California is suing JP Morgan over how the company goes about collecting money that consumers owe on credit cards but have not paid. The state claims the company is running a “debt collection mill.” JPMorgan is in fact using the courts to collect money,
Some critics charge the company is using the same shoddy collection methods used during the height of the foreclosure crisis. Typically, the bank goes to court after customers stop paying on their cards.
There is little dispute about whether the money is owed. The state says JPMorgan relied on incomplete records and mistaken information about customers. Company employees stated that they were assistant treasurers (which they were not) and then signed key documents. This is called “robo-signing.” And JPMorgan failed to tell some customers that lawsuits against them had been filed. This practice is called “sewer service.”
JPMorgan’s plan was to flood California courts with lawsuits and get quick judgments in order to garnish people’s wages. The bank filed thousands of lawsuits from January 2008 to April 2011. On one day, JPMorgan filed 469 suits.
JPMorgan stopped suing customers in this way in early 2011. It says it is cooperating with the investigation by the California Attorney General.
JPMorgan is not the only bank using these methods and California is not the only state. A judge in New York City said, “A vast number of lawsuits are flawed and most of them cannot prove the individual actually owes the debt.” He said he had presided over as many as 150 such cases a day.
Borrowers rarely show up in court to defend themselves. As a result, more than 95 percent of lawsuits result in a default judgment, an automatic victory for the lender.
People who have stopped paying owed money to credit card companies should try to make the payments to spare themselves these problems. In any event, they should keep a sharp eye out for legal notices and then follow-up. They should be sure to ask for proof of their debt when they are in contact with credit card companies.