JP Morgan Under OCC Investigation for Serious Debt Collection Abuses; Warnings Ignored for Over Two Years

I bet JP Morgan wishes it never hired Linda Almonte.

American Banker has released the first in what will be a series of stories on debt collection abuses by the New York bank. It confirms critics’ worst accusations against the financial services and belies Jamie Dimon’s tiresome assertions that JP Morgan is better than its peers. Dimon may still be right if you think excelling in abusing and extorting customers is commendable.

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.

In 2008, JP Morgan installed new management in the San Antonio operation that oversaw ligitigation, including the verification of borrower information. Edmond Helaire came in as the lead, and the story makes clear that his newly hired deputy Jason Lazinbat went on a campaign to improve results, procedures be damned. 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.

Now I’d not expect the SEC to know what to do with this (as in these are not securities law issues) and I don’t know whether she tried complaining to the FTC or the OCC then. However, 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.

And of course, there are robosigners too:

One of Chase’s most prolific affidavit signers was Ruben Alcaraz… By law, collection affidavits require the signer to be familiar with the bank’s pertinent records…

Numerous former employees say that Alcaraz and his colleagues rarely if ever reviewed such files. They routinely signed stacks of affidavits on flights and in meetings, which in some cases were attended by Helaire, Lazinbat and Chase compliance staffers. Nobody objected, Almonte and others say.

Alcaraz also describes himself in the court documents as an “officer of the bank” and an “Assistant Treasurer.” High-level Chase management had instructed the staff to stop signing documents using such titles around the middle of the last decade, four Chase sources say. But Lazinbat ordered them to do it anyway.

One has to assume that Almonte signed a confidentiality agreement as part of the settlement of her suit against JP Morgan. Yet it appears she had decided to step forward again despite the risk of having an army of lawyers come after her:

“This is not an accident anymore,” Almonte now says. “The same people who created this problem at Chase are still in charge. They aren’t going to fix it unless they’re forced to.”

Let’s hope she succeeds. She’s right, of course. The fact that JP Morgan kept Lazinbat in place said it had no intention of shaping up. And one has to assume that the occasional warnings from on high that he should be doing some things differently were seen as pro forma. Put it another way: if the see-no-evil-if-its-done-by-bank OCC is taking this case “very seriously,” it’s likely to be every bit as bad as the American Banker account suggests.