A Whistleblower Triumph -- JPMorgan Chase Drops Pursuit Of Millions (Billions?) In Credit Card Debt

In November 2010 one of our contributors to insideARM.com (ARM stands for accounts receivable management), Jerry Ashton, wrote a piece titled Follow Directions or be Fired!  A Debt Professional’s Dilemma, in which he described how a so-called whistle-blower had been fired by JPMorgan Chase for questioning the legitimacy of their decision to sell a flawed portfolio of credit card write-offs.

This story has continued to unfold over recent months, with a significant development announced today in the Wall Street Journal.  Once again, Jerry has contributed his thoughts on this important saga for the receivables industry, and I’ve included them below.

The JPMorgan example is significant on many levels, one of which is that it highlights the creditor’s role in the process of debt collection.  There are countless examples of debt collection firms being painted as the bad guy for pursuing debts from consumers.  While there are indeed legitimate “bad guy” cases, the vast reality is that these debts often begin when companies such as banks extend credit or make loans to folks they know are unlikely to be able to afford it, and ultimately decide to sell the bad debt -- or engage a collection agency or law firm -- to pursue it on a contingency basis, often without providing full and accurate documentation of the original debt.

Here is Jerry Ashton’s latest comment on this particular story:

On 11/2/10, I wrote a piece published on insideARM.com titled “Follow Directions or be Fired!  A Debt Professional’s Dilemma.”

In this piece, I described how Linda Almonte, a banking professional and former employee of JP Morgan Chase, had been fired by that firm – she claimed – for questioning the intelligence and legitimacy of their decision to sell off a flawed portfolio of credit card write-off’s.

The aggregated debt in question was sold off to industry debt buyers, sometimes unkindly referred to as the “bottom feeders” of the ARM family.  Reportedly, this would bring back a cool $23MM and more to the bank’s bottom line.  But, this mistake in judgment – I am being polite, here – would prove to be just one of a series of floutings of the law and of ethics that culminated month’s later in today’s WSJ article trumpeting: Lender Drops Pursuit of Debt.

That lender, as identified in the WSJ article, was JPMorgan Chase.  The firm abandoned more than 1,000 debt-collection lawsuits in 5 states.  The total amount of outstanding consumer credit owed to JPMorgan Chase (both current and delinquent) in California, Florida, Illinois, New Jersey and New York -- the states Linda Almonte listed as being the primary locations of the debt portfolio she contested - is $45.9 billion.

JPMorgan Chase, in addition to Ms. Almonte, has had its hands full defending its decision to sell this flawed debt.  A former assistant vice president in San Antonio – where Linda had worked –also filed a lawsuit last year alleging that “attorney liaisons” signed “multiple stacks of affidavits” filed as part of credit-card lawsuits “without looking at any accounts at all.”

The New York Times picked up on this, and in late 2010 published Debt Collectors Face A Hazard: Writer’s Cramp, in which Linda’s story and a broader investigation of the matter revealed the shoddy – “if not illegal” – practices that some debt sellers and debt purchasers regularly engage in.

In my insideARM blog I called on fellow professionals in the ARM industry to join me in throwing our full support behind Linda Almonte, cautioning “Someday, if it has not already happened, you will be forced with the decision to either ‘go with the program’ or lose your job.”

I asked, “Are you up for that showdown, or do you choose to remain in the bleachers?”  Here were some of the responses:

“What we need is more leadership, more courage to stand up for what we believe in, without fear… If more people followed (Linda’s) example, maybe we could change the way things are to the way they should be.”

“Hip Hip Hooray for Linda. She did the right thing, but unfortunately is out of work. However, I suspect not for long when others hear this story.”

Others pointed out a major industry downside of not acting responsibly.

“Another point not mentioned, and equally important, is that by selling bad paper, Chase increases the pressure on our industry from angry consumers and the plaintiff’s bar. Even if Ms. Almonte is successful in the suit, Chase has caused damage to the rest of us in the industry.”

There were many kind responders…and a few harsh critics…but most stayed on the sideline.

So, let’s fast-forward to yesterday’s Wall Street Journal article.  Still hedging their bets, JPMorgan asked an Illinois state court judge to withdraw all the pending collection cases in his courtroom this month, with no explanation.  According to the WSJ, the stipulation allowed the bank to dismiss the cases without prejudice, meaning JPMorgan can refile them later.

JPMorgan and Linda Almonte agreed in April to settle her federal-court suit (in which she alleged she was fired due to her resistance in part because the needed proof of court judgments the bank claimed it had won on some 23,000 accounts were missing).

Where this story will end up?  Eventually, in the whistle-blower record books.  Because of the courage of one of our own – a credit professional who stood her ground and maintained her ethics – a lot of consumers in five states will sleep well tonight and a too-big-to-be-fought financial institution will be taken down several pegs.

All it took, was one, brave whistle-blower.

Next?

Stephanie Eidelman is president of Kaulkin Media and publisher of insideARM.com, the most credible source of news and opinion for the professional accounts receivable management (ARM) industry.  She believes strongly that all parties involved in the credit and collection cycle -- beginning with the creditors -- must play a role in repairing the process.

Jerry Ashton, former CEO and President of CFO Advisors, Inc. and now semi-retired, consults to senior executives in the application of TQRM (Total Quality Relationship Management) to credit, collections and customer service issues.  In addition to completing his book-in-progress, Written Off – America and Americans, he is also host of the PWRNradio series, “Down, But Not Out – America’s revolt against being ‘written off.’”