Is JPMorgan Heading Toward Another Discrimination Probe?

Zacks

JPMorgan Chase & Co. (JPM) became the latest bank to come under the radar of the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) in connection with their combined endeavor to wipe out discrimination against minority borrowers in the auto loan industry.

In an annual filing with the Securities and Exchange Commission (SEC), the largest U.S. bank revealed that it is in discussion with the Justice Department regarding inconsistency in interest rates charged by auto dealers on loans provided to different races and ethnicities. However, JPMorgan did not provide clarity about the stage of the ongoing probe.

The federal regulators have taken a firm stand against auto loan discrimination and tightened its reins on the subprime auto lending market to address this grave issue. The active investigations and eventual settlements resulted in reimbursement of nearly $136 million to 425,000 customers, who were victims of the unfair pricing due to auto lenders’ discrimination.

Indirect auto lenders such as Ally Financial Inc. (ALLY) and Santander Consumer USA Holdings Inc. (SC) received subpoena from the DOJ last year related to a similar matter. Also, major banks including JPMorgan, Wells Fargo & Co. (WFC) and several others faced legal headwinds throughout 2014 due to discriminatory mortgage practices.

Last year, JPMorgan was sued owing to its involvement in discriminatory mortgage practices since 2004. The banking baron was accused of denying mortgages to the minority borrowers on the same terms as others and also at times of providing them with loans that were beyond their means to repay. However, a lawsuit charged against the bank by the city of Los Angeles was later dismissed.

Though JPMorgan has resolved many litigation issues in the past year, increasing legal hassles will keep dragging down its financials going forward. Also, the banking behemoth is striving hard to regain its top-line strength and has been focusing on cost reduction through realignment of its business and job cuts.

Currently, JPMorgan sports a Zacks Rank #3 (Hold).

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