by Matt Taibbi
Linda didn’t know much about what these people did for a living initially, but she took notice of who they were. Despite their exalted titles, they were not high-powered, serious business executives, but rather entry-level employees who until recently had been hourly wage workers. She remembers particularly that one of the robo-signers had a cubicle decorated with “pink, foofy things” and a sign that read, “The Princess is IN.”
These entry-level types would be sent around the country to visit Chase’s partner law firms and “audit” their operations. Linda thought that was odd enough, but what really caught her attention was when, in one of her first audit and compliance meetings, one of these employees talked about how much work he got done on the road. “He was like, ‘It was a six-hour flight and I signed like two thousand affidavits,’ ” Linda says.
Soon Linda was walking by the desks of these robo-signers and noticing that on any given day, they would be furiously attaching signatures to monstrous stacks of documents. She eventually learned that the whole system operated like a factory. At one end of the office, a paid-by-the-hour temp worker would generate an affidavit on a computer screen, using an automated program that created the legal document and automatically filled in data from the customer account. Once the document was generated, the temp worker would print it out and then stick all the unsigned affidavits in a drawer.
The robo-signers would then open the drawer, pick up hundreds of affidavits at a time, head back to their cubicles, and sign their names to them, one after another. Technically speaking, the signatories were supposed to verify the numbers in the affidavits and make sure the balance number was the same in all the various databases—in the HAL-like System of Record, in the prelitigation database, and perhaps even in the databases of the law firms doing the suing.
But the robo-signers checked none of these figures. They simply signed their names one after the other.
Then, once they were finished, they would stick the stacks of documents back into the same drawer, where they would be retrieved (maybe that day, maybe later) by a notary, who would stamp the affidavits. The notaries, according to Linda, were almost never in the room when the documents were signed.
Here we should digress for a moment to talk about a legend that’s been circulating about the financial crisis, a legend our leaders like to tell over and over. It goes something like this: Yes, bad things happened, but none of those bad things were crimes. Greed isn’t illegal. Making too much money isn’t illegal. Nothing to see here, move along.
In October 2011, just a few weeks into the Occupy Wall Street protests, that fairy tale gained new life. It came directly from the top this time. President Barack Obama, the great progressive hope, explained in a series of televised interviews why there hadn’t been more criminal prosecutions of bankers on his watch. Obama gave a simple explanation.
“Banks are in the business of making money,” he said. “And they find loopholes.”
So what kind of “loophole finding” went on in Chase’s credit card litigation office? Not only did the bank apparently have full-time employees assigned to the job of committing mass perjury, it even went so far as to rope the entire department into the cause when the normal robo-signing staff couldn’t handle the workload. According to another employee in Linda’s department, who has since left the bank, it was routine for the bosses to come trolling through the San Antonio office with stacks of documents and pull people out of their desks for robo-signing duty. “They [the bosses] were going into an empty room and sitting with stacks and stacks at a table in front of them,” the former employee says. Then “everybody that wasn’t doing something was given a stack and told to sign.… They were all in one room, signing crap.”
The employee, who had been with Chase for years, eventually had to resign because “jail is not where I wanted to spend my retirement.… It just got flat ignorant crazy there.”
In any case, the bank in its affidavits would often attach preposterous titles to these robo-signer employees who had attested to personal knowledge of the case without even looking at the files.
Long after my first interview with Linda in Satellite Beach, I would bring her up to a courthouse in Newark, New Jersey, for an experiment. We randomly selected a series of credit card judgments that had been filed in that court building and examined the affidavits. Sure enough, the very first case we picked out—Chase Bank, NA, v. Louis Pascale—contained an affidavit from one of Linda’s former officemates.
“Kevin Fletcher, by way of certification,” the affidavit reads, “says, I am Assistant Treasurer of Chase Bankcard … and I am familiar with the plaintiff’s file in the matter.”
The actual title of most of the robo-signers, including Fletcher, was and is “attorney liaison.” But when it came time to attach their names to affidavits, they were, according to Linda and others, explicitly instructed to use much grander titles.
“Chase made me robo-sign over two thousand documents without verifying the balances and using an incorrect/false title,” one of Linda’s coworkers would later explain. “We were strictly forbidden to use ‘assistant vice president’ as a title, but when it came time to robo-sign and sue, they forced us to use that title.”
But these problems were all very quickly pushed to the side by a mushrooming crisis that would result in Linda’s firing. Just a few months after she was hired, in October 2009, she found out from her immediate supervisor, Jason Lazinbat, that she was going to be asked to oversee a Herculean administrative job, gathering the documentation for what she was told would be “the biggest judgment sale in Chase’s history.”
To back up for a moment, the most valuable kind of credit card account that any bank can sell to a debt buyer is a court judgment. If you have a delinquent account with a bank like Chase but haven’t been taken to court yet, well, that’s one thing. Maybe the bank made a mistake. Maybe you don’t really owe money, or you don’t owe as much money as they say. If Chase goes and sells your account to a third party, that third party will have an uphill climb getting its money, especially if you dispute its claims.
