Bank Action Deemed Unfair

Signet Bank of Virginia had two strategies for collecting debt from its credit cardholders.

“People in the limelight, celebrities and attorneys” were deemed “not candidates for legal action,” according to the bank’s collection guidelines.

But the bank vigorously pursued other cardholders, such as William Yu, a Fremont, Calif., resident and an employee of Silicon Graphics. Signet and its spinoff Capital One would routinely file suits in Virginia state court against delinquent cardholders from other states, obtain default judgments, then use them to garnish wages of their customers.

Using that tactic, Signet obtained thousands of default judgments and collected millions of dollars, including interest at the rate of 19.8%.

Yu’s class-action suit against the bank for abuse of process and unfair business practice was dismissed by an Alameda County Superior Court judge in February 1997. But this week an appeals court in San Francisco reinstated the suit, saying the Virginia court had no authority to enter a judgment against Yu and others.

The 1st District Court of Appeals also declared that Signet “may have consciously” calculated that it could have avoided lawsuits if “no action were taken against people like attorneys and celebrities who might challenge or publicize the program.”

James Sturdevant, an attorney for Yu, said the appeals court’s decision means that thousands of cardholders would be allowed to sue Signet.

“This is really good news for consumers,” Sturdevant said.