Chase Draws Criticism for Shoddy Debt-Collection Practices
Credit card mega-issuer JP Morgan Chase & Co. has recently come under fire due to allegations of impropriety relating to the company’s debt collection practices. Numerous whistleblowers, including former high-ranking Chase executives, have told American Banker that the company engaged in reckless and even fraudulent practices in order to overstate past-due debt and thereby boost revenue. Chase made $1.8 billion off overdue debt in 2009 alone, according to the publication.
While Chase officials have been mum on the subject, reports have it that the Office of the Comptroller of the Currency has been investigating the matter, which also calls into question billions of dollars in past-due debt already collected, countless court judgments, and the bank’s motives to abruptly drop lawsuits against indebted consumers in five states last spring.
According to both named and unnamed sources, Chase has long engaged in what is known as “robosigning,” which is the rubber stamping of debt records that may or may not have proper documentation. Former employees also allege that Chase officials actually shredded documents related to consumer payments and court judgments, presumably to retain the ability to recoup or sell related debts.
Chase is one of the few major issuers that operate in-house debt collection services, but it also contracts out the work to outside attorneys in certain states and sells past-due debt to debt buyers, much like the bundles of mortgages that were sold to investors prior to the housing crisis. Poor record keeping by outside attorneys as well as organizational pressure to sign off on documents regardless of their accuracy were raised as primary explanations for why debts were routinely overstated.
The issue has caught the eye of industry insiders, watchdog groups, federal regulators, and members of the legal community alike, largely because of its parallels to shady mortgage trading as well as the financial struggles endured by so many consumers over the past few years.
“This is a very unfortunate situation not only because it gives the honest credit card companies a bad name, but also because consumers these days have enough to worry about without being compelled to pay overstated debt figures,” said Odysseas Papadimitriou, founder and CEO of the credit card comparison website WalletHub and a former Capital One executive. “Consumers incurred nearly $48 billion in new debt during 2011, and regardless of whether Chase was being intentionally predatory or there was simply a lack of oversight, it’s not fair to add a single unwarranted dollar to anyone’s debt burden. Chase needs to answer to those people who were unfairly sued or required to pay more than they truly needed to.”
This is not the first time Chase’s shady practices have come to light, as a Richmond County, N.Y. judge last year dismissed 150 credit card debt collection suits brought by the issuer due to the fact that the records involved in the cases were signed by only a small number of individuals, an obvious red flag.
This is, however, the first time the issue has garnered traction in the press and with the OCC investigating, the story appears to be only beginning.
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