting consumers–so it remains to be seen whether another, equally offensive company will emerge to fill the void (a bill, currently pending in Congress, would end the practice of forced arbitration in consumer and employment contracts altogether).  Even so, the near-total demise of NAF is one of the most important pro-consumer developments in decades; for the first time in years, credit card companies may actually have to follow the law.

A few weeks ago, the banking industry was able to kill off legislation that would have allowed bankruptcy judges to cram-down mortgage payments for troubled homeowners, leading Sen. Dick Durbin (D-IL) to proclaim that the banks “are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

Durbin is back at it again today, joining Sen. Kit Bond (R-MO) to propose an amendment to the Credit Cardholder’s Bill of Rights that “would allow discounts for debit cards and ban retaliation against retailers who charge less for transactions that don’t involve credit cards,” which is somehow not prevented right now. And guess who is standing in the way, according to the Wall Street Journal:

Heavy pressure from banks could force lawmakers to shelve the measure Thursday to avoid sinking the broader bill.

Currently, merchants face penalties if they offer discounts to consumers who pay with cash or debit cards, and the banks and credit card companies want to preserve the status quo. Andrew Leonard summed up the situation like this:

I’m with Durbin, as is, I think, a large swath of the general public. How is it even possible that the banking industry could exert “heavy pressure” after having been bailed out by Congress to the tune of so many hundreds of billions? It is preposterous.

Sen. Harry Reid (D-NV) has said that he hopes to have the complete credit card bill pass by next Friday.