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How Chase Ripped Off Its Own Credit Card Customers

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First came the bait: for an up-front fee, you can transfer the balance from your home equity loan, car loan or other credit card balance to your JP Morgan Chase credit card, and get a low fixed rate that applies until the loan was paid off.

Then came the switch: Surprise. The minimum monthly payment jumps from 2% of the loan balance to 5% of the loan balance -- and you have to pay a $10 monthly charge too. 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 $1,000 as a result, according to lawyers for the cardholders.

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.

Is there any doubt that consumers need more legal protection from predatory banks?

Chase spent three years defending this scam, which it pulled on one million cardholders. Throughout the litigation, Chase appealed its courtroom losses unsuccessfully, prolonging the legal battle. The settlement works out $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.

Regardless, 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 the cardholder agree to higher, variable APR," said attorney Elizabeth Cabraser of San Francisco.

Chase arrogantly used its superior position at the depth 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 misled new customers about the cost of bank products and sold them to people who were not eligible to even 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 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 have been ripped off by your bank or feel that your credit card company has broken truth in lending, 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.

Content concerning legal matters is for informational purposes only, and should not be relied upon in making legal decisions or assessing your legal risks. Always consult a licensed attorney in the appropriate jurisdiction before taking any course of action that may affect your legal rights.