Banks and credit-card issuers have certain rights in attempting to collect bad debt from their customers, but they must follow correct procedures in exercising those rights. According to a recent consent order from the Consumer Financial Protection Bureau (CFPB), JPMorgan Chase used improper methods and tactics regarding bad debt between 2009 and 2014, and will be paying penalties and modifying their practices as a result.
Chase used automatically signed (“robo-signed”) affidavits in lawsuits against their debtors, with insufficient review (if any) to catch mistakes and miscalculations. As a result, some debtors were charged with the wrong amounts in the lawsuits filed against them. In the cases where Chase did discover mistakes, they did not attempt to correct them by notifying the courts or the debtors. Robo-signatures were also used in supposedly sworn affidavits.
When debt was written off and sold to third parties, there were further concerns. Chase passed along some debt to third-party vendors that were in error or misrepresented in some way — including those that had already been paid, those discharged through bankruptcy or those of a fraudulent nature. Chase did not even own some of the debts they sold.
Actions from the consent order include the following:
Halting Collections — The consent order mandates that Chase halt collection efforts on 528,000 accounts. These accounts went to litigation on collections between January 1st, 2009 and June 30th, 2014. While Chase has not initiated new lawsuits against holders of credit-card debt since 2011, and stopped selling bad debts to third-party collectors two years later, old collection efforts were ongoing prior to the consent order.
Monetary Penalties — Chase will pay over $180 million because of this action, $50 million of which is designated for refunds owed to debtors who paid amounts greater than they actually owed prior to any litigation. The other $136 million goes to penalties. $106 million of the penalty funds will be divided among the 47 states and the District of Columbia, while the remaining $30 million in penalty costs go to the CFPB.
Notification — Debtors who lost judgments to Chase must be notified about the settlement and Chase must request that the three major credit bureaus (TransUnion, Equifax and Experian) not include the judgment on credit reports, although the bureaus may still decide to report the judgment if they feel it is warranted. If Chase won a judgment, as they did in about one-third of the affected cases, they must also notify the debtor that no attempt will be made to enforce the judgment and collect the debt, nor will the debt be sold to a third-party buyer.
Whenever debt is sold, Chase is now obligated to notify consumers of the sale, who purchased the account, and to verify the amount owed. Further information may be requested at no charge to the debtor.
Prohibited Sale/Resale — Third-party debt buyers who purchased any of the debt in question will not be allowed to resell it themselves, except to sell it back to Chase. Further, Chase cannot sell debts that have been charged off or unpaid beyond three years, or that fall into any of these categories: held by a service member, missing required documentation, currently in litigation, held by the deceased or covered under a payment plan.
The ruling may serve as a warning to other credit-card issuers. Follow the proper procedures and correct any uncovered mistakes, or face CFPB action. Nobody begrudges the right of banks to collect bad debt, but if card issuers do it improperly, they will lose even more money on the deal.