But if Chase has already taken you to court, and a judge has already rapped his gavel over a judgment against you for that thousand dollars, well, that account is worth a lot more. The legal leg breaker/buyer of that account needs only to find you and take his money, by any means necessary (and the means now available to these collectors are extraordinary; more on that later), and you won’t have the right to argue the matter.
So whenever a bank like Chase needs to raise quick cash, selling judgments is a quick-and-dirty way to go. You scrounge your entire client list to see who among your credit card borrowers has already been litigated against, you gather up all those court documents, and then you sell five hundred or a thousand or two thousand judgments at a time to a third party like NCO.
There were more than 23,000 accounts in the proposed sale. Linda had two weeks, and a full-time staff of three, to complete a job that would, if done correctly, require thousands of man-hours. She would ultimately get to bring in more staff to help go through all the accounts, but at the time, it seemed like an impossible task.
Linda went to work to gather the documentation. The sale of the judgment accounts had been brokered by a company called National Loan Exchange, a sort of middleman firm that put together debt buyers and companies like Chase that had judgments to sell. These middleman firms typically have to tell the buyers that they’ve done due diligence on the sale, so when a big sale like this is brokered, they’ll work with a company like Chase to make sure the bank is selling what it claims it’s selling. This is what happened here, and NLE employees, along with Linda, started to go through the 23,000 judgments Chase had promised to sell.
They started with California, where a large chunk of the credit card holders who’d lost these court judgments lived. Linda asked for, and began to receive, documentation for 11,472 judgment accounts involving borrowers who lived in California.
“There were
thousands of boxes,” Linda says. “There were rooms filled with this stuff.”
She started going through the accounts. On the very first day of the review, October 10, she noticed a big problem. In each of the boxes coming in from California, there were about forty-five customer files. “On average, about ten files in each box didn’t contain judgments, and there were another ten that had judgments that weren’t signed and stamped,” she says. This early review suggested to her that up to 44 percent of the “judgments” that Chase planned on selling were not in fact valid judgments.
Worried, she conducted a more thorough review. Five days later she had the disturbing results, which she emailed to Lazinbat, the Chase sales executives, and Chase’s lead counsel, Gail Siegel:
Upon completion of the California PAN files we have 11,472 accounts (including MRA’s) with a total balance of $110,138,641.18. Between 50–60% of the files are missing judgments, or the judgment does not contain a date and signature.
Linda’s bosses told her not to worry, that if the judgment wasn’t in there, the debt buyers would just have to go get it themselves. Chase, they said, didn’t have the resources to scare up all those documents.
Linda plowed on as ordered and started to go through the documents from Illinois judgments. This time she was told by the Illinois office that Cook County had gone digital, and that as a result, most of the account files wouldn’t contain a paper judgment. Again, she was told, Chase didn’t have the resources to print out all those judgments to confirm that they actually existed.
Now, there were many problems with the accounts Linda was seeing flowing in from places like California and Illinois. Some were not even judgments. In some files, the cardholders were not even delinquent. In still others, Chase actually owed the cardholders money. In still more, there were judgments, but the judgments weren’t against the borrower—they were against Chase itself.
And there was one last category of screw-up: in large numbers of these files, the judgments were not final. Some of them had been rescinded by later court actions. So the files might have two legal notices in them: the original judgment, and the later court reversal.
When Linda explained this situation, her bosses essentially ignored her and told her to plow ahead with the sale (she says she was even asked to edit the files, sending only the judgments, not orders rescinding the judgments). She was mortified by Chase’s seeming indifference to the fact that they were about to sell what seemed to her a huge quantity of defective accounts.
For Linda, this was the major, sobering difference between even a firm like Washington Mutual and Chase. At WaMu, there had been rampant system problems, too, but in Linda’s experience anyway, the company had tried to fix them. “I thought it was the same at Chase, until they were like, ‘Hide it. Bury it.’ ”
Finally, as the date of the sale approached, Linda was sent a kind of query document by National Loan Exchange. “It had this whole long list of questions that I was supposed to email back, saying they were all true,” she says. “Like for instance, that the accounts being sold were free of any liens and garnishments—or that there’s a judgment against each one.”
Linda was now being asked to put her own signature on a document that said that Chase was selling $200 million in valid judgments, when she believed that this wasn’t remotely close to being true.
Linda was frightened, but at the same time she was also naïve enough to think that the moment might be an opportunity for her. As she later explained to her lawyers, she thought that by stopping the sale, and preventing this gigantic fraud from going through, she would be noticed upstairs and become a superstar at Chase. She even tried to end-run her immediate bosses and stop the sale herself, believing that she was taking dramatic action to save the company from future trouble. Instead, she was fired.
Once Linda was out the door, Chase put the sale back on, errors or no errors. They quickly found a buyer, and 23,000 “judgments” went out into the world—a teeming school of little mutant fish, swimming blindly into courthouses from one coast to the other, each in search of a human being to collect from.
