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May 10, 2013

California Attorney General Kamala Harris is on a roll. There’s been a fair bit of media coverage about abusive debt collection practices, particularly in credit cards, but at least until Harris filed a suit on Thursday against bank miscreant JPMorgan (hat tip Deontos), surprisingly little action.

Because the amounts are usually much smaller than in mortgages, banks have incentives to play fast and loose if they think they can wring some extra blood out of the turnip of an overextended consumer. But the result often goes well beyond just improperly submitting information to the court. JP Morgan and other banks have been accused of trying to collect on debt where they have the amounts wrong, where the debt was discharged in bankruptcy, or where the consumer was never notified an action was underway. And when the debt is sold to debt collectors, the same problems with inaccuracy of information, invalidity of the debt, and abuse of the legal system multiply.

Chase had its dirty laundry aired in public by whistleblower Linda Almonte, who filed an SEC suit in 2010, settled, and then decided to break her confidentiality agreement in 2012. She was an important contributor to an American Banker story that also revealed that the OCC had been investigating. As we wrote:

“The American Banker story discusses the operations of a unit that handled delinquent credit card borrowers. Handling these accounts involved using three different computer systems that communicated reasonably well on current borrowers but not with delinquent or defaulted ones. As a result, the operation had involved a high level of manual checks to make sure the amounts borrowers owed were accurate before they were sent off to collection (which in high population states, was an in-house operation, but for most, involved the use of outside law firms….

Linda Almonte, who was a process specialist who had worked at WaMu, joined in 2009 and was fired, as she charged in a wrongful termination lawsuit, for refusing to send files to collection that has obvious problems in them. Almonte filed a whistleblower complaint with the SEC (see an Abigail Field story for more detail). Her charges:

1. Chase Bank sold to third party debt buyers hundreds of millions of dollars worth of credit card accounts. . .when in fact Chase Bank executives knew that many of those accounts had incorrect and overstated balances.

3. Chase Bank executives routinely destroyed information and communications from consumers rather than incorporate that information into the consumer’s credit card file, including bankruptcy notices, powers of attorney, notice of cancellation of auto-pay, proof of payments and letters from debt settlement companies.

4. Chase Bank executives mass-executed thousands of affidavits in support of Chase Banks collection efforts and those Chase Bank executives did not have personal knowledge of the facts set forth in the affidavits.

…the American Banker story quotes current and recent employees who confirm that he bad practices that Almonte called out are still very much alive. Specifically:

“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.’”…

The records the law firms used to sue people sometimes differed from Chase’s own files at an alarming rate, according to a routine Chase presentation prepared by Almonte and later submitted to the Securities and Exchange Commission. Some law firms’ records disagreed with Chase’s in almost 20% of cases sampled, a rate far above what is regarded as an acceptable level of errors.

“That’s horrendous,” says a former Chase attorney who was informed of the numbers by American Banker…

Borrower correspondence sent to the San Antonio facility, such as bankruptcy notifications, address changes, and hardship requests were being dropped on an unmanned desk, according to a 2009 printout from Chase’s troubleshooting log….

“I understand there were documents trashed, yes,” she says. [Carol] McGinn retired from the San Antonio facility in June of 2010 after she says she became uneasy with how it was being managed.”

http://www.scribd.com/doc/140561152/California-v-JP-Morgan-Chase-May-9-2013

Full article from Naked Capitalism can be found here

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