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Major bank: 'No comment' on pulling credit-card court cases

Judges say JP Morgan Chase dropped lawsuits in five states


Are credit cards the next 'robo-signing' fiasco?

The Wall Street Journal recently broke some news with a story about JP Morgan Chase quietly pulling a slew of credit-card collection cases from court. Speculation has it that the company fears another mess like the robo-signing mess that's one aspect of the foreclosure scandal.

According to the WSJ's June 24 piece, the company "abandoned" the cases:

J.P. Morgan Chase & Co. has abandoned more than a thousand debt-collection lawsuits across the U.S. that sought to recover soured credit-card loans from borrowers.

The nation's second-largest bank by assets, including more than $100 billion in credit-card accounts, wouldn't disclose the number of cases dismissed or the reasons for the move. State judges said the bank has dropped lawsuits targeting borrowers in California, Florida, Illinois, New Jersey and New York since April.

Cases can be refiled--but under what scrutiny?

However, the judge dismissed the cases without prejudice, which allows the suits to be refiled--if or when the company so chooses. The company declined to comment on why the cases were pulled, neither confirming nor denying the action, saying its collections efforts are a proprietary matter.

Colin Barr, senior writer at Fortune.com, also published June 24, says in CNNMoney piece, "This could invite more regulatory scrutiny at a time when the Jamie Dimons of the world are already whimpering about how hard their lives are, liberal housing allowances and all. That means the labor-intensive back-office cleanup the banks are belatedly undertaking stands to get even costlier."

Collections suits normally hugely successful

Barr estimates the lawsuits represent about $30 million in judgments for the company, but also figures that to be "about 12 hours' worth of profits at the first-quarter rate." In other words, it may not be a huge percentage of JPMC's bottom line, but it seems strange that the company would turn away from such collection efforts, especially given the usual success rate of such litigation.

According to a consumer-debt blog, "Industry estimates show that, in all lawsuits over defaulted credit card debt collections, the judgments go in favor of the lender about 94 percent of the time. Some judges said the nationwide average amount sought by the companies in debt collections cases is about $1,000.

'Irregularities' cited in paperwork

"However, one Florida-based lender who occasionally handles debt collection cases for JPMorgan said that the company's lawyers told him the suits were dropped due to what they called 'irregularities' in the paperwork associated with verifying how valid the pursued debt is, the report said. This is a common problem in lawsuits of this type, and some judges told the newspaper that the documentation is often sloppy or even fraudulent, not that JPMorgan has been accused of this in the dropped cases."

But the foreclosure scandal isn't even over, yet, with presumably much wrangling left to do between the 50 states' Attorneys General and the nation's largest mortgage lenders, including JP Morgan Chase. So it's certainly fair to at least wonder whether more shoddy record-keeping and sloppy business practice will come to light.

'Tip of the iceberg'?

As Barr says, "But the story suggests that the problem probably isn't limited to these [dismissed] cases. That was certainly the observation in the robosigning episode, which kept getting bigger and bigger even as the banks claimed it was no big deal. And then there was that swell case where Dimon fairly thundered that JPMorgan hadn't foreclosed on any military families only to have the bank admit a couple months later that it actually, um, had. Again with the ineptitude.

"So we could be looking at the tip of the credit card iceberg here. Certainly [the following example] doesn't sound like a sound banking practice [quoting a WSJ paragraph, to which we also add a subsequent passage  from WSJ]:

San Antonio suit alleges massive lack of proof

In a federal-court lawsuit filed last year against J.P. Morgan in San Antonio, a former assistant vice president at the bank who worked on sales of delinquent credit-card loans, alleged that employees known as "attorney liaisons" signed "multiple stacks of affidavits" filed as part of credit-card lawsuits without "looking at any accounts at all."

The former J.P. Morgan assistant vice president, Linda Almonte, made similar claims in a whistleblower complaint filed with the Securities and Exchange Commission last year. The SEC hasn't responded to the claims. Mr. Hartwick, the J.P. Morgan spokesman, declined to comment on Ms. Almonte's allegations.

J.P. Morgan and Ms. Almonte agreed in April to settle her federal-court suit, which alleged she was fired after telling her bosses that nearly half the 23,000 accounts in a $200 million credit-card debt sale were missing proof of court judgments the bank claimed it had won.

Thousands of the accounts contained incorrect information about how much the borrower owed, she alleged. Terms of the settlement weren't disclosed. J.P. Morgan denied wrongdoing.

The takeaway for U.S. consumers

So, you may be wondering, what does this news mean to me? Well, if you are one of the "more than a thousand" who were listed as a defendant in these actions, you just got handed some time. If you already have a bankruptcy attorney, make sure your attorney is up to date with any correspondence you may receive from the court(s): Your for-now, but-perhaps-only-temporarily-dismissed case can be added to your bankruptcy so that it can be included in your discharge. Also, your attorney can advise you of any interplay between the debt alleged in the dismissed suits and your state's statute of limitations on consumer debt.

If you have not yet filed--or don't yet have a bankruptcy attorney--now may be a good time to start the process.

Ultimately, as U.S. consumers, we should all stay informed about cases such as these so we can raise Cain with our elected representatives to make--and then keep--the playing field level for U.S. consumers in the marketplace.

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