What happened at Chase’s credit-card collections arm?

January 11, 2012
Jeff Horwitz has an astonishing story about Chase's credit-card collections efforts, which look as though they're riddled with sloppy record-keeping and even possible fraud.

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Jeff Horwitz has an astonishing story about Chase’s credit-card collections efforts, which look as though they’re riddled with sloppy record-keeping and even possible fraud.

Consider Dade County, for instance, in Florida: Chase was filing claims at the rate of 640 per month in January. And then, after April — nothing. There were a lot of layoffs in New York, too:

In a sign that Chase acted with urgency, numerous regional collections teams were fired in mid-2011 at the order of the New York bank’s headquarters, according to people familiar with the events.

“Nobody told anybody anything. It was very traumatic,” says a former Chase attorney who asked to remain anonymous because of a nondisclosure agreement. “I think there were investigations by the [Office of the Comptroller of the Currency] and other government entities. If we’re not there, we can’t be interviewed.”

Now every bank has a choice when it comes to defaulted debts — it can chase those claims itself, or sell them on to a collections agency. Maybe Chase just decided that supporting an in-house team wasn’t worth it, and that it would outsource most everything, going forwards. Except, Horwitz couldn’t find any surrogate claims, either, in a recent search. And then the whole thing seems to be very closely related, at least in timing, to a lawsuit in Texas last spring:

Linda Almonte, a former team leader in Chase’s San Antonio credit card services division, accused the bank of firing her for objecting to the sale of $200 million in legal judgments obtained by bank attorneys. Half the accounts lacked adequate documentation of judgment and one-sixth listed the wrong amounts owed, Almonte claimed in a suit filed in U.S. District Court for the Western District of Texas.

In its response, Chase did not dispute inaccuracies in the debt balances and documentation. Instead, it said its sales agreement allowed for errors and thus was proper. “[T]he parties explicitly agreed that the judgments were purchased ‘as is’ and “with all faults,” Chase’s attorney wrote.

Chase was unsuccessful in getting the case dismissed and settled it on undisclosed terms last April; it ceased filing new consumer debt lawsuits in many states the same month.

While collections agencies often get the amount owed wrong, no one really stopped to ask whether banks themselves might not know how much they were owed. But that seems to have been the case here: Chase was selling faulty claims to collections agencies, and I’m sure those agencies didn’t suspect for a minute that the amounts owed were often incorrect. After all, the reason you’d buy claims from a bank “with all faults” is precisely because you don’t expect there to be many faults.

Already, the move seems to be having a negative effect on Chase’s collections:


Third-quarter collections, at $266 million, were down 35% from the first quarter, and haven’t been this low in a very long time. And if Chase is willing to give up anything like $100 million per quarter by effectively shutting down its collections operation, one can’t help but suspect that the legal or reputational risk of keeping that operation in place was truly enormous. I hope that American Banker encourages Horwitz to continue digging into this case: there could be a really big story here, somewhere.


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