According to charges brought by the OCC and the CFPB, Chase Bank USA and JPMorgan Chase Bank engaged in unfair billing practices for certain credit monitoring products by charging consumers for services they did not receive, often offering these services as “add-ons” to credit card accounts. As part of the enforcement action, Chase has agreed to refund $309 million to over 2.1 million Chase customers.
“This enforcement action guarantees an end to these unfair billing practices and requires that Chase completely repay those consumers who were wrongly charged,” said CFPB Director Richard Cordray in a prepared statement. The enforcement action also requires that Chase pay $20 million in civil penalties.
Chase offered its credit card customers the option to purchase products that would monitor the customers' credit and alert them to potentially fraudulent activities. Under federal law, consumers generally must authorize access to credit information in writing in order for a company to provide these types of services.
According to the charges, Chase often charged consumers for these credit products before it had the written authorization necessary to perform the monitoring services. “In many instances, Chase never received the necessary authorization from customers,” the CFPB stated. “Customers were charged as soon as they enrolled in these products—regardless of whether they were receiving all the services they had paid for.”
When the fees for the products exceeded credit card account limits, some consumers faced even more fees and paid additional interest on those amounts. Chase engaged in these practices between October 2005 and June 2012.
In coordination with the CFTC, the OCC hit JPMorgan with an additional $60 million civil penalty based, in part, on the "scope and duration of the violations and financial harm to consumers from the unfair practices," the OCC stated. The OCC also is requiring the bank to take a number of corrective measures, including:
- Improving governance of third-party vendors associated with certain consumer products;
- Developing an enterprise-wide risk management program for such consumer products marketed or sold by the bank or its vendors; and
- Improving its consumer compliance internal audit program.
Chase could have received a higher fine by the CFPB but was credited with providing “cooperation and extensive efforts at remediation, and Chase has committed to improving its oversight of third-party vendors that manage these credit monitoring products,” said Cordray. “Chase also submitted to an independent audit to ensure compliance with the terms of our consent order requiring refunds to consumers.”
The CFPB enforcement action against Chase represents the third action the CFPB has taken with other regulators to address problems in the credit card add-on product market, said Cordray. “We are continuing that work, and we continue to be vigilant in pursuit of those who deceive consumers or treat them unfairly.”
Other Actions
In another hit to the bank, regulators in the United States and Britain have hit banking giant JPMorgan Chase & Co. with a series of sanctions that will total more than $920 million.
The Federal Reserve Board on Sept. 19 announced that JPMorgan will pay a $200 million penalty for deficiencies in the oversight, management, and controls governing its Chief Investment Office (CIO). The Office of the Comptroller of the Currency will also assess a consent civil money penalty of $300 million and the Securities and Exchange Commission will issue an enforcement action that includes a $200 million penalty. The Financial Conduct Authority of the U.K. hit the bank with a $220 million fine.
The penalties relate to $6.2 billion of trading losses in 2012. These losses arose as a result of what became known as the “London Whale” trades, and were caused by a high-risk trading strategy in its Synthetic Credit Portfolio and, according to regulators, weak management of that trading and an inadequate response to red flags.