Research and Statistics

Chase refunds $50 million in robo-signing settlement


Chase agreed to refund money and drop thousands of court judgments it won against cardholders in poorly documented lawsuits

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Robo-signing settlement
Robo-signing settlement

Chase Bank is paying $50 million to consumers it sued for unpaid credit card bills under a robo-signing settlement that regulators announced Wednesday.

Chase is making the refunds to people it sued from Jan. 1, 2009, to June 30, 2014, and won judgments against. It will pay debtors any amounts it collected over their actual debt, plus 25 percent of the overage, according to settlement papers.

In addition, Chase will ask the big three credit bureaus not to record those judgments on people’s credit reports, and will drop any remaining lawsuits of the 528,000 consumer accounts involved. It will also drop any collection efforts on judgments it won but didn’t collect.

“Chase sold bad credit card debt and robo-signed documents in violation of law,” U.S. Consumer Financial Protection Bureau Director Richard Cordray said in a press call. The dropped lawsuits initially claimed several billion dollars from consumers, he said.

The refunds, initially ordered by the Office of the Comptroller of the Currency in 2013 but detailed in Wednesday’s announcement, come as part of a $216 million settlement with two federal agencies and 47 states for debt collection and debt sales.

Chase: ‘Legacy’ issues resolved
Chase characterized the penalties
as old issues involving relatively few customers. “Chase has taken extensive steps over the past four years and is pleased to resolve these legacy issues,” the company said in a statement Wednesday.

But regulators said that new requirements for solid documentation of debt send a message to the rest of the industry and provide a blueprint for strengthening consumer protections. The reform of Chase’s practices “can and should be used as a template to reform collection practices across the country,” Illinois Attorney General Lisa Madigan told reporters.

The CFPB order outlines bank practices that used the court system as an intimidation tool to collect thinly documented debts. Cases were based not on account records, but the affidavits of bank workers who claimed to have reviewed the records — but didn’t.

Skimpy verification was also used to sell the supposed debts on the debt market, the CFPB said in its announcement. As a result, Chase sold to debt buyers accounts that had been settled, paid off, or were otherwise extinguished.

“We do not think these problems are unique to the credit card unit of Chase,” Iowa Attorney General Tom Miller said during the press call.

Chase must prohibit debt buyers from reselling the accounts, and provide account documents confirming that debts are accurate. It must notify account holders when their debt is sold, with the name of the buyer and the amount. It cannot sell “zombie debts” that are beyond legal limits for filing lawsuits; debts that have been charged off for more than three years, debts in litigation, or debts owed by a service member.

Debt collection on a massive scale requires a lot of paperwork, but the law requires paperwork to be reviewed, not rubber-stamped. See animation: “How robo-signing works.”

“This is a breakthrough, ” Miller said. The restrictions on debt sale put the industry on notice. “There was just a huge amount of abuse in the multiple resale of debt.”

California, Mississippi and Wyoming did not sign the settlement because they are pursuing their own lawsuits against Chase. However, consumers in those states are entitled to the same refunds and the same protections from collection abuses as those in the rest of the country, regulators said.

Consumers due refunds will be contacted by Chase, and if the total paid is under $50 million, the company will make up the difference to regulators.

In a separate news release, the OCC said that Chase had already made $50 million in refunds and continued to find eligible recipients. The bank regulator’s 2013 order also involved Chase’s failures to give military service members the benefits they were due under the Servicemembers Civil Relief Act.

Debt buyers say Chase and other big banks have shut off their sales of debt in recent years as regulators investigated their debt documentation and sales. In 2013,  California announced a lawsuit against Chase for pushing robo-signed cases through the courts and intimidating consumers who sometimes didn’t owe the bank money. Mississippi also sued Chase echoing many of the charges made in California. The regulators’ investigations stem from public revelations about robo-signing by Chase whistleblower Linda Almonte in 2010.

Wednesday’s crackdown comes a day before hearings in the House of Representatives on the Dodd-Frank Act that created the CFPB. The series of hearings, called by committee Chairman Jeb Hensarling, is likely to become a forum for criticism of the agency. “Never before has more unchecked discretionary authority been given to unaccountable government bureaucrats,” Hensarling, a frequent CFPB critic, said in a statement announcing the hearings.

Consumer advocates responded with support for the consumer protection agency. “Obviously Wall Street banks and payday lenders hate that the CFPB is very effectively protecting consumers from all their unfair practices, including smarmy debt

collection abuses,” Ed Mierzwinski, director of consumer programs at the U.S. Public Interest Research Group, said in an email response to questions. “So they’ve got their friends on the Hill working overtime to defund and defang it.”

See related:Know your rights under the Fair Debt Collection Practices Act

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