It looks more and more like the foreclosure scandal is a symptom of a larger problem.
American Banker‘s Jeff Horwitz has another excellent report today on JPMorgan Chase’s debt-collection practices, which his sources say included robosigned affadavits, shredded documents, jury-rigged computer systems, hired sketchy third-party lawyers, fired whistleblowers, and emphasized recovering money at the cost of accuracy and ordered employees to take shortcuts to do so. All of this resulted, in the testimony of a whistleblower, in thousands of accounts Chase sold to debt collectors where it didn’t even have the balances correct. If you had to bet whether the “vast majority” of the balances were too high or too low, which would you guess? You’d be right.
This story sheds more light on why Chase suddenly quit launching debt-collection lawsuits last year. The Banker also reports that the Office of the Comptroller of the Currency has been investigating Chase’s practices since at least late last year.
They’re investigating things like this:
Among the files Chase was selling, Almonte said, were former Providian Financial Corp debts that had previously belonged to the failed Washington Mutual. (JPMorgan acquired Wamu’s assets from the Federal Deposit Insurance Corp. in 2008.) The Providian files had been labeled with a code that that the credit card litigation group used to signal “toxic waste,” she says.
Another person familiar with the files confirmed that the Providian accounts were commonly referred to with that term. The debt had long been considered unreliable and lacked documentation. It was never supposed to be sold, this person says.
A review of state court records shows that second-hand debt buyers are suing people who allegedly owe money on the Chase-Wamu-Providian accounts, however. Informed that the files have surfaced in court, the former Chase employee who confirmed the files’ “toxic” status was appalled.
And this:
It’s worth emphasizing the similarities between what the Banker is reporting here and what happened in the foreclosure scandal, which the big banks, including Chase, just settled for $25 billion (which to be sure is not all being paid by the banks).
It raises the question of whether Chase was an outlier in debt colletion of if this was —like robosigning and forging documents in foreclosuregate, which the banks pooh-poohed the foreclosure scandal as “technicalities.” —effectively the industry standard. We have part of the picture, but not a complete one. Horwitz and the Banker have been on this angle, too, naturally.
The Chase story raises even more fundamental questions about trust. If a giant bank like JPMorgan Chase can’t figure out (or doesn’t want to figure out) how much it is actually owed by people it’s sent to collections, it raises questions about the plumbing of the financial system:
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.
Which makes me think: I can’t remember the last time I balanced a checkbook.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.