Last week, a federal Judge provided preliminary approval to JPMorgan Chase & Co’s. (JPM) $100 million settlement pertaining to a class-action lawsuit filed by upset credit card holders over violations of credit card terms. The hearing for the final approval is scheduled for November 16, 2012.
The Back-Story
In 2008-2009, a group of cardholders had accused the banking giant of intriguing them to transfer their outstanding balances with other banks in its own account. In addition to this, the company led cardholders to believe their debts would be consolidated as fixed interest loans until these are paid off. As a result, thousands of cardholders ended up transferring their balances to their JPMorgan accounts.
As cardholders shifted their balances to JPMorgan accounts, the banks hiked the minimum monthly payment rate to 5% from a mere 2%, thereby forcing the cardholders to go with either maintaining higher balances or paying higher monthly payment fees. This manipulation to earn additional fees compelled the irate consumers to file a lawsuit against the company demanding compensation for the extra fees charged from them.
The settlement amount, which the bank agreed to pay to the complainants, will help them recover a good portion of their losses. Moreover, the bank has been ordered to pay lawyers an additional compensation of $25 million as legal fees and nearly $1.5 million to reimburse litigation costs.
Other Lawsuits Against JPMorgan
Last month, credit card giants MasterCard Inc (MA) and Visa Inc. (V) agreed to pay about $6.0 billion to retailers to resolve antitrust litigation, involving JPMorgan along with thirteen other banks. The settlement is estimated to be worth $7.25 billion, by far the largest in the history of antitrust settlements.
JPMorgan is also under the scrutiny of various regulatory authorities for manipulating the benchmark interest rate — London InterBank Offered Rate or the LIBOR and The Euro Interbank Offered Rate or EURIBOR — for financial gains.
Earlier this year, the company had also settled a $110 million overdraft fees lawsuit. This settlement will occur between the company and more than one million plaintiffs who accused the bank of charging high overdraft fees.
Similar Lawsuits Against Other Banks
Like JPMorgan, Bank of America Corporation (BAC) is embroiled in legal hassles ranging from misleading investors about the takeover of Merrill Lynch & Co. to charging higher overdraft fees. Banks like Citigroup Inc. (C), HSBC Holdings Plc (HBC) and The Goldman Sachs Group Inc. (GS) are also facing numerous lawsuits involving misrepresentation of documents related to mortgage-backed securities and other losses.
Our Take
Of late, JPMorgan has been entangled in various problems involving lawsuits and trading debacles. With the settlement of the latest lawsuit, the bank would somewhat succeed in mending its dented image in the market, while coping up with several other issues.
By providing compensation, JPMorgan is trying to keep its goodwill intact. However, it cannot be ignored that the compensation, to be paid to the plaintiffs, is just a small portion of the profit earned by the bank through alleged manipulation during that period.
Currently, JPMorgan retains its Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
HSBC HOLDINGS (HBC): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MASTERCARD INC (MA): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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