By Laura J. Lowenstein, Esq.
This week it was announced that one of the largest banks in the world, JPMorgan Chase, will have to pay $125MM in fines and restitution after being found to have engaged in unfair, deceptive and abusive debt collection practices. The findings were broad and far-reaching but included that JPMorgan Chase sold inaccurate or uncollectable debts to third-party debt buyers and filed in excess of 500,000 debt collection lawsuits using “robo-signed” affidavits on unverified debts.
The litany of protections and restitution measures in which JPMorgan Chase must now engage is long and comprehensive and, in my opinion, valid and overdue. By selling or assigning billions of dollars of accounts to collections and collections litigation without proper verification, documentation or oversight is, prima facie, irresponsible and unlawful. But, beyond the procedural abuses that were found, is the fact that actions such as these taken by one of the largest and most prominent banks damages an industry – namely, the collection industry – that is needed for a robust and healthy economy.
When creditors, collectors and attorneys engage in deceptive and abusive collection practices they fuel the fire of pro-regulatory and consumer advocate groups to advance further legislation that curbs the LEGITIMATE efforts of professionals who are attempting to responsibly collect on valid, verified debts. Phrased another way… when abusive collection activity brings about more regulation and limitations, it not only stops the bad actors but hampers the necessary efforts of the good actors who are trying to lawfully and ethically represent the bona-fide interests of creditors who are owed valid debts.
With increased legislation – both on the Federal, State and local levels – comes increased costs to practice in the field of collections. With increased costs comes a dearth of smaller agencies and law firms that can profit and survive in the industry. To fill this void we have seen the growing presence of national “franchise” agencies that provide cheap, cookie-cutter collection “packages” – think, for example, 2 form letters and a call on 20 accounts for $25 – where data dumps are fielded into pre-formed templates by data entry “consultants” who sit at computers and print out dunning letters without any review, training or real oversight of the debt documentation, debtor and figures. Add to this credit reporting capabilities and the farming of incomplete “data” to a vast network of legal attorneys on a wide scale and you have a recipe for consumer abuse. Thus, the climate caused by increased regulation makes it impossible for significant time to be spent by local collection professionals and attorneys on small-to-mid size debt accounts since such professionals and attorneys know those accounts will ultimately be uncollectable due to, among many other factors, growing statutory exemption amounts for bank accounts, States with non-garnishable wages, expansive disclosure requirements and significant cost hurdles to using judicial post-judgment enforcement mechanisms.
What results is a cycle where smaller debt accounts are dumped into national agencies that do not vet the data or documentation, which results in unavoidable and costly mistakes that lead to more regulation that, in-turn, diminishes the collectability and profitability of debt accounts. When this happens, it is a mistake to think that this is a victory for consumers without consumer cost because ultimately the trickle-down effect of this is that creditors will not extend non-collateralized credit to those consumers that need it most. Without the availability of such credit, the economy suffers and lower-to-middle income Americans ultimately pay the price.
So while bad players such as JPMorgan Chase should absolutely be held to account for their actions, the answer is to punish them using the expansive net of regulations and laws that we already have in place, not to use the bad players as the premise for another wave of “consumer protection” laws. We need to make the collection industry one in which smaller, responsible players can survive so that creditors can assign their debt accounts to professional collection partners that can afford to spend the time to review and work the account in a fashion that protects the consumer but also allows the creditor to collect on legitimate debts. Without the injection of common sense practices in the collection industry, credit will dry up and the very consumers the regulators are aiming to help will be those that are ultimately the most hurt.
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