Mortgage lenders are under scrutiny for their foreclosure practices and record-keeping, including abuses like so-called “robosigning” and trying to foreclose on homes without proper documentation. Bank of America agreed to pay $8.5 billion in a settlement to investors as a result, and big banks could collectively be on the hook for $45 billion. Some industry-watchers speculate that concern over similar practices in the arena of credit card debt collection is what drove J.P. Morgan Chase & Co. to drop collections lawsuits against consumers in five states.
According to the Wall Street Journal, Chase withdrew pending collections cases in California, Florida, Illinois, New Jersey and New York. The issuer wouldn’t confirm or deny the dismissals to the Journal, and they remained tight-lipped when TIME Moneyland asked them for comment, too. “Because we consider our collections strategy to be proprietary, we do not have any information to share or comment on the topic,” a spokesman told us via email.
But both the newspaper and some consumer advocates think one probable explanation is that the company withdrew the lawsuits because it was concerned about the same sorts of problems faced by the foreclosure market. The Journal quotes a lawyer who claims there are “irregularities” in the paperwork that proves the validity of the debts. And then there’s this:
It isn’t clear how common the problem is, though Philip Straniere, a state-court judge in Richmond County, N.Y., and other judges say deficiencies are worse than in foreclosure cases. “It’s a significant problem … that’s widespread and yet given virtually no attention,” Judge Straniere said. Last year, Judge Straniere dismissed 150 credit-card-collection suits filed by J.P. Morgan, concluding paperwork submitted by the bank “appeared to be signed in large numbers by only a few individuals.”
“The whole thing is a symptom of a broken state court system,” says Robert Hobbs, deputy director of the National Consumer Law Center. “There’re a few brave judges who are standing up and requiring proof” that a credit card debt is owed as the collecting party claims, but these are in the minority. If irregularities like robosigning are discovered to be a problem in the credit card debt arena, this could lead to a push to scrutinize banks more closely. “I doubt they’re so worried about judges. They might be worried about a consumer lawyer picking it up but I suspect they’re most worried about regulators or the press picking it up,” Hobbs says.
As Hobbs points out, though, it’s not clear why the issuer made this move. The suits were dismissed in such a way that they can be refiled later on, which lends credence to the theory that Chase wants to make sure all its ducks are in a row before it pursues these cases. Hobbs points out the reason for the dismissals could be something more mundane, such as the debtors dying. The Journal article cites an anonymous lawyer who implies that the company might be shutting down its in-house debt-collection department. (The bank is an anomaly in that it keeps this kind of work within the company; most credit card issuers sell off bad debt to third-party debt collection firms.)
But the prospect of robosigning in the credit card debt-collection market is probably the most likely explanation. “J.P. Morgan Chase has received some scrutiny in the press before, because a former employee blew the whistle on them for selling portfolios of consumer debts that were riddled with thousands of errors,” Suzanne Martindale, a lawyer at nonprofit group Consumers Union, said in an email. “I do not know for sure if this is the start of a trend toward withdrawing lawsuits generally, but it is possible that Chase is trying to clean up its records since they’ve been chided for making errors before.”