JPMorgan Chase Bank will pay $100 million to settle claims that it jacked up interest rates on loan balances that were transferred to consumers’ credit cards after it promised them a fixed rate, according to documents just filed in a California federal court.
First came the bait: for an up-front fee, consumers could transfer the balance from your home equity loan, car loan or other credit card balance to their JPMorgan Chase credit card, and get a low fixed rate that applied until the loan was paid off.
Then came the switch: Surprise. The minimum monthly payment jumped from 2 percent of the loan balance to 5 percent of the loan balance – and cardholders had to pay an additional $10 monthly charge. For example, a cardholder carrying a $20,000 balance on one of these long-term fixed rate loans would see his or her minimum payment increase from $400 to $1000 as a result, according to lawyers for the cardholders.
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Consumers filed 14 separate class action complaints in various federal district courts, charging that Chase violated the Truth in Lending Act and breached its contract with the consumers. Now, just as the cases were about to go to trial in federal court in California, Chase settled for $100 million.
Defending the Alleged Scam
Chase spent three years defending this alleged scam, which it pulled on 1 million cardholders. Throughout the litigation, Chase appealed its courtroom losses unsuccessfully, prolonging the legal battle. The settlement works out to $100 per customer, which is approximately half of the up-front transaction fees that the class members originally paid for certain promotional credit card loans.
It’s peanuts to the nation’s largest bank, which has assets of $2.3 billion.
“If a cardholder failed to comply with the new terms, Chase demanded repayment of the full loan balance immediately or [that] the cardholder agree to [a] higher, variable APR,” said attorney Elizabeth Cabraser of San Francisco.
Chase used its superior position in the depths of the economic crisis to squeeze more money out of people who were already heavily strapped with debt.
“Chase reaped some $180 million in up-front transaction fees from the group of cardholders,” said cardholder lawyer James C. Sturdevant of San Francisco. “After that, however, Chase decided that it could profit even more if it eliminated that particular group’s side of the bargain – the low APRs.”
Consumer fraud and unfair business practices have become the hallmarks of how banks have been treating their customers. For example:
- Capital One allegedly misled new customers about the cost of bank products and sold them to people who were not eligible to get the benefits. As a result, the Consumer Financial Protection Bureau ordered the bank to refund $140 million to two million customers and pay an additional $25 million penalty.
- The Bank of Oklahoma NA allegedly improperly collected overdraft fees from tens of thousands of its customers, and just settled multidistrict litigation against it for $19 million.
- JPMorgan Chase is still facing charges in a federal class action lawsuit of massive and systemic fraud by faking documents in bankruptcy cases. The bank is accused of defrauding consumers as well as bankruptcy judges and trustees, the Office of the United States Trustee, creditors, creditor attorneys and debtor’s attorneys.
- If you feel that your bank is practicing predatory lending or your credit card company has broken truth in lending laws, take the time to become familiar with consumer protection laws. You have many options for action, including contacting the Federal Trade Commission, your state Attorney General, the Better Business Bureau and hiring a lawyer who advocates consumer causes.
Give us your opinion in a comment below. Do you think that consumers need more legal protection from predatory banks?
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