JPMorgan Sued Over Debt Collection

For JPMorgan Chase & Co. ( JPM - Analyst Report ) , there seems to be no respite from legal problems. Recently, Calif.’s Attorney General (AG) sued the company for using unlawful means to collect credit card debts.

The lawsuit – filed in Los Angeles Superior Court – alleged that JPMorgan filed thousands of credit card debt collection cases every month between Jan 2008 and Apr 2011. These cases were filed using a flawed process that shortened procedures from the standard prescribed by Calif. law.

The AG accused JPMorgan of cutting short every stage of the credit card debt collection procedure in order to save cost and speed up debt collections. Allegedly, the company sued borrowers with the help of inadequate evidences.

Moreover, JPMorgan failed to inform customers that they had been sued, while at the same time showing customers to have been served with court papers as per law. The AG claimed that JPMorgan had used the ‘robo-signing’ method to file cases, whereby the company executives signed case files without examining the appropriate documents or bank statements.

Additionally, JPMorgan allegedly failed to remove borrowers’ personal information from the public domain, thereby violating the state law and making customers vulnerable to identity theft. The company, without verifying, certified that the debt collection cases were not against any active military personnel. This put members of the military in a disadvantageous position for getting proper legal protection.

The AG is demanding a total ban on such unlawful practices, along with compensations for customers who were harmed due to these wrongful cases. The lawsuit stated that JPMorgan should be fined $2,500 for every violation of the state law and an extra $2,500 for each defiance involving senior citizens or disabled persons.

This is the first lawsuit filed in the debt collection process. The AG’s office is probing the issue on a larger scale and many other banks could face similar lawsuits.

Other banks including Bank of America Corporation ( BAC - Analyst Report ) , Goldman Sachs Group, Inc. ( GS - Analyst Report ) and Citigroup Inc. ( C - Analyst Report ) are facing an increasing number of lawsuits related to their conduct preceding the financial crisis. At the same time, investigations are in progress.

For JPMorgan, this lawsuit could dent its financials and result in higher litigation expenses. However, for the customers who were wrongfully sued by the company, it will restore their confidence in the federal laws to some extent.

Currently, JPMorgan carries a Zacks Rank #2 (Buy).