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Bank of America and JPMorgan Chase Agree to Remove Debts From Credit Reports After Bankruptcies

Written by on May 8, 2015

In a move that may bring relief to more than a million Americans, Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) have agreed to update borrowers’ credit reports in the next three months and remove the consumer debt that stays even after they are legally eliminated in bankruptcy.

This move represents a long pending victory for borrowers whose credit reports have been impacted negatively because of the reported debts making it difficult for them to get jobs or get new loans.

Bank of America, JPMorgan Chase, Citigroup and Synchrony Financial, formerly GE Capital Retail Finance face lawsuits in Federal Bankruptcy Court in White Plains accusing them of deliberately ignoring bankruptcy discharges to earn more money when they sell off pools of bad debt to other financial firms.

The lawsuits make grave accusations against the financial behemoths of adopting a ruthless debt collection tactic of effectively holding borrowers’ credit reports hostage and refusing to correct the mistakes unless people pay money for debts that they do not legally owe any more.

The banks are also under investigation by the United States Trustee Program, a branch of the Justice Department, to determine whether the banks are deliberately flouting federal bankruptcy law.

A lawyer for Synchrony Financial admitted as much indirectly when he told the judge at a hearing that the company was under investigation by the Justice Department.

Lawyers for Bank of America and JPMorgan Chase have now agreed to ensure that bankruptcies are reflected on credit reports.

Synchrony Financial had already agreed to provide similar relief measures last year on a temporary basis.

Under federal law, once a borrower has erased a debt in bankruptcy, banks are required to update the credit reports to indicate that the debt is no longer owed, and remove any notation of “past due” or “charged off.”

 

Judge Robert D. Drain, who is presiding over the cases, has repeatedly refused the banks’ requests to throw out the lawsuits. In July, when he refused to dismiss the case against JPMorgan, he said, “The complaint sets forth a cause of action that Chase is using the inaccuracy of its credit reporting on a systematic basis to further its business of selling debts and its buyer’s collection of such debt.”

“I continue to believe there’s one reason, and one reason only, that Citibank refuses to change its policy,” the judge had once said. The reason, the judge went on, is “because it makes money off of it.”

In the hearing this week, lawyers for Citigroup indicated that they were on the brink of making a change similar to what Bank of America and JPMorgan Chase have agreed to, an alteration that would affect the credit reports of tens of thousands of people.