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 JP Morgan (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 in 2010 (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.
Back to the current post. In the interest of brevity, we skipped over the discussion of pervasive robosigning.
Now what happened out of all this exposure of bad conduct? Apparently squat until Harris rolled up her sleeves and dropped her claim on JP Morgan (and before you think this is a bit long in coming, it generally takes 2+ years to develop a Federal suit, so she’s not been dilatory).
The suit is short and pointed. Here is the guts of it (click to enlarge):
Harris mentions over 100,000 dubious lawsuits filed between January 2008 and April 2011 and contends that the illegal conduct extends from “pre-lawsuit correspondence” to the validation and papering up of debt sold to third parties.
The interesting bit is how the suit is framed. The defendants are the JP Morgan holding company plus two business units, as well as an unnamed “DOES 1 through 100, inclusive” where the AG intends to obtain their names and capacities. This raises the specter that she intends not only to sue other firms (such as the law firms that were Chase’s arms and legs) but individuals at Chase and its agents. And this is where it gets fun (click to enlarge):
Each defendant for each violation. We have 100,000+ violations at Chase, with at least three entities involved, each a separate defendant. And if she can get the individuals who were supervising the robosigning operations (better yet, the C level execs ultimately responsible) and the complicit law firms, she might bankrupt some well placed people. This could be extremely entertaining.
Now Harris has been widely depicted as an opportunist. But she’s kicking up more dirt on the banking front right now than any other official. And her action has enough teeth that the OCC has roused itself and is now supposedly about to launch an enforcement action (this is normal behavior when a Federal regulator is outflanked by a state AG or securities regulator. I sincerely doubt anything would have happened in the absence of the California lawsuit). So let’s see how she runs.
This case has enough headline value that Harris might go a few rounds before settling. JP Morgan is known for throwing vast amounts of lawyers at opponents to bury them in legal costs and busywork, so this case, sadly, is unlikely to go to trial. But if she can get the goods on the right sort of DOES, she might make some individuals pay in a serious way, which would have far more deterrent effect. If nothing else, we should applaud what she’s so far and press her to keep going.
I encourage you to read the suit in full.
California v. JP Morgan Chase May 9, 2013
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What is Eric (Charlie Brown’s place) Holder up to these days? If this isn’t criminal, what is?
These behaviors are nominally criminal, sure, but many of them have also been standard operating procedures — the industry norm — for years in the banking and debt collection industries.
In particular, these charges cited in California vs. Morgan Chase ….
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.
Very simply, just as the use of the word “routinely” by the State of California implies, these behaviors are long-standing industry norms. These industries are in the debt business, and have no incentive to write off your debt and every incentive to sell it on for cents on the dollar. And they do, even when you’ve paid it off, because there’s nearly zero downside for them in doing that.
So, while it’s nice to see this from the State of California, these practices have come to provide part of the bank and debt industry’s accustomed profit base and they won’t surrender them easily.
But Mark P, their behavior, over time, doesn’t make it right or legal(yes/no). n
I think you would be amazed at how quickly these “long standing practices” would be changed if a couple of C level bankers were to be measured for an orange jump suit.
Prosecuting whistleblowers and confused poor young men entrapped by FBI jihadist-recruitment web sites.
I want the “…all other relief under California law.” to include prison terms for some of the guilty.
And the chances of all of this kabuki making a difference? I do think that at some point the accumulation of cognitive dissonance will become overwhelming but don’t know how it will be expressed nor controlled
It will make a difference for Kamala Harris, no doubt. It will be interesting to see how she is federally marginalized around this subject.
I found this in the Book of Isaiah yesterday:
‘Dimon’s waters are swollen with blood,
and I have worse in store for Dimon:’
So perhaps we just have to wait.
I’m sure Dimon feels that it’s horribly unjust.
‘Why are they picking on Morgan Chase, when this bank is simply doing what everybody in the industry does?’
Like that.
I think Jamie knows he’s not gonna get much sympathy from anybody at this point (or maybe he is that oblivious). He’s played his hand a little too aggressively, got caught by a few strokes of bad luck (Whale and whatnot) and is now, at least PR-wise and likely financially as well, the weakest of the big boys. The other major players would love a sacrificial offering to the Gods of Mass Outrage, to satiate the peasant’s anger and allow them to continue their un-holy ways, and JPM and Dimon are looking like the obvious candidates. Lloyd might send his condolences, but you know he ain’t bein’ sincere…
While I’m loving seeing Jamie finally get his comeuppance, if he’s the only Bankster that faces this kind of pressure, this will turn out to be yet another another half-measure. Since we’re pretty sure these practices are routine throughout the industry, similar cases could probably be made against the other big banks as well. If only JPM ends up eating shit for industry-wide corruption and illegality, it still won’t be justice.
Let’s hope that some other “opportunistic” AGs take up the fight against the rest of them too (a little nudging from us probably can’t hurt).
Can California revoke JPMC’s charters and/or licenses to bank there? You want Dimon’s attention, you gotta kick him in his $ nut sack. Paying petty fines won’t cut it.
Unfortunately, no. Chase and the other biggies have Federal charters. The OCC went out of their way to rub the states’ noses in the doctrine of preemption back when they were trying to stop predatory lending in the sub-prime market. The then Comptroller of the Currency sent them cease and desist orders, saying that federal regulation over-rode state law for federally chartered banks and that only the OCC could regulate against predatory lending. Of course we know how that worked out.
Yes, as a Californian who has been fighting the banks for years on various fonts I am pleasantly surprised by Harris. And sorry for you New Yorkers you got bank stooge Scneiderman.
