UPDATED 3/13/2012, 12.16 p.m.: This story now includes a statement sent to insideARM.com from Chase Bank.

The Office of the Comptroller of the Currency is investigating the debt collection litigation practices of J.P. Morgan Chase, according to an extensive article published Monday night by American Banker magazine. Key among the story’s sources is Linda Almonte, a former Chase ARM executive fired by the bank for whistle-blowing.

The story, citing sources primarily comprised of current and former employees of Chase’s legal collection operation, alleges that the bank “took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years.”

“As soon as the auditors walked out the door, it was back to business as usual,” Almonte said.

It is the first part of a series on the topic planned by American Banker.

Many of the practices alleged by Almonte resurfaced in the article. In fact, Almonte was a major source for much of the information which was corroborated by at least six other current or former Chase ARM employees. “I’ve worked directly with the OCC and several states’ attorneys general,” Almonte told insideARM.com in a phone interview. “Each and every one of my allegations has been corroborated.”

Almonte’s allegations became public when she filed a wrongful termination lawsuit against Chase.

The lawsuit alleges that she went above her supervisor to another level of the bank’s management, and “made it clear she would not participate” further with the attempt to sell a portfolio of credit card debt, which included more than 23,000 delinquent accounts with a value of more than $200 million, according to the lawsuit. Almonte alleges that she was relieved of her duties in November 2009 as a result of her actions. Almonte said the bank had about 5,000 accounts with incorrect balances and did not have the court documentation for some 11,000 accounts with judgments that the bank said it had, misrepresenting those accounts to potential debt buyers.

Chase declined to comment on the American Banker article. But in a statement provided to insideARM.com by spokesman Paul Hartwick, the bank said, “Following issues raised with mortgage documents, we conducted an internal review across the firm and found other procedural issues. We immediately alerted our regulators and worked to address them. We have since done a number of tests and found that in the overwhelming majority of cases, the amount collected from customers was correct.”

Chase has reportedly pulled back many of its debt collection lawsuits recently, opting to no longer pursue credit card accounts in court. But the revelation of a government investigation has not been made until American Banker published its article Monday.

“There will be more about the OCC investigation in part 2 of the series Wednesday,” Almonte told insideARM.com

Chase and the OCC have not replied to insideARM.com’s request for comment.

According to Almonte, she was able to be a vital participant in the investigation, despite an attempt to silence her with a confidentiality agreement, because of the alleged continued violations by Chase. “As long as they are violating state and federal law, I’m not breaking the confidentiality agreement,” she said.

Many of the litigation practices employed by debt collectors and debt buyers have come under fire recently from state and federal regulators and consumer advocates. The use of “robo-signed” affidavits to prove the validity of underlying debt in collection lawsuits has taken much of the focus. It is a very important issue for the ARM industry and the Chase story is of particular interest due to the nature of the relationship large banks have with the debt collection and debt purchasing industries.

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