In March 2010, just a few short months after Linda was fired, a stack of papers arrived via post at a tiny redbrick courthouse on the north shore of Staten Island, New York. The clerk of the court, a young woman named Deborah Tortorice, took a look at the papers and raised an eyebrow. This was a stack of 133 “assignments,” legal filings sent from a Louisiana-based debt-buying company called DebtOne, in which the firm asserted its rights of ownership over a series of credit card accounts originally held by Chase Bank.
It wasn’t unusual for Tortorice to receive such assignments. As clerk of Richmond County Civil Court, serving under a colorful judge named Philip Straniere, who among other things ran a small claims court on Tuesdays and Wednesdays, she often saw notices from debt buyers announcing their intention to collect on past-due accounts they’d purchased from companies like Chase and American Express. Any company that intended to collect on a debt purchased from another creditor had to notify the local courthouse officially of its intent to conduct such business in that county.
What was unusual about this batch was the volume. Tortorice generally saw four or five of these assignments at once, at most. Here DebtOne had sent well over a hundred. Either a historically enormous sale of credit card accounts had gone through somewhere in the world (remember, this was 133 accounts landing just in Staten Island) or some kind of mistake had been made. “If they had just sent a few of these at a time,” Tortorice recalls now, “we might never have noticed anything.”
Tortorice notified Judge Straniere of the unusual occurrence. The sixty-four-year-old judge is an anomaly in many respects, not the least of which being the fact that he is, as he claims, the “only conservative Republican civil court judge in New York City.” But along with his conservative politics, Judge Straniere—a trim, cheerful-looking man with a bushy white mustache—conducts his business with a populist flair.
The walls of his chambers teem with baseball memorabilia and posters from musicals, and in his decisions, the judge eschews complex legal language and makes his arguments using images the everyday person can understand. His favored technique is to use references to movies, comic books, and other pop culture sources, and his decisions contain allusions to everything from Superman to Seinfeld to Miss Saigon.
In fact, less than a year after the DebtOne assignments appeared at his courthouse, Judge Straniere would enjoy a brief run of urban-folk-hero status after The New York Times ran a feature about his unique decisions, calling him the “bard of the Staten Island courts.”
The story, entitled “A Judge’s Biggest Decision—Which Movie to Quote,” described a judge with a quick trigger finger who liked to toss off a pointed joke when confronted. In one case, after a lawyer argued that the judge’s rulings weren’t adequately supported, Judge Straniere sarcastically responded by footnoting every single word of the first paragraph of his ruling. Every single word, according to the Times:
including “a,” “the” and “two” (“the cardinal number between one and three in the Arabic number system probably derived from Old English,” according to Footnote 4).
The judge is definitely a funny guy, but the humor has a serious reasoning behind it that has direct relevance to the world of consumer debt law that he administers. Comparing the consumer debt business to “the Land of Oz, run by a Wizard who no one has ever seen,” his densely colored rulings are in part designed to make the business’s dizzying behind-the-curtain machinations more accessible to ordinary people. “If you use references to movies and sports and so on,” he says, “ordinary people have a better chance to understand it.”
Anyway, it took an out-of-the-box judge like Straniere to take a second look at the 133 assignments from DebtOne that arrived in his courthouse in March 2010. Incredibly, this courthouse in Staten Island was the only one in the entire country that paused before letting DebtOne proceed with the collections on the 23,000
mutant accounts Chase just months before had pushed out into the world, costing Linda Almonte her job. The fact that Straniere sits in such a small courthouse was probably a factor. “The bigger courts probably wouldn’t have time to take another look,” concedes Tortorice.
The law is, of course, supposed to be precise, and civil lawsuits are designed to be careful, evidence-based determinations of right and wrong, liability and no liability. But the business of credit card litigation by its very nature has to be half-assed, brutal, reckless, and stupid. The business model just doesn’t work otherwise. The giant consumer credit merchants like Chase who file lawsuits against cardholders by the tens of thousands couldn’t even begin to make real money, real margins, if they had to do anything like real legal work or meet anything like a real evidentiary standard.
Why? First of all, because the services of even the worst civil litigator cost hundreds of dollars an hour. If a bank like Chase had to hire a real lawyer to collect on each and every past-due $780 credit card balance, it would almost certainly go into the red long before the complaint was even written up. In fact, just getting a live human being to look at each and every file for more than a few seconds, or to individually prepare the evidence for every lawsuit, would make the cost of litigation prohibitive for these massive companies.
Therefore the only way to make this thing work to scale is to fully automate the litigation process. You must reduce the entire business to a series of dumb mechanical maneuvers that ruthlessly eliminate even the mere possibility of subjective judgment.
And that’s exactly how it is. The system is really a game of mathematical probabilities that the companies have built around the high likelihood of obtaining uncontested legal judgments.
The game begins when the bank serves a summons to the cardholder. In this key first step lies a huge share of the industry’s dependable profits. In most states, companies have no real obligation to make sure that the cardholder actually sees and understands his summons.