Every once in a while, a state-level official picks up the slack left behind by federal regulators. This time, Kamala Harris, California's Attorney General, is that official. AG Harris has filed a lawsuit against JP Morgan Chase based on its credit card collections practices.
In 2010, Linda Almonte, a former Chase employee filed a whistleblower complaintabout Chase's credit card collections practices with the SEC. Among other things, Chase entered into a deal to sell 23,000 credit card accounts to a third-party debt buyer. 60% of the files in that bundle contained significant errors. The Office of the Comptroller of the Currency took notice and may be preparing its own regulatory action. However, given that the OCC seriously botched the independent foreclosure review, the smart money is on AG Harris.
Perhaps one of the most important things to take away from Linda Almonte's whistleblowing and AG Harris's subsequent lawsuit is that this conduct is not limited to Chase. Debt buyers are frequently sold bundles of debt that are not well-documented. These poorly-documented debts aren't contested by most consumers. In fact, I frequently see people consent to judgment in credit card cases. This is why the debt-buying industry continues to exist -- most people don't demand proof of what they owe.
When credit card debts get out of control, a person is likely more willing to accept a larger amount of debt owed because the assumption is that interest and fees are to blame for larger balances. In some cases, this is probably true. In many cases, perhaps 60% of them, those balances could be completely wrong. Also, debt buyers tend to receive very little documentation on the accounts that they purchase. This means that people consenting to judgment in these cases are more than likely agreeing to amounts due that are completely incorrect and unsupported by credible documentation.
Judgments in Illinois earn interest at a rate of 9%. That payment plan on your judgment? It doesn't account for interest. If you pay off a judgment over time, then you are paying interest on that judgment. If that judgment is based on a credit card debt, then you are paying interest on the interest that you paid on the debt that is underlying the judgment.
It's not always affordable to hire an attorney and fight the seemingly limitless resources of the banks in these situations. This is why lawsuits like AG Harris's lawsuit are so important. Although the State of California has its own budgetary woes, it can afford to fight a lengthy legal battle. These types of regulatory actions can be more effective than individual lawsuits. Unfortunately, we've seen that many recent regulatory actions have been a bit lackluster in the end result. I am hopeful, however, that this lawsuit will get better traction.