Calif. Sues JPMorgan Chase for Robosigning Debt Collection Suits

Posted May 17, 2013 in Creditor/Debtor Crime by

Chase bank sign

Photo: longislandwins

California’s top lawyer has filed a suit against JPMorgan Chase for fraudulent and unlawful debt collection practices. Attorney General Kamala Harris accused the lender of burying California courts in thousands of debt collection lawsuits without verifying the validity of the suits or even serving the defendants with court papers.

The suit specifically alleges a widespread practice of robosigning — signing hundreds of pages of legal paperwork without reading them — in JPMorgan Chase’s credit card collection efforts. JPMorgan Chase was one of several major lenders to suspend real estate foreclosures in 2010 after robosigning was discovered to be one of the primary causes of the foreclosure crisis.

According to the complaint, the company “flooded California’s courts with collection lawsuits against defaulted credit card borrowers based on patently insufficient evidence — betting that borrowers would lack the resources or legal sophistication to call [JPMorgan Chase’s] bluff.”

The complaint also says the financial giant “cut corners in the name of speed, cost savings, and their own convenience, providing only the thinnest veneer of legitimacy to their lawsuits.”

More Than 100 Lawsuits a Day

Between January 2008 and April 2011, Harris said JPMorgan Chase filed an average of more than 100 debt collection lawsuits in California on each day the courts were open. On one day, the company filed 469 suits.

Attorney Jonathan G. Stein headshot

Jonathan G. Stein

“My problem with it is just the sheer volume of lawsuits they file,” said California attorney Jonathan G. Stein. “That rate is simply not possible if you’re going to actually review the lawsuits and see if there is a valid case.”

The extent of the onslaught of lawsuits not only suggests that JPMorgan Chase was cutting corners, it also meant that other plaintiffs and defendants faced burdensome wait times for their days in court.

“Excess like this is why regular people often don’t get access to the justice system,” Stein said.

In addition to robosigning, the complaint against JPMorgan Chase alleges a practice known as “sewer service,” in which a lender claims to have served the borrower with a notice of the lawsuit when no such notification has been made. Stein said that because of this practice, borrowers sometimes find out they’ve been sued only when they discover wage garnishment on their paychecks. By deceiving a court into believing that a consumer has been notified, a lender can often win a default judgment with no opposition.

Illegal Suits Could Continue Without Reform

Stein said there are a number of ways in which lawmakers and the courts can and should work to protect consumers from illegal debt collection practices. One way is for legislators to strengthen the protections of the Fair Debt Collection Practices Act, which places a host of regulations on lenders and the third-party debt collectors they use. Minnesota Sen. Al Franken has twice proposed amendments to the act that would increase fines for violations and broaden consumer protections, but the legislation failed to make it out of committee both times.

Increasing fines is key, Stein said, because so few borrowers have the resources to fight back against illegal practices.

“If the penalty a lender has to pay is just $1000 plus attorney fees, they’re not going to be that concerned,” Stein said. “If they pay even $10,000 for one wrongful suit, they may be simultaneously making $5,000 or even just $2,500 each on 20 more suits and coming out way ahead.”

Stein said the courts must also reexamine the way these suits are handled so they can “make sure the debt collectors are right without simply rubber-stamping these judgments.”

As for enforcement of debt collection laws, Stein said attorneys general in other states should follow Harris’ example, but conceded that law enforcement resources alone are insufficient to stem the tide of illegal debt collection suits. Stein suggested that Harris could leverage her office’s resources against JPMorgan Chase by negotiating a settlement that includes a special master assigned to oversee the company’s debt lawsuits, although he doesn’t see such a deal as likely.

Have you ever been wrongly targeted by a debt collection suit? How did you correct the problem? Tell us your story in the comments section below.

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