In my case, 5 yeas post BK, Chase has sent many threatening letters, demanded payment, refuses to charge off debt on m
my credit report Amex also refuses to charge off the debt, calls almost every day to collect, etc. I am in the middle of a refi and the hash these a**holes have made of my credit. The fact they won’t charge off the debt – plus the fact that every time I made a payment under my reorg plan they started the debt clock again. Ugh. And to think Obomba wanted to have Chenault (of Amex) and the Orifice of Omaha wanted Dimon to be Secretary of the Treasury really does rile one’s blood. But S.O.P. for sop in chief.
Obomba is back on the comb
back trail all about JOBS, etc. in his latest freshly and almost universally ignored comeback kabuki dance tour.
Knowing that Obomba is being ignored after all his narcissistic uselessness does keep me going – that’s gotta hurt, poor dear. As does all of Slimin’ Dimon’s travails. Oh de lay, oh de lah
Resentment keeps me alive!
Yes, this sounds promising, but we must follow the follow through. Will this result in meaningful law enforcement? Or be another Cuomo-style mirage?
I vote for mirage. I’m tired of getting my hopes up just to have them dashed again as Attorneys General either drop the case or it just disappears into a decades-long court process.
Or “bundlergarchs” via Obama will swoop in and turn Harris into another Schneiderman, safely neutered, just in time to let the statutes of limitations expire!
What can we do to make it a different outcome this time?
and Dimon proudly chirped, “That’s why I’m richer than you.”
Why all the fuss? From 40,000 feet this is all just a minor misunderstanding; You misunderstood that that the rule of law applies to JP Morgan Chase.
This is like attacking a tiger with a pea shooter from a perch on a sturdy limb. It will feel good for a press conference or or two, but I’m betting on the tiger.
C level executives tend toward the schoolyard bully type. They bluster to get their way, then snivel their way to the prison gates.
The only thing Chase has on its side is corruption in high places; judges, regulators, The USAJ, and the POTUS are all ready to bend law and justice for their friends and patrons. Curiously, any one of those could turn on a dime and those powers of the earth bank employees could become just another convicted felon in just another orange jumpsuit.
It’s merely disgusting, not impressive.
Word has it Dimon was on the phone last night with Obama imploring Obama to drone strike Sacramento. Obama is weighing the matter.
Hah! Well that could buy him some time with the repugs. Kamala is….uh….BROWN!!!
Considering Harris works mostly in the S.F. office, and the suit is out of the L.A. office, Sacramento should be safe.
For a while…
Ms. Harris has two easy hurdles to cross, whether she’s grandstanding or doing her job.
The first is the junior high sexism rampant in the political class. Men have to be destroyed, women can be dismissed. Our First Gay President tried this with his broadly reported condescending gaffe, which strangely had no legs in the MSM. Most Americans are comfortable with women in government and judge them on performance. Playing the gender card is for far right operatives.
The second is the bizarre notion of perfect equivalence between the state and a private corporation. While they’re both public institutions, their purposes are entirely different. For example, economists and other PR blowhards are adamant a corporation is only for its stockholders. Not true, but a common theory. The analogy that the state is only for its citizens still makes the state more deserving of public support, for self-defense if nothing else.
I hope Ms Harris releases the products of discovery. With modern communications, that could leave Chase open to a lot of private citizens doing their own self-defense.
Oh, Yves, this should be a “mirabile dictu” post! Yay! Of course, we do have to see how it all plays out before getting too excited.
“Chase had its dirty laundry aired in public by whistleblower Linda Almonte…”
Linda is one of my new heros (heroines).
Like I wrote a while back (and took a lot of shit for it): overall, the women in positions of power in this country have far more moral courage than the men. I know it’s somewhat anecdotal and there are no hard stats on this (and, of course there are plenty of corrupt women in positions of power too), but the majority of the state ags are male and yet how many have done what Harris has done. Answer: ZERO. And though I am not throughly enamored with all of Elizabeth Warren’s stances, there are many more male senators than women and yet how many have come after the banks as aggresively as Senator Warren has? Answer: ZERO.
Z
It’s still a distracted message. The real message should be that every homeowner is entitled as a defendant to see the paper trail against him/her. To see the title. To see the allonges. This should not be a matter of permission to go for disovery. This should be automatic. And in getting this discovery MERS is busted. When MERS is busted, all the banks who created MERS are busted. End of court case.
Kill the catalyst for the securitization machine, and you make it a hell of a lot more difficult for Dimon and his bretheren to continue running their control frauds unabated.
I was one of those falsely sued, which I only found out by checking the court docket, and then I fought it in court. I tried to go it alone by submitting arguments and evidence to the court which were countered with false claims by the bank. It wasn’t until I hired a lawyer that the bank backed down and the court dismissed the case. PLEASE TAKE NOTE: you cannot win in court without a lawyer representing you — it’s part of their unwritten code.
I was suggested this blog by my cousin. I am no longer positive whether or not this put up is written via him as nobody else realize such targeted approximately my difficulty.
You are wonderful! Thank you!
So let me get this straight: the AG of California, who had rubber-stamped the Robosigning settlement without even trying to give the impression of putting up a fight -which had some decisive weight as she represented the largest state in which such practices were widespread-, now looks like she might be taking action for the first time since on the job, and everyone goes “Booyah!”?
Actually she is the best of the AG’s and regulators I have worked with and went from subpeona to suit filed in under eight weeks. But I wasn’t a process specialist I managed 74 processes they called it Process Execution Leader they started some funky titles around that time.
+1 Linda Almonte!