A putative class action suit was filed yesterday against Bank of America (B of A) alleging that that the bank has been improperly suing consumers who owe on credit card debt after the bank had previously “sold” that debt via a securitization of a pool of accounts and thereby relinquishing its ownership interest in the account. The case, Willard v. Bank of America, et. al (Case No. 2:16-cv-01199) was filed in the United States District Court in the Eastern District of Pennsylvania.  A copy of the Complaint can be found here.

The Allegations

The case was brought under the Fair Debt Collection Practices Act, 15 U.S.C. §§1692-1692p (FDCPA); and the statutes of the Commonwealth of Pennsylvania (the Pennsylvania Fair Credit Extension Uniformity Act (FCEUA), 73 P.S. §§2270.1-227. The complaint requests actual damages, punitive damages, treble damages, statutory damages, declaratory and injunctive relief, costs of suit, attorney’s fees, and other appropriate relief from defendants.

The summary allegations are that B of A has “engaged in a scheme whereby they issue credit cards to consumers and, then seek to collect the amounts allegedly due from each card holder’s use of the credit card, despite the fact that B of A has sold, transferred, assigned or otherwise conveyed its beneficial interest in each consumer’s credit card account to a trust as part of a financial transaction known as a credit card securitization. Having relinquished its beneficial interest, B of A no longer has a debt obligation owed to it by Plaintiff or the Class.”

The complaint alleges very specific elements of the B of A “sale” process from account creation through securitization; a process that shows an account moving via “sale” from Bank of America to Bank of America Consumer Credit Services to Bank of America Funding LLC to Wilmington Trust Company.

The complaint then alleges, “Wilmington Trust Company then underwrites a bond offering. The bonds are placed into tranches from senior debt to junior debt and each tranche has a certain amount of assets. Bank of America Consumer Credit Services still services the account by sending out bills and accepts payment, but Bank of America has given up ownership rights as required to Wilmington Trust Company, therefore Bank of America and its entities have given up its rights to sue its cardholders when they default on their debt.”

Finally, the complaint alleges, “Despite the fact that Bank of America intentionally relinquished its beneficial interest in Bank of America accounts, it has continued to pursue, along with its affiliates and the defendant law firms, collection lawsuits against Plaintiffs and members of the Class to recover the obligations allegedly owed on the Bank of America accounts.”

Plaintiff’s attorneys are seeking class certification.

insideARM Perspective

This case demands continued scrutiny by all banks and the ARM industry. The securitization of pools of accounts is a wide-spread process. The case has the potential to dramatically impact future collection practices regarding securitized accounts.  While this particular case involves litigation on accounts that were securitized, any “sale” of those accounts could be subject to the same argument.

In fact, earlier this year, on January 26th, insideARM published an article about another class action case that involved similar allegations involving securitized accounts.  However, in that case, (Cox, et al v. Sherman Capital LLC, et al. U.S. District Court, Southern District of Indiana, 1:12-cv-01654-TWP-MJD) a federal judge in Indianapolis ruled that a lawsuit alleging violations of the Fair Debt Collection Practices Act (FDCPA) and the United States Racketeer Influence and Corrupt Organization Act (“RICO”) against Sherman Financial Group, one of the country’s largest debt buyers, could not proceed as a class action because circumstances vary too much among the class members.

Because of the high stakes involved, the Sherman case was vigorously pursued by Plaintiff’s attorney and subject to often contentious interplay among the attorneys involved.  It is likely that this new case will have similar activity.

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