Zoeller: Agreement targets “zombie debts,” halts collections on 7,000 Indiana consumers

INDIANAPOLIS, Ind. – Indiana Attorney General Greg Zoeller joined attorneys general in 47 states plus the District of Columbia and the U.S. Consumer Financial Protection Bureau today in announcing a $136 million settlement reached with Chase Bank USA N.A. and Chase Bankcard Services Inc., requiring the company to reform its unlawful credit card debt collection practices.

The joint state-federal agreement, through an assurance of voluntary compliance with the states and a separate order with the CFPB, follows an investigation into Chase’s past debt collection practices.

“Chase consistently pursued credit card debt collection cases based on bad information, including cases where the listed debt was the wrong amount, tied to the wrong person, discharged, not eligible to pursue or very old – often called ‘zombie debt,’” Zoeller said. “These wrongful collections significantly harmed consumers in Indiana, causing undue harassment from debt collectors and errors on their credit reports. Now, thousands of Hoosiers will get needed relief and be able to clean up their credit.”

According to the joint state-federal probe, Chase:

• Subjected consumers to collections activity for accounts that were not theirs, in amounts that were incorrect or uncollectable.
• Subjected consumers to inaccurate credit reporting and unlawful judgments that may affect consumers’ ability to obtain credit, employment, housing and insurance in the future.
• Sold certain accounts to debt buyers that were inaccurate, settled, discharged in bankruptcy, not owed by the consumer, or otherwise uncollectable.
• Filed lawsuits and obtained judgments against consumers using false and deceptive affidavits and other documents that were prepared without following required procedures, a practice commonly referred to as “robo-signing.” These practices misled consumers and courts and caused consumers to pay false or incorrect debt and incur legal expenses and court fees to defend against invalid or excessive claims.
• Made calculation errors when filing debt collection lawsuits that sometimes resulted in judgments against consumers for incorrect amounts.

Agreement Requires Debt Collection Reforms

The agreement requires Chase to significantly reform its credit card debt collection practices in areas of declarations, collections litigation, debt sales and debt buying. Debt buying involves the sale of debt by creditors or other debt owners, often for pennies on the dollar, to buyers who then attempt to collect the debt at full value or sell it to other buyers.

Among other reforms, the agreement requires new safeguards to help ensure debt information is accurate and that inaccurate data is corrected, provides additional information to consumers who owe debts, and bars Chase’s debt buyers from reselling consumer debts to other purchasers. Previously, initial buyers of Chase’s consumer credit card debt could resell the debt, the subsequent buyer could flip the debt to another buyer, and the process could repeat itself many times over. If initial information about the debt was incorrect or was transmitted with errors to a subsequent debt buyer, that could result in long-term harm to the consumer and leave the consumer with the difficult or even impossible burden of successfully challenging or correcting errors.

Chase suspended its consumer credit card debt sales in 2013 and collections litigation in 2011. In 2012 Chase maintained approximately 64.5 million open accounts with $124 billion in outstanding credit card debt. From 2009-2013, Chase recovered approximately $4.5 billion of debt from defaulted accounts through collection lawsuits, selling defaulted accounts to third-party debt buyers, or both.

Chase to Cease Collecting on 7,000 Indiana Consumers

Chase has agreed to cease all collection efforts on more than 528,000 consumers, including an estimated 7,000 Indiana consumers. Chase sued the affected consumers for credit card debts and obtained judgments between January 1, 2009 and June 30, 2014. Chase will notify affected borrowers of the change and will request all three major credit reporting agencies to not report the judgments.

The agreement also ensures that Chase will fulfill $50 million in consumer restitution through a separate 2013 consent order reached with the Office of the Comptroller of the Currency. Chase estimates that so far it has provided $406,000 in restitution to 400 Indiana consumers.

If Chases’ consumer restitution through the OCC action falls short of $50 million by July 1, 2016, Chase must pay the remaining balance to state attorneys general and the CFPB.

Chase will pay more than $95 million to the 47 participating states and the District of Columbia, an additional $11 million to the executive committee states that conducted the investigation and settlement negotiations, and $30 million to the CFPB.

Debt collectors are bound by state and federal laws, including the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from consumers.

Indiana residents can file complaints against abusive or unfair debt collectors with the Indiana Attorney General’s Office at www.IndianaConsumer.com or by calling 800-382-5516.

