Feds Probing Chase On Credit Card Collection Practices

Following the lead of whistleblowers, the Office of the Comptroller of the Currency has reportedly been investigating JPMorgan Chase over allegations that, over the course of at least two years, the bank used inaccurate records when suing thousands of delinquent credit card customers.

According to an in-depth report by The American Banker, the problems with Chase’s credit card collections business was three-pronged.

First there is the patchwork network of computer systems used to track and store customers’ account data. There’s one system for current account holders, one for collections and litigation, and another for charge-offs.

So if someone who was heavily delinquent made a payment on their account, the systems didn’t quite know how to communicate this information and incorrect balances were recorded.

“I came across that on a regular basis,” said one former Chase employee. “There was no way to reconcile those balances that I knew of.”

The problem was then compounded by the second factor: Outside, or so-called “outhouse” attorneys who were paid according to how much money they recovered but who only had access to the one account system.

For years, Chase employees would review these outhouse lawyers’ work to make sure it matched the correct account information. But then the whole system got stuck in the derriere with the third problem prong: Crappy new managers.

In 2008, the new management swooped in and began to flood the Chase coffers with collected cash. The bank went from recovering around $130 million annually to collecting billions within the new bosses’ first year.

Former employees say that the former systems for checking that account information was accurate was suddenly no longer a priority. Instead, they “measured everything in terms of number of dollars collected.”

Mid-level executives who complained were shown the door and staff fell in line with the new regime, says American Banker.

This means that those outhouse attorneys who had been kept in check by Chase employees now were going out and suing customers with account info that was inaccurate in as many as one out of five cases for some firms.

And writes American Banker, things began to get very sloppy at the Chase credit collections offices:

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.

The whistle blower who brought these allegations to the government’s attention says it went even further, accusing the bank of shredding records of borrower payments and counter-judgments extinguishing debts.

And just like in the mortgage foreclosure robosigning scandal, Chase allegedly had people signing off on collections documents without ever having reviewed any of the information.

“Hardly, if ever, was anything verified,” the whistle blower told the SEC. “There was constant complaining by the Attorney Liaisons about having to manually sign these affidavits … they always questioned why they could not have them digitally signed in bulk.”

The OCC’s ongoing investigation into Chase’s collections forced the bank into quietly halting its practice of suing delinquent credit card customers. Depending on the outcome of the probe, the bank could be on the hook for a mountain of cash and penalties for all the lawsuits brought using inaccurate account information.

OCC Probing JPMorgan Chase Credit Card Collections [AmericanBanker.com]