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OCC Probing JPMorgan Chase Credit Card Collections

First in a series

JPMorgan Chase & Co. took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years, current and former employees say.

The process flaws sparked a regulatory probe by the Office of the Comptroller of the Currency and forced the bank to stop suing delinquent borrowers altogether last year.

The bank's errors could call into question the legitimacy of billions of dollars in outstanding claims against debtors and of legal judgments Chase has already won, current and former Chase employees say.

For the banking industry at large, the situation at Chase highlights the risk that shoddy back-office procedures and flawed legal work extends well beyond mortgage servicing.

"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.'"

Hardin left the bank in 2010 to work in a different industry.

Chase declined repeated requests to discuss details of its consumer debt collection activities.

Company documents, court filings, and interviews with seven current and former employees reveal that Chase's credit card litigation operation was allegedly plagued by unreliable external attorneys, management's disregard for accuracy, and patchy technology.

The bank's computer systems frequently disagreed about how much debtors actually owed, several of the Chase sources say.

The employees' stories corroborate allegations made by Linda Almonte, a former mid-level business process executive in Chase's San Antonio-based Credit Card Litigation Support Group. Dismissed in November 2009 after six months on the job, Almonte filed whistleblower complaints and a wrongful termination suit claiming that she was fired for objecting to the sale of credit card debts with erroneous balances.

Almonte's complaints drew the attention of the OCC, former Chase employees say, and led to the April 2011 shutdown of a formidable collections operation that generated several billion dollars of legal judgments every year.

Few details of the OCC's investigation are available, but current and former Chase employees confirm that staffers from the agency's enforcement division spent two months gathering information in the San Antonio facility late last year. A person familiar with the OCC's review says that the regulator is taking the situation very seriously.

This is the first article in a series that will look at what allegedly went wrong in Chase's credit card litigation operation — and how those missteps could roil the banking and debt collection industries.

'Outhouse' Attorneys

The root of Chase's card collections failures was more machine than man. Chase maintains a patchwork of computer systems that don't always communicate well, according to former employees who used them. Meet TSYS, TCSF and RMS.

TSYS is what outsiders assume a global bank's customer data system looks like. Licensed from Total Systems Services Inc. and managed by Chase, it's the modern and versatile system that consumers ultimately talk to when they check their credit card balance online.

TSYS only handles current accounts, however. When customers stop paying credit card bills, their accounts are passed to TCSF, for collections and litigation, and eventually to RMS for charge-offs.

Each of Chase's systems handles its own tasks just fine. The problem employees faced is that TCSF and RMS can only talk to each other through TSYS, and each of the systems operates by its own rules. This means that when presented with the question of how much a customer owes, each might spit out a different answer.

"I came across that on a regular basis," says Carole McGinn, who retired in 2010 from the credit card litigation support group in San Antonio. The discrepancies were usually minor, she and three other employees say, but payments by heavily delinquent borrowers would throw the records seriously out of whack.

"There was no way to reconcile those balances that I knew of," says McGinn, who worked at Chase for almost 15 years.

To overcome this problem, Chase's business process staff reviewed records in multiple systems and reconciled the accounts manually.

Chase's relationship with outside debt collectors posed another potential glitch. In populous states like California, Illinois and Florida, the bank employed in-house attorneys who were wired into all of its relevant computer systems.

Elsewhere, it relied on what credit card litigation staffers referred to as "outhouse attorneys." Paid according to how much money they recovered, the outsiders were connected only to TCSF, the litigation system. Former Chase employees say some of the firms, such as the since-imploded Mann Bracken LLP, were known for poor recordkeeping.

Chase's San Antonio crew was well versed in dealing with their computer systems' quirks and the outside firms' foibles. They adjusted accordingly, monitoring outside law firms for errors and stripping inaccurate charges from accounts.

"We made it work," says a former employee.

