JPMorgan to Pay Fine, Refund Customers In $389 Million Credit Card Settlement
By Mike Ferullo
Sept. 19 –JPMorgan Chase & Co. will pay $80 million in penalties and set aside an estimated $309 million for refunds to credit card customers who were unfairly billed for card “add-on-products” they did not receive, federal banking regulators said Sept. 19.
The Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) issued separate but related consent orders with Chase Bank USA, N.A. and JPMorgan Chase Bank, N.A., over the marketing and sale of identity-theft protection and fraud protection services between 2005 and 2012.
The bank and its third-party vendors routinely charged many consumers for the products without or before having the proper written authorization to perform the services, according to the OCC and CFPB consent orders. Customers were left with the impression that their credit was being monitored when in many cases it was not, the regulators said.
JPMorgan and its subsidiaries did not admit or deny the allegations, but agreed to provide an estimated $309 million in restitution to 2.1 million customers enrolled in the services. They paid approximately $7.99 to $11.99 a month for identity-theft protection and fraud monitoring services, which the bank intends to stop providing with its credit cards in the near future.
In a related development the same day, JPMorgan Chase & Co. agreed to pay $920 million to U.S. and U.K. regulators who said weak internal controls left the bank vulnerable to $6 billion in losses in 2012 by a derivatives trader nicknamed the London Whale.
“We stopped new enrollments in these products in mid-2012 and will fully exit them by the end of this year,” Bill Wallace, the bank’s head of operations for consumer and community banking, said in a statement.
“Mistakes like these are regrettable and we are committed to ensuring our partners and vendors hold themselves to the same high standards that our customers expect of us.”Bill Wallace, JPMorgan Chase Bank
“We have already credited or refunded the customers affected. Any mistakes like these are regrettable and we are committed to ensuring our partners and vendors hold themselves to the same high standards that our customers expect of us,” he said.
The estimated $389 billion settlement is the result of a lengthy investigation that was initiated by the OCC and later joined by the CFPB, which began operations in 2011.
The bank has agreed to pay a $60 million fine to the OCC for billing practices that violated Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair and deceptive acts or practices. The OCC said in a statement the penalty reflects several factors, including the scope and duration of the violations and financial harm to consumers.
The regulator’s cease-and-desist order requires the bank to improve its oversight of third-party vendors that sell products related to its credit cards. JPMorgan also must develop a risk-management program for add-on products and improve its consumer protection and internal audit programs, according to the order.
Most Refunds Issued
The bank will pay a $20 million fine to the CFPB, which has it own broad authority to take action against unfair, deceptive, or abusive practices under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
The CFPB ordered the bank to hire an independent auditor to ensure that consumer refunds are issued in compliance with the orders. Most of those affected should have already received refunds by Nov. 30, 2012, the agency said.
This is the third time that the OCC and CFPB have taken joint enforcement action on credit card add-on products. Both Capital One Financial Corp. and Discover Financial Services were ordered to pay fines and refund customers in 2012 (24 BBLR 1255, 9/27/12).
Settlements with other card providers could be on the way. In addition to add-on products, the CFPB and other banking regulators have been investigating other credit card practices, from marketing and applications to the collection of past-due debts, as seen in a recent $112 million settlement with American Express Co. (24 BBLR 1283, 10/4/12).
“We are continuing that work, and we continue to be vigilant in pursuit of those who deceive consumers or treat them unfairly,” CFPB Director Richard Cordray said in a Sept. 19 statement.
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The CFPB’s consent order is available at http://about.bloomberglaw.com/files/2013/09/CFPB-C.pdf.
The OCC’s consent order is available at http://about.bloomberglaw.com/files/2013/09/OCC-c.pdf and the agency’s cease-and-desist order can be found at about.bloomberglaw.com/files/2013/09/OCC-cease.pdf.