A federal court on Friday allowed JPMorgan Chase & Co.(NYSE:JPM) to settle a $100 million credit card dispute with its customers, who had dragged the bank to court accusing it of wrongfully raising minimum payment requirements.
In late 2008 and early 2009, the bank decided to raise the minimum monthly payments from cardholders to five percent of their outstanding balances from two percent, triggering protests from customers and file a class-action suit against it.
The cardholders contended that JPMorgan had at first induced them to transfer their loan outstanding on other cards owned by them to their Chase accounts as a form of debt consolidation. It had then raised the quantum of minimum monthly payments required or failing that to pay interest at a higher rate for the retaining their right to pay the two percent minimum requirement. This had caused them to make late payments incurring further penalties in late fees.
Find Free Trend Analysis on JPM Here
According to lawyers representing the cardholders, the $100 million in damages sought by them, constituted 45 percent of the $220 million upfront payment made by them for the bank's promotional loans.
As part of the settlement the lawyers are seeking $25 million as legal fees and about $1.5 million to cover the cost of litigation, court papers showed.
U.S. District Judge Maxine Chesney in San Francisco granted preliminary approval to the settlement as fair, reasonable and adequate. The next hearing for this is scheduled for November 16.
This is not the first time that a U.S. bank has sought to make extra revenues from customers by levying extra charges.
In September 2011 Bank of America decided to impose a monthly $5 on its debit card holders who made purchases with their cards to take place in early 2012.
Not surprisingly, there was widespread criticism of the proposed fee, leading to a backlash that caused a 20 percent spike in account closures for the bank. It had to hurriedly reverse the decision.