On July 8, 2015, the Consumer Financial Protection Bureau (CFPB), Attorneys General in 47 states, and the District of Columbia have taken action against JPMorgan Chase for selling “zombie debts” to junk debt buyers and illegally robo-signing court documents. “Zombie debt” refers to accounts that were inaccurate, settled, discharged in bankruptcy, not actually owed, or otherwise not collectible. “Robo-signing” refers to the practice of automatically signing affidavits under oath without actually reviewing the material on which that oath is based.
“Chase sold bad credit card debt and robo-signed documents in violation of law.”
Richard Cordray, Director of the Consumer Financial Protection Bureau
Under the administrative orders, Chase is required to take certain actions to protect consumers from its unlawful practices. Chase will now be required to carefully document and confirm its debts before selling them to debt buyers or filing collections lawsuits and it is barred from selling certain debts. It must also prohibit debt buyers from reselling debt. Chase was ordered to permanently stop all attempts to collect, enforce in court, or sell 528,000 existing accounts. CFPB Director Richard Cordray said, “Today we are ordering Chase to permanently halt collections on more than 528,000 accounts and overhaul its debt-sales practices. We will continue to be vigilant in taking action against deceptive debt sales and collections practices that exploit consumers.”
Chase has also been ordered to pay at least $50 million in consumer refunds, $136 million in penalties and payments to the CFPB and the included 47 states, and a $30 million penalty to the Office of the Comptroller of the Currency (OCC) in a related action.
Chase Engaged in Unfair, Deceptive, or Abusive Acts and Practices
According to the CFPB, Chase violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair, deceptive, or abusive acts and practices. Specifically, the CFPB and 47 states held that Chase:
- Sold accounts that had been settled, fully paid, discharged in bankruptcy, identified as fraudulent, subject to a payment plan, no longer owned by Chase, or were otherwise not enforceable.
- Sold accounts with missing or incorrect information about the amount owed and the amounts already paid.
- Assisted third party and junk debt buyers in collecting debt deceptively by providing incorrect or inadequate information.
- Robo-signed more than 150,000 affidavits and filed more than 528,000 debt collection lawsuits against consumers.
- Systematically failed to prepare, review, and execute truthful statements as required by law.
- Obtained judgments in debt collection lawsuits for incorrect amounts owed due to its calculation errors.
- Failed to notify consumers and the courts when Chase discovered these issues.
Enforcement of CFPB and State Actions
Under the enforcement portions of these actions, Chase has been ordered to:
- Cease all collection efforts on 528,000 consumer accounts that were sent to debt collection litigation between January 1, 2009 to June 30, 2014.
- Cease collections, enforcement, sale, and credit reporting of any judgments it has obtained on those accounts.
- Pay at least $50 million in cash refunds to consumers damaged by Chase’s unfair, deceptive, or abusive acts and practices.
- Prohibit debt buyers and junk debt buyers from reselling accounts purchased from Chase, though they can sell the accounts back to Chase.
- Confirm that its debts are collectable before selling the debts to debt buyers. The debts also cannot have been paid, discharged in bankruptcy, must not be the result of identity theft or other fraud, settled, or otherwise uncollectable.
- Before sale, Chase must provide detailed documentation of the debt confirming the debt is accurate and enforceable.
- For at least three years after selling the debt, Chase must provide debt buyers additional account information including; agreements, account statements, payment histories, and records of account disputes.
- Notify consumers that their debt was sold and provide consumers their account information including; who purchased the debt, the amount owed at the time of the sale, and a notice that consumers can request additional account information for free.
- Not sell zombie debts and other debts without documentation, including; debts that have been charged off or unpaid for more than three years, debts in litigation, debts owed by a service member, debts owed by a deceased consumer, and debts where a payment plan has been arranged.
- Withdraw, dismiss, or otherwise terminate all debt collection litigation pending after January 1, 2009.
- Stop robo-signing affidavits. Chase declarations must now be hand-signed, must reflect the accurate date of being signed by hand, and must be based on direct knowledge and personal review of the business records of the person signing. Furthermore, documentation supporting the affidavits must be actual records of the debt, verified to be accurate, and not created solely for litigation.
- Verify specific account information about the debts when filing a debt collection lawsuit. That includes the name of the creditor at the time of the last payment on the account, the date of the last extension of credit, the date of last payment on the account, the amount of the debt owed, and a detailed accounting of any post charge off fees or interest.
- Implement policies, procedures, systems, and controls to ensure compliance with federal consumer financial laws when selling and collecting debts.
- Pay at least $50 million in consumer refunds.
- Pay at least a $30 million civil penalty to the CFPB.
- Pay a $30 million civil penalty to the OCC on a related matter.
- Pay $106 million in payments to the 47 states who joined in the enforcement action.
California, Mississippi, and Wyoming were the only three states that did not join in as part of the settlement with the Consumer Financial Protection Bureau. California has litigation pending against JPMorgan for engaging in unlawful and fraudulent debt collection methods involving over 100,000 California consumers over a three-year period. The California Attorney General has accused JPMorgan of flooding the California courts with thousands of questionable cases every month. Mississippi is also continuing its own separate lawsuit against Chase that is ongoing at this time. The Wyoming Attorney General’s office could not be reached for comment on why they did not participate in the settlement.