(SAN FRANCISCO) — Under a court settlement filed this week in San Francisco, JPMorgan Chase will pay $100 million to credit card holders who saw their minimum monthly payments hiked from 2 percent to 5 percent between 2008 and 2009.
A class-action lawsuit, filed three years ago, argued that the increase was improper, and that it violated commitments made by the bank to induce cardholders to switch their balances to Chase from other lenders.
Those commitments, says Howard Dvorkin, CPA, a founder of ConsolidatedCredit.org, included interest rates that were supposed to remain “fixed” until balances were paid in full.
“They said come to us and we’ll fix your interest rate for the life of the loan, until it’s paid off,” says Dvorkin.
In 2008 and 2009, however, the bank raised rates, triggering an increase in late payment penalties from hard-squeezed borrowers. Late payment also could trigger a penalty interest rate of 29.29 percent.
“Your promotional rate that got you to the bank, they didn’t honor,” says Dvorkin. “A client would go delinquent, and triggering penalty and late fees, and your interest rate could go to 