For years, banks have been engaged in a process known as "robo-signing", a phrase that describes the automatic processing of financing paperwork. Since the dot com boom, more banks are using computers to decipher signatures, validate paperwork, and track balances.
Now, some say that robo-signing may slow the settlement process. Credit card delinquencies peaked in 2008 when the financial crisis stymied economic growth. In 2009, millions of cardholders faced new lawsuits to recover funds left unpaid.
Today, credit card companies face a new problem in the settlement process: automated “robots” that have fallen off the wagon. Judges across the country report that credit card companies are going to court with documents that may be incorrect. The paperwork often falsely identifies the borrower, the amounts, and even the credit card numbers of the people who are called into court for an unpaid balance. The net effect is more stress for consumers, and fewer settlements for credit card companies.
Robo-signing was also attributed to mortgages issued during the housing boom. The sheer lending volume burdened banks with a record amount of paperwork. Automatic processing may have created more errors as the computers – and the data they held – were never checked for accuracy. Some report that as many as three million mortgages may have been robo-signed, and thus their accuracy cannot be guaranteed.
For credit card companies, robo-signing creates a not so insignificant roadblock to retrieving money from delinquent accounts. Several firms are reportedly receiving rejections for new court appearances due to the practice, which may ultimately cost credit card companies tens of billions of dollars in additional write-downs.