May 10, 2012
California Sues JPMorgan Chase Over Credit Card Cases
California’s top law enforcement official accused JPMorgan Chase on Thursday of flooding the state’s courts with questionable lawsuits to collect overdue credit card debt.
The suit, filed in California Superior Court by the state’s attorney general, Kamala D. Harris, contends that JPMorgan, the nation’s largest bank, “committed debt collection abuses against tens of thousands of California consumers.”
For about three years, between January 2008 and April 2011, JPMorgan filed thousands of lawsuits each month to collect soured credit card debt, Ms. Harris said. On a single day, for example, JPMorgan filed 469 lawsuits, court records show.
As the bank plowed through the lawsuits, Ms. Harris said, JPMorgan took shortcuts like relying on court documents that were not reviewed for accuracy. “To maintain this breakneck pace,” according to the lawsuit, JPMorgan relied on “unlawful practices.”
The accusations outlined in the lawsuit echo problems — from questionable documents used in lawsuits to incomplete records — that plagued the foreclosure process and prompted a multibillion-dollar settlement with big banks. One hallmark of the foreclosure crisis, robosigning, in which banks worked through mountains of legal documents without reviewing them for accuracy, is at the center of Ms. Harris’s lawsuit against JPMorgan.
JPMorgan is already navigating a thicket of regulatory woes. The Office of the Comptroller of the Currency, one of the bank’s chief regulators, is preparing an enforcement action against the bank over the way it collects its credit card debt, according to several people close to the matter who spoke on the condition of anonymity because they were not authorized to discuss the cases publicly.
JPMorgan assembled a “debt collection mill that abuses the California judicial process,” according to the lawsuit. Many of the lawsuits filed rely on questionable or incomplete records, Ms. Harris said. “At nearly every stage of the collection process,” the bank “cut corners in the name of speed, cost savings and their own convenience,” she said.
Ms. Harris said she sought “to hold Chase accountable for systematically using illegal tactics to flood California’s courts with specious lawsuits against consumers.” She said she aimed to get “redress for borrowers who have been harmed,” but did not detail any request for specific damages.
While JPMorgan’s debt collection practices are the ones under scrutiny, flaws are increasingly common in credit card lawsuits filed by rival banks, according to interviews with dozens of state judges, regulators and lawyers who defend consumers.
“A vast number of the lawsuits are flawed and most of them can’t prove the individual actually owes the debt,” said Noach Dear, a civil court judge in Brooklyn who said he had presided over as many as 150 such cases a day.
Ted Mermin, executive director of the Public Good Law Center in Berkeley, Calif., said, “This is in no way just a JPMorgan problem.”
JPMorgan Chase declined to comment. The bank, though, has been cooperating with regulators, including the California attorney general’s office, to root out problems with its debt collection lawsuits, according to people briefed on the situation. Amid concerns that some of the underlying documentation was flawed, JPMorgan stopped filing new credit card lawsuits in 2011, these people said. In courts across the country, according to judges, JPMorgan has also been throwing out some pending lawsuits as well.
Some of the nation’s biggest lenders are turning to the courts to collect money they are owed on a range of debts, from credit card balances to soured auto loans, judges and lawyers for consumers say.
Since the financial crisis, fewer customers are falling behind on their bills and the morass of bad debt is shrinking. Still, lenders are working to clean up their books and whittle down the amount of soured loans, the judges say.
In most instances, the customers admit that they owe the money. The problem, though, judges and law enforcement officials say, is that credit card companies sometimes flout proper legal procedures to recover what they are owed. Many of the cases, according to Mr. Dear, the civil court judge in Brooklyn, hinge on erroneous documents, hastily assembled to make up for the fact that lenders have lost the original paperwork needed, like payment histories or the original contract. Some lawsuits rely on fabricated credit card statements, Mr. Dear said.
Lenders have been buffeted by this kind of criticism before over the way they pursued homeowners who had fallen behind on their mortgage payments. Last year, five of the nation’s largest banks reached a $26 billion pact with 49 state attorneys general over claims the lenders wrongfully seized homes.
Now the regulatory spotlight is swinging from mortgages to credit cards. The problems in credit card lawsuits play out in the shadows, judges say. That is because unlike in foreclosure cases, borrowers sued over credit card debt rarely show up to defend themselves. As a result, more than 95 percent of lawsuits result in a default judgment, an automatic victory for the lender.
Armed with a default judgment, lenders can garnish a consumer’s wages or freeze bank accounts to get their money back.
Sometimes borrowers do not even realize that they have been sued until a lender wins a default judgment, consumer lawyers say. The situation arises, consumer lawyers say, when lenders claim to serve borrowers with notice of a suit, as they are required to do under the law, but do not follow through. The practice, called “sewer service,” is rampant across the country, the consumer lawyers say. Ms. Harris accused JPMorgan of sewer service in her lawsuit.
Sonia Caro, 62, who lives in Brooklyn, said she had no idea that Capital One was suing her over credit card debt until the lender won a $2,039.43 judgment against her in 2010.
Ms. Caro, who fell behind on her credit cards after multiple sclerosis forced her to stop working, said that she was shocked. “I just didn’t know,” she said. Faced with the staggering bill, Ms. Caro said she was devastated. “It felt so bad.”
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