"Everything in Dollars Collected"


(11) Comments



Comments (11)
FOR ANYONE HAVING TROUBLE W/'ZOMBIE' DEBT LIKE THIS -- W/an original creditor (ie Chase or one of Chase's purchases, like Providian or WaMu) and a debt collector (a business that doesn't own but only collects debts for others) and/or a debt buyer (bottom feeders who buy delinquent debt at maybe 3cents or less on the dollar and then usually sue to collect) FIND A 'NACA' (National Ass'n of Consumer Advocates--google that and you'll find their website) in your state. Cckelsey@VTConsumerAid.org is in VT. There will be a list by State on NACA website to find NACA atty's who absolutely will be able to help you protect yourself or counter-sue.
Posted by cckelseyesq | Wednesday, July 03 2013 at 9:49AM ET
Frank G what state are you in?
Posted by drbagit | Wednesday, July 18 2012 at 3:25PM ET
I worked for JP Morgan Chase in 2005. I worked in the San Antonio Westover Hills facility in question. I worked for Jason Lazinbat before he was promoted to litigation. I was also terminated for blowing the whistle on Lazinbat and his team of under-bosses. There were widespread violations of federal law occurring in my section. My mistake? I went up through the chain of command rather than going directly to the SEC. The bank toyed with me until they discovered just how serious I was about having the situation rectified. And then I was fired. I should have sued and gone to the authorities, but the previous six months had destroyed my innards. I was vomiting blood daily and couldn't eat. I was a wreck by the time they got rid of me... and I was only 30 years old. I don't think I could have taken any more. But, let me tell you this, that whole facility is run by criminals that protect each other.
Posted by slummish | Monday, April 23 2012 at 2:49PM ET
I work for a company that helps people settle debt and this is not surprising at all to me. Offshore payday loan companies that lend at 100% interest rates over the Internet use collectors who misrepresent themselves as "investigators" and threaten debtors with jail sentences (which is against the law) every day. They also threaten and abuse family members and employers. There are ongoing complaints to the FBI and FTC about these practices going back several years but so far nothing has been done to curtail these abuses.
Posted by Bob A | Sunday, March 18 2012 at 9:43AM ET
Thanks for the info Frank and G S... Anyone know good attorney's in California that would be good to handle this for me? Not sure which type of attorney I should be looking for, just want to get it all settled. It's the only thing holding up my credit.
Posted by Jason F | Friday, March 16 2012 at 3:45AM ET
Jason F - if you were not served the lawsuit, you can vacate the judgment due to improper service.
Posted by Grace S | Thursday, March 15 2012 at 12:13PM ET
A couple of months ago I took on a case for a friend. She was a single mom, supporting herself and special needs son, who had just received notice that her part-time wages (her only source of income) were to be garnished to pay a debt. Turns out it was one of these Chase "debts" that she did not owe but which had been sold to a collection agency run by attorneys. I got the debt dismissed, sued the collection agency under the Fair Debt Collection Practices Act and won, and sued JP Morgan Chase Bank and won $5000.00 for the infliction of mental distress upon this unfortunated woman. I never had any idea of how widespread this problem was until I read this article. JP Morgan Chase should be fined.
Posted by frank G | Thursday, March 15 2012 at 11:36AM ET
I fall into the category of these debts. What is the next step? I was a WAMU customer, overnight my limit was reduced and interest rate increased by chase. I refused to pay, they sent it to an Alabama attorney, I responded to the Alabama attorney with a verification of debt letter, because I knew they didn't have it. Then the Alabama attorney couldn't produce it, and sent it to a California attorney who filed judgment due to my change of address I couldn't keep up with it. Hopefully this will help me fight the judgment.
Posted by Jason F | Wednesday, March 14 2012 at 6:22PM ET
Nothing ever changes.

Posted by PS | Wednesday, March 14 2012 at 11:24AM ET
Great story, Jeff Horwitz. (Horvitz?) Strikes me as another horrifying example of how practice and expediency have submerged basic procedures needed to ensure fairness. Maybe this is an analogy too far, but the breakdown also strikes me as redolent of the mass flaws in the plea bargaining system (which comes to mind because of a recent opinion piece in the New York Times that floated the idea of a large bloc of defendants short-circuiting the justice system by refusing to plea.) In both cases, at least, it seems it's poor people getting steamrolled. Harry Terris, American Banker
Posted by hterris1 | Wednesday, March 14 2012 at 10:05AM ET
Basically it will all come out that Chase, all the way up to Dimon, are criminals.
Posted by Ronald L | Tuesday, March 13 2012 at 9:39AM ET
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