Consumer Finance

Credit-Card Debts Got 'Robo Signers,' Too


Credit-Card Debts Got 'Robo Signers,' Too

Photograph by Paul Hudson/fstop/Corbis

And here we were, thinking the “robo signing” of foreclosure documents was just one further ugly chapter in the U.S. housing mess, helping to spur a $25 billion settlement over abusive practices. It turns out that at least one bank, JPMorgan Chase (JPM), resorted to so-called “robo signing” in an additional area: the collection of credit card debts. American Banker‘s Jeff Horwitz has published the first story in a multi-part series today, examining credit-card collections at Chase. The story details how the bank encouraged “procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers” and reports that the Office of the Comptroller of the Currency, the regulator that oversees federally chartered banks, is investigating the bank’s flawed practices.

When Chase and other banks sue customers who are delinquent in their debts, they must submit affidavits to the court, documenting how much the consumers owe. Horwitz’s reporting shows that in the rush to recoup losses, Chase’s paperwork regularly misstated the debts, with employees often signing court documents without having verified the claims.

Chase declined to comment Tuesday on the American Banker story. In a statement, spokesman Paul Hartwick says that after mortgage documentation problems came to light, the bank reviewed its other lines of business and alerted regulators when it found “other procedural issues.” Says Hartwick: “We have since done a number of tests and found that in the overwhelming majority of cases, the amount collected from customers was correct.”

The story says the problems came to a head when faulty computer systems clashed with the aggressive approach of Chase management. Chase had several computer programs to track consumer payments and debts. They worked well independently, but didn’t properly talk to each other, often creating discrepancies in how much customers owed. At first, employees could reconcile the differences by hand, but when new management sought to speed up recoveries, employees were told to use shortcuts, the story says.

Outside law firms often represented Chase in court. It’s a high-volume business for the firms, which are paid in proportion to debts they recoup. The law firms didn’t have access to some of Chase’s computer systems to check the documentation and often rushed to file “slapdash work,” the story says. According to an internal document, the numbers used by law firms representing Chase disagreed with the bank’s internal records in almost 20 percent of the cases in one sampling. A whistle-blower lawsuit stated that customers usually owed less than what the bank represented.

When consumers wrote to Chase, their letters were often ignored or shredded. “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,” Horwitz writes. The story is filled with details and documents.

The procedures not only dragged consumers into court with faulty records but also created financial consequences for Chase. In April 2011, the bank stopped filing consumer debt-collection lawsuits and closed down an in-house collections office that had recouped “several billion dollars of legal judgments every year,” the story says. Without filing new cases, Chase limits its options to recoup legitimate debts it may be owed. It is not clear what the bank is doing to collect on those debts.

Weise_190
Weise is a reporter for Bloomberg Businessweek in New York. Follow her on Twitter @kyweise.

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