Zoeller thanked Deputy Attorney General Tom Irons for his work on this case.

Indiana Attorney General Greg Zoeller today joined a multistate letter to Congress emphasizing the importance of maintaining states’ authority to enforce data breach and data security laws, and their ability to address future data security risks.

Citing recent efforts in Congress to pass a national law on data breach notification and data security, Zoeller, joined by 46 other state and territorial attorneys general, cautions against federal preemption of state data breach and security laws and argues that any federal law must not diminish the important role states already play in protecting consumers from data breaches and identity theft.

“States are on the front lines responding to increasing reports of data breaches and identity theft; crimes which put many Indiana residents at risk for serious financial hardship,” Zoeller said. “While the federal government certainly needs to pass stronger data security laws, it is vital that federal laws do not adversely affect state efforts to help victims of these crimes and hold accountable violators of state laws.”

The letter from the group of AGs to Congress points out a number of concerns with federal preemption of state data breach and security laws, including:

• Data breaches and identity theft continue to cause significant harm to consumers. Since 2005, nearly 5,000 data breaches have compromised more than 815 million records containing sensitive information about consumers – primarily financial account information, Social Security numbers or medical information.  Full-blown identity theft involving the use of a Social Security number can cost a consumer $5,100 on average.

• Data security vulnerabilities are too common. States frequently encounter circumstances where data breach incidents result from the failure by data collectors to reasonably protect the sensitive data entrusted to them by consumers, putting consumers’ personal information at unnecessary risk.  Many of these breaches could have been prevented if the data collector had taken reasonable steps to secure consumers’ data.

• States play an important role responding to data breaches and identity theft.  The states have been leaders in helping consumers deal with the repercussions of a data breach, providing important assistance to consumers who have been impacted by data breaches or who suffer identity theft or fraud as a result, and investigating the causes of data breaches to determine whether the data collector experiencing the breach had reasonable data security in place. Forty-seven states now have laws requiring data collectors to notify consumers when their personal information has been compromised by a data breach, and a number of states have also passed laws requiring companies to adopt reasonable data security practices.

The letter urges Congress to preserve existing protections under state law, ensure that states can continue to enforce breach notification requirements under their own state laws and enact new laws to respond to new data security threats, and to not hinder states that are helping their residents by preempting state data breach and security laws.

The Indiana Attorney General’s Office can pursue enforcement actions for violations of Indiana’s Disclosure of Security Breach law. Under this law, businesses and organizations with Indiana customers are required to inform customers and the AG’s Office about security breaches that have placed personal information in jeopardy. The AG’s Office can seek up to $150,000 for data breaches that have not been properly disclosed to Indiana customers.

In 2014, nearly 400 data breaches were reported to the Indiana Attorney General’s Office. In 2015 thus far, 269 data breaches have been reported. Additionally, the AG’s Office has received 728 complaints about identity theft this year; more than 1,300 complaints were received last year.

In 2005, 44 state attorneys general called on Congress to pass a national law on breach notification that did not preempt state enforcement or state law.

The AGs’ recent letter comes on the heels of a massive data breach at the U.S. Office of Personnel Management, which may have affected 18 million current, former and prospective federal employees — including AG Zoeller himself.  Zoeller is a former White House staff member who served in the office of former U.S. Vice President Dan Quayle in the 1980s.

Zoeller said this data breach underscores the urgency of passing tighter security laws at the federal and state levels.

“We have become numb to the increasingly common notice of data breaches that affect Americans,” Zoeller said. “But this breach of the security clearances for those in highly sensitive positions in our federal government should be a wake-up call to the inadequacies of our federal government. It’s time the American people demand more of those in Washington responsible for our national security.”

As Indiana AG, Zoeller has advocated for passage of state laws to help protect consumers from data breaches and identity theft and to help consumers repair their credit after their identities were stolen.  The Attorney General’s Office operates the state’s Identity Theft Unit and encourages all Hoosiers to protect their credit and guard against identity theft by taking the following steps:

• Sign up for a free credit freeze to prevent criminals from opening up new lines of credit in your name.
• Review your credit report to check for inaccuracies at least yearly. A free credit report can be requested once a year through www.AnnualCreditReport.com.
• Closely monitor bank statements for any unusual activity.