How a Whistleblower Halted JPMorgan Chase's Card Collections
Robo-signed affidavits and sloppy legal work led the bank to halt court claims. The errors cast doubt on billions of dollars in judgments.March 12
JPMorgan Chase & Co. has quietly ceased filing lawsuits to collect consumer debts around the nation, dismissing in-house attorneys and virtually shutting down a collections machine that as recently as nine months ago was racking up hundreds of millions of dollars in monthly judgments.January 10
This is the second in a series on JPMorgan Chase's delinquent credit card collections operation. The first article can be viewed here. Further coverage will follow.
No sooner did Linda Almonte show up for work on November 30, 2009 than was she escorted out the door by security at JPMorgan Chase's Credit Card Litigation Support Group in San Antonio. A midlevel Chase executive who oversaw business process execution employees, Almonte says she was fired after just six months on the job for challenging her superiors about the accuracy of the bank's credit card records.
Colleagues first learned of her dismissal later in the day when operations manager Jason Lazinbat, Almonte's former boss, gathered bank staff in a conference room and announced she was no longer with the bank. Under no circumstances, Lazinbat warned, were staffers to communicate with Almonte, recalls Carole McGinn, a quality control worker who spent 14 years at Chase. The account was confirmed by second employee, who requested to speak anonymously.
"It was an unusual statement," McGinn says. "Other people had left the bank, and we were not told" to cut off contact with them.
The contentious nature of Almonte's departure was a prelude to a series of events that serve as a cautionary tale for the banking industry. The former mid-level staffer eventually filed a whistleblower suit and complaints with regulators that accused Chase of a range of lapses over three years. They include: failure to reconcile the inconsistent past-due balances generated by the bank's computer systems; pressure from management to collect delinquent debts even in the absence of complete or accurate records; and robosigning of affidavits that brings into question the legal integrity of Chase's claims against tens of thousands of consumers.
Many of Almonte's accusations are backed by internal bank documents and current and former employees. What's more, they've forced Chase to cease operations in a collections unit that had previously generated billions of dollars in annual revenues.
Lazinbat did not respond to calls or email messages seeking comment, and the bank previously declined to speak on his behalf. Chase also declined to comment for this story on its own behalf or for the March 12 article.
After publication of that story, however, the bank released a statement saying: "Following issues raised with mortgage documents, we conducted an internal review across the firm and found other procedural issues. We immediately alerted our regulators and worked to address them." With its delinquent credit card customers, Chase added that in the "overwhelming majority of cases" its internal review indicated it had collected the correct amounts.
In contrast, Almonte charged in her wrongful termination suit that Chase fired her for resisting its efforts to sell faulty credit card debts. Chase, in its defense of the suit, made no effort to contest Almonte's allegations about the inaccuracy of its records or to proffer alternative explanations for her firing. Instead, it argued that it could release employees at will under Texas law and was within its rights to sell credit card accounts whose documentation was problematic or missing, as long as it informed buyers.
"[T]he parties explicitly agreed that the judgments were purchased 'as is' and 'with all faults,'" Chase wrote in a brief defending itself against Almonte's wrongful termination suit.
Almonte proved persistent, however. She contacted a number of regulators, including the Securities and Exchange Commission and Federal Trade Commission, expanding on allegations from her wrongful termination suit. She also discussed her complaints with officials from the Office of the Comptroller of the Currency, which oversees nationally chartered banks, including Chase. The OCC dispatched enforcement staffers to the bank's San Antonio facility for two months late last year as part of a still ongoing investigation, as American Banker previously reported.
A now defunct website, Legalmorass.com, took up Almonte's cause. The Wall Street Journal and the New York Times also mentioned her suit in stories on bank documentation problems.
Her attorney, Bruse Loyd of Jones, Gillaspia & Loyd, L.L.P, successfully opposed Chase's attempts to get her case dismissed in court. By then Almonte says she was nearly broke and living with her family in a motel as a result of her inability to find another job in banking. Almonte settled her suit with Chase last April on undisclosed terms and agreed to stop talking about her case.
But Almonte's efforts appear to have prompted the bank to order its in-house collections lawyers to undertake top-to-bottom reviews of "reconciliation," the process by which the bank was supposed to ensure that its legal filings matched the its internal records. That's according to a former Chase attorney who spoke on condition of anonymity.
The bank had never undertaken such reviews before. When pressed by lawyers in the field for an explanation, senior officials at Chase's New York headquarters stated that the OCC was making inquiries about Almonte's allegations, according to the former Chase attorney.
The reviews concluded that Chase's in-house legal work was solid, this person adds. Former members of the bank's litigation support staff agree. However, they add that the serious problems existed elsewhere. Namely, in the bank's back-offices and with outside collections firms, which had limited access to Chase's internal records and financial incentives to recoup as much as possible from consumers.
Instead of focusing solely on those areas, Chase around the middle of last year fired Gail Siegel, who had formerly run its internal collections litigation teams, bank sources say. Then, around the time it settled with Almonte, Chase ordered its in-house and contract law firms to drop outstanding card-related litigation altogether.
Virtually overnight, Chase mothballed a legal operation that had been producing several billion of dollars in legal judgments a year and more than $1.2 billion in recoveries. Over the next few months, Chase also fired the lead attorneys in most of its satellite offices.
Jerry Salzberg, an Illinois collections attorney was friendly with members of the bank's Chicago litigation office.
"Someone from New York brought in the three lawyers, kicked them out with no warning and dismissed all their cases," he told American Banker in January. "These were people who were by the book. … If they weren't the most profitable [of Chase's regional collection teams], they sure as hell were making a lot of money for the bank. … Obviously something happened."
Chase extended its collections revamp to its San Antonio operation last fall, when it announced changes to its longstanding document-signing policies. Previously, management of the credit card litigation support group had instructed employees to use corporate officer titles that existed only for the purposes of signing documents. Often, stacks of affidavits had been signed without a notary being present, as required by law, current and former employees say.
Under the revamp, Lazinbat announced last October that effective immediately Chase was setting up "signing rooms" where employees would review and sign collections files in the presence of notaries.
The reason for the urgency became apparent the following Monday, when OCC investigators arrived, says an employee who worked at the facility at the time. The OCC staff departed last December, after a two-month review of the San Antonio unit, with a large quantity of Chase records in tow.
The scope of the agency's review remains unclear, current and former bank employees say. The OCC declined comment on Chase. In practice, its enforcement reviews generally take months to complete, it said.
Four months after the OCC's departure, Chase insiders say talk has circulated that the bank might resume filing suits against card customers with large delinquent balances.
Meanwhile, in-house card collections attorneys who remain are twiddling their thumbs.
"They [Chase managers] have a lot of people on their payroll," says the former Chase in-house attorney. "I know people sitting in the offices, and they literally don't do anything. People are extremely stressed."
"It's really too bad," says a former Chase attorney who was terminated. "They wanted to file more and more, and they grew too fast. Maybe they just got greedy."
JPMorgan Chase's annual report, filed with the SEC last month, made no reference to its 11-month litigation hiatus or any impact on earnings.
Next: JPMorgan Chase's deals with debt buyers raise doubts about industry standards and the validity of related consumer lawsuits.