A settlement offer by JPMorgan Chase Bank in a class action suit that accuses them of ripping off customers leaves some people wondering who the real rip-off artist is in this scenario: JPMorgan, their customers, or the lawyers who stand to make a bundle off the suit.
Chase credit card customers who were unhappy with their minimum payments being raised back in 2008 and 2009 may finally see some vindication, as JPMorgan Chase – the bank that issues Chase cards – has offered to pay $100 million to settle a class-action lawsuit brought against them by disgruntled consumer groups who claim that the bank’s sole motive was to line their pockets with customer fees.
On Monday, the settlement was filed in San Francisco federal court, but it will still need to be approved by a U.S. District court and a preliminary approval hearing is set for August 3.
A Three Percent Raise
The complaint stems from JPMorgan increasing the minimum amounts due on credit cards, from two percent, which is standard in the industry, to five percent. This happened back in 2008, when many customers were hit hard by the recession and may have been struggling to meet even their two percent minimum payments due.
However, JPMorgan said in court that the increase in required monthly payments was “reasonable and sensible.” After all, they are only asking for their own money back, right? One could argue that a credit card customer who cannot pay at least five percent of their total balance shouldn’t even have a credit card, because they are using it irresponsibly and will end up incurring huge interest charges and possibly being in debt forever.
The Credit CARD Act of 2010 aimed to reform the credit card industry and help consumers, partly by making credit card policies more transparent and spelling out exactly how long it will take to pay off a balance if the customer pays only the minimum amount due. Paying a higher monthly amount could only help cardholders get out of debt faster – so perhaps JPMorgan was actually doing their customers a favor.
Big Bad Banks
JPMorgan is the biggest bank in the U.S. – they took that title from Bank of America back on October 2011 and have so far held on to it – and even though Occupy Wall Street has long since faded from the headlines, there is still a lot of antipathy toward big banks. No one, it seems, has any sympathy for a banking giant that generated $19 billion in profits during 2011 and called that amount “mildly disappointing.” That was according to Jamie Dimon, CEO of JPMorgan, who last week made headlines for trying to infuse consumer confidence in JPMorgan by buying half a million shares of his own company’s stock, at the bargain price of $17.1 million.
It could be that JPMorgan did want to rake in the late fees from customers unable to pay higher minimums, but regardless of their motives for raising those payments due from two percent to five percent, one thing is certain: the people who will get the biggest payday as a result of this lawsuit are the lawyers.
First, Let’s Kill All the Lawyers
As far back as Shakespeare’s time, people have been frustrated with lawyers, and while killing them may be going too far, in this case it’s not hard to understand the animosity. Consider that if the $100 million settlement goes through, the attorneys in the case are seeking $27 million in fees, along with unspecified legal expenses.
Lawyers for the cardholders said the settlement would be “excellent” for Chase card members, and they would recover “a substantial portion” of the fees they paid to Chase. That amount was not disclosed, but I’m willing to bet that the $27 million the lawyers are getting is probably much more “substantial.”
The proposed $100 million settlement is about 45 percent of the estimated $220 million in transaction fees that JPMorgan customers were charged for missing their payment due dates.