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From Banking and Finance Law Daily, July 8, 2015

Zombie debt sales, robo-signing, servicemember protection cost Chase $216 million

By Richard A. Roth, J.D.

Selling “zombie” debts, robo-signing court documents, and failing to accord proper protections to servicemembers are among the consumer debt collection violations committed by various JPMorgan Chase companies, according to the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, and 48 attorneys general. Three banks and one credit card servicing company have agreed to pay at least $216 million in consumer refunds and civil penalties, in addition to at least $50 million in refunds the OCC says already have been paid.

Chase also has agreed to stop all collection efforts on 528,000 consumer accounts. According to the CFPB, these accounts had a face value of several billion dollars when Chase sent them to debt collectors, and “The actual market value is now estimated in the tens or hundreds of millions of dollars.”

Separate consent orders were entered by the two agencies to resolve the related actions. The CFPB’s enforcement action also settled charges by 47 states and the District of Columbia. While Chase agreed to the orders, it did not admit to any wrongdoing.

CFPB enforcement action. The CFPB’s investigation focused on credit card accounts that went into default between 2009 and 2013. According to the bureau, Chase sold some of these accounts to third-party debt collectors, providing account information using electronic files. When necessary, Chase employees also signed affidavits for use in collection suits.

The bureau charged that the electronic files included: accounts with unlawfully obtained judgments, accounts with inaccurate balances, accounts that had been paid off, accounts that had been discharged in bankruptcy, accounts that had been opened fraudulently, accounts that already were subject to payment plans, accounts that Chase had previously sold, and accounts that were owed by deceased consumers. Since Chase knew the debt collectors would rely on the information, it assisted them in deceptive collection activities, the CFPB said.

The 528,000 accounts that Chase may no longer attempt to collect include those over which collection suits were filed. The companies provided the debt collectors with more than 150,000 affidavits for use in these suits, and in the process it “systematically failed to prepare, review, and execute truthful statements as required by law,” according to the CFPB.

CFPB action remedies. Under the CFPB consent order, Chase must:

  • halt collection efforts on the 528,000 accounts, notify consumers it will not attempt to enforce court judgments, and take steps to prevent inclusion of the accounts in consumer reports;

  • pay at least $50 million in consumer redress, including a 25-percent penalty to consumers who paid more than they owed;

  • contractually prohibit debt sellers from reselling consumer debts;

  • confirm that debts actually are owed before selling them and provide debt collectors with accurate confirmation;

  • tell consumers when their debts have been sold, disclose the sale date and buyer, and offer additional information at no charge;

  • not sell debts that cannot be documented; that have been charged-off or in default for more than three years; or that are owed by servicemembers, deceased persons, or persons who already have payment plans in place;

  • end all collections litigation pending since Jan. 1, 2009, if judgments have not been entered;

  • ensure that all affidavits are accurate, are prepared properly, and are based on the actual knowledge of the signer;

  • verify the facts relating to debts before any suits are filed; and

  • pay a $30 million civil penalty.

OCC enforcement action. The OCC’s consent order resulted from a 2013 settlement of charges related to debt collection litigation practices, including robo-signing documents, and violations of the Servicemembers Civil Relief Act. In that settlement, Chase agreed to take described remedial action, and the OCC deferred the entry of any civil penalty. While Chase has since repaid more than $50 million to consumers, the OCC determined that “the full extent of the deficiencies” called for an additional $30 million penalty.

In a statement that accompanied the announcement, Comptroller Thomas J. Curry emphasized the importance the OCC puts on SCRA compliance. The OCC now includes SCRA compliance in every examination, he said, in an effort to ensure that servicemembers and their families receive the protection they deserve.

Companies: Chase BankCard Services, Inc.: Chase Bank, USA, N.A.; JPMorgan Bank and Trust Company, N.A.; JPMorgan Chase Bank, N.A.

MainStory: TopStory ConsumerCredit CFPB DebtCollection DistrictofColumbiaNews EnforcementActions SCRA UDAAP

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