The federal government ordered Chase to clean up its debt collection practices and help affected consumers by providing payment, fixing inaccurate debt records and correcting account information sent to the credit bureaus.
The Office of the Comptroller of the Currency said Thursday that the bank allegedly allowed court documents to be filed that weren't properly reviewed or notarized and contained financial errors favoring the bank. The claims include collections of credit card debt, student loan debt and auto loan debt. Mortgage debt was not included.
The agency further claimed that Chase failed to comply in some instances with the Servicemembers Civil Relief Act, or SCRA, which provides expanded consumer protections for active and deployed military personnel.
The agency ordered the bank to review its debt collection lawsuits, excluding home loans, from 2009 until present and its SCRA accounts, excluding home loans, from 2005 to present to identify consumers affected by the faulty practices.
The OCC stopped short of levying a fine against the bank for its alleged faulty debt collection practices.
That may be because the bank voluntarily halted its in-house debt collection almost two years ago after allegations surfaced of improper practices from former employees, says Bill Bartmann, CEO of debt collection firm CSF2. In January 2012, American Banker documented how the bank withdrew cases against borrowers in five states along with shuttering debt collection offices nationwide.
Chase discovered these issues after internal reviews that began in 2010 and that it has taken "extensive steps" since to correct the problems, according to statement issued by the company on Thursday. The bank said the issues affected less than 1 percent of its customers.
"There's a lesson here for all the other banks," says Bartmann. "If you're doing something wrong, it's better to belly up and admit it than wait for regulators to come after you."
Chase neither admitted nor denied wrongdoing in the OCC's consent order.
Bartmann noted that many of the other major banks outsource their debt collections to third parties, many of which engage in questionable practices as well, he says.
"Historically, that used to be a distinction worth making," Bartmann says. "Not anymore. The government has said any action your vendors take comes back to your doorstep."
The OCC's enforcement action comes as several other federal and U.K. agencies on Thursday handed down a total of $920 million in fines to Chase for its "unsafe and unsound" derivative-trading practices that caused a massive trading loss last year, known as the "London Whale." Chase admitted violating banking rules to settle the charges.
The bank also reportedly sent out refunds to consumers for issues with its credit card add-on products. The Consumer Financial Protection Bureau, or CFPB, last year started investigating these products, which include payment protection, identity-theft protection, credit score tracking and wallet protection. Last year the agency ordered Capital One and Discover to pay hundreds of millions of dollars in refunds and fines for deceptively selling these products.
In April, Chase was among a host of banks that sent out settlement checks to more than 4 million mortgage borrowers for improper foreclosure practices. Federal regulators found that the mortgage lenders had cut corners when kicking delinquent borrowers out of their homes, including providing court documents that contained errors or were signed off without proper review, which became known as "robosigning."
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