Financial titan JP Morgan Chase & Co. is facing a lawsuit from a former credit card customer, who claims that the country's second largest bank raised the interest rate on the outstanding balance of an already closed account.
The lawsuit, which seeks class-action status, was filed in the US District Court in Chicago. In the complaint, cardholder Barry Woldman alleged that the bank had told customers that they can "opt out" of interest rate increases should they decide to close their accounts. After taking advantage of the offer, Woldman said the bank was not true to its word and raised the interest rate on his outstanding balance.
These rates increased from 11.99 percent in October to 17.99 percent the next month, and were applied to the balance in Woldman's closed account. According to the complaint, the bank had likewise raised rates on other accounts.
According to the lawsuit, Woldman held an outstanding balance of around $16,000 when the accounts were shut.
Chase hiked interest rates as legislators were preparing a landmark bill that sought to prohibit creditors from increasing rates on outstanding balances, unless borrowers are more than two months behind in payments, the complaint further said. This legislation, called the Credit Card Holder's Bill of Rights, was signed into law this year.
Woldman's lawsuit wants JP Morgan Chase to answer compensatory damages, aside from declaring that it would honor opt-out agreements and other deals.
JP Morgan Chase refused to comment on the matter.
Court records reveal that a hearing on the case is set for April 9.
A year ago, JP Morgan Chase also faced a class-action lawsuit for allegedly defying its own promotion. Cardholders in Cleveland sued the bank over what they claim as its "unconscionable" and "unfair" practices against its clients.
The bank, the complaint alleged, offered balance transfers on their accounts with fixed APRs of 2.99 percent, 3.99 percent or 4.99 percent, until these are paid in full. When they accepted the offer, the complainants said they transferred balances to or even borrowed money from their Chase card accounts.
At the start of January 2009, they claimed Chase unilaterally altered the terms of these accounts. It allegedly charged customers a monthly transaction fee of $10 and raised the minimum monthly payment from two percent of the account balance to 5 percent. This led to a 150-percent increase in their minimum monthly payments, the lawsuit claimed.
If cardholders are unable to settle the increased monthly payments, they are forced to accept a higher interest rate. According to the complaint, JP Morgan Chase was in clear breach of its own balance transfer agreement and infringed on the "Truth In Lending Act."