Probe Of Bank Misconduct On Credit Card Debt Expands Beyond JPMorgan

An investigation into allegations that major financial institutions tried to collect credit card debts using some of the same potentially fraudulent and abusive paperwork practices that drove millions of wrongful foreclosures is expanding, according to the Washington Post.

The investigation had previously focused on JPMorgan Chase, which had fired a woman named Linda Almonte from its credit card collections team in 2009. Almonte alleged that the unit was instructed to sign off on erroneous documents that would then be used as the basis for legal proceedings against consumers in default. When Almonte filed a wrongful termination suit and sought whistleblower protections, regulators at the Office of the Comptroller of the Currency (OCC) began an investigation that led JPMorgan to drop at least $45 billion worth of credit card debt collection proceedings in the spring of 2011. The American Banker reported on the investigation in early 2012, sparking speculation that shoddy or outright fraudulent procedures around the key documents that govern debt proceedings were far more widespread than mortgage market abuses.

Two years later, the OCC is fueling that suspicion by expanding its investigation. While JPMorgan dropped its own court proceedings around the spuriously documented debts, the Post story on the expanded investigation notes that many smaller companies exist solely to buy such debt from the big banks for a fraction of their value, then attempt to collect themselves. These downstream debt buyers “often purchase just a spreadsheet of names” based on the banks’ records, meaning the dodgy JPMorgan practices alleged in affidavits did not necessarily cease to plague consumers when the high-powered bank dropped proceedings against them.

Automated signing of legal documents without proper review and over staff objections is relatively clear-cut, and activists frustrated by government inaction on other forms of Wall Street misconduct may find the credit card debt news heartening. In the housing market version of this same story, however, strong evidence of “robo-signing” fraud has still produced feeble settlements. The perverse incentives in those settlements have done more to help the banks than the wrongly foreclosed. The news that OCC is expanding the scope of the investigation into similar wrongdoing with credit card debt collection doesn’t guarantee a better ultimate outcome for credit card holders than the government secured for homeowners.