Fake Bankruptcy Filings Targeted in Visa Crackdown

Personal bankruptcy fraud costs the bank credit card industry $600 million a year and hurts all cardholders, Visa U.S.A.’s president said Wednesday as he announced a nationwide crackdown on phony filers.

Jon Cristoffersen said the program, already under way in Los Angeles, Dallas, Houston and Chicago, will reach most major bankruptcy areas by year-end.

“Bankruptcy can be an appropriate way for honest people to deal with a financial problem,” he said. “But our concern is with the fraudulent filing, which can be as many as one in three.”

Personal bankruptcy filings have doubled since 1980 to about 600,000 last year, or one in 178 households. Cristoffersen said that socked the bank card industry with total losses from bankruptcies of $1.5 billion in 1988 as bankrupt cardholders simply wrote off their unsecured credit card debt.

Screen for Abuses

“About half of everyone’s annual fees for bank cards comes from bankruptcy,” he said. “If we’re able to deal with even 20% to 30% of the fraud, the pay-back to the public will be substantial. I think with certainty there would be a translation in savings for the honest cardholders.”

Most people who file for bankruptcy fraudulently have been able to get away with it, Cristoffersen said, because two-thirds of the banks with assets of more than $1 billion have not been challenging them.

Visa’s new program encourages member banks to screen for fraud and abuse of the federal bankruptcy law, challenge filings in court and seek criminal prosecution.