WASHINGTON JPMorgan Chase's $216 million deal with regulators to rein in faulty credit card collection practices and the bank's reselling of low-quality debts is a strong warning that other companies are in the crosshairs, officials said Wednesday.
The settlement covered a more than five-year period during which federal and state authorities say the company's Chase Bank and Chase Bankcard Services units sold card debt lacking documentation and illegally robo-signed court documents to collect from borrowers. The company allegedly sought collections even from consumers who did not owe the debt or in cases where a borrower was deceased.
While JPMorgan agreed to refund consumers, regulators said the separate requirement in the deal banning certain debt re-sales is more significant and is a warning to others that carry out similar practices. JPMorgan allegedly sold so-called "zombie debts" to third-party buyers. Officials said the practice included selling debt that lacked documentation, was already settled, had been discharged in court, or was simply not owed.
"While this settlement and the reforms we are announcing today only apply to Chase, they can and should be used as a template to reform the entire debt collection industry across the country," said Illinois Attorney General Lisa Madigan, who participated in the settlement, on a joint conference call with reporters.
Iowa Attorney General Tom Miller called the deal a "breakthrough" in stopping a "huge amount of abuse" that goes on with debt resales.
"We do not think these problems are unique to the credit card collection business of Chase. We think it's throughout the industry," Miller said. "We think it's a good agreement and we will pursue it with other companies and it's important to bring relief to borrowers of those companies."
The settlement included the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and AGs in 47 states plus Washington D.C. The deal puts a halt to JPMorgan's collecting debt on 528,000 consumers whom, regulators said, the company sued in court using robo-signed affidavits. The company has agreed to pay at least $50 million to refund customers, $136 million in penalties and other payments, and $30 million in a related action brought by the OCC. The settlement covers activity spanning from 2009 through 2014.
"Today's action punctuates the importance of accountability and for fairly collecting on consumer debts. Debt collection serves a crucial role in the proper function in consumer credit markets But how companies go about performing this task can be just as crucial," said CFPB Director Richard Cordray on the call. "Our action today puts debt buyers, debt sellers and third parties on notice throughout the market that they are all responsible for following the law and must perform their due diligence when collecting debts."
Under the settlement, JPMorgan must also give "account-level documentation" to debt buyers before a sale showing that debts are accurate and enforceable. It must also provide certain updated information about a debt for at least three years following the sale. The company must also notify the consumer when a debt is sold and disclose certain information such as identifying the buyer and amount owed at time of sale.
JPMorgan had already been ordered to provide $50 million in relief to consumers as part of a related action with the OCC in 2013, which also included allegations of overcharging service members for past debts.
Comptroller of the Currency Thomas Curry said during the call Wednesday that Chase has since paid more than the $50 million in restitution and will now pay an additional $30 million penalty to the OCC as part of the new joint order.
"This is the closing chapter of identification and correction of unsafe and unsound practice dating (back to) 2011," Curry said.
In a company-issued statement, JPMorgan said it has addressed most of the issues raised in the order.
"Chase has taken extensive steps over the past four years and is pleased to resolve these legacy issues. It is working to complete remediation of affected Card customers," the company said. "The 2015 consent order covers issues from several years ago for a small percentage of credit card credit card customers who defaulted on their credit card debt. The issues were discovered by Chase in internal reviews that began in 2010."
Miller said on the call that JPMorgan has already made some steps to improve its collection practices but the new order makes it a legal requirement.
"To Chase's credit, they did take some steps to stop at least temporarily, some of these practices. But they can always start again," Miller said. "We entered into this agreement that binds them in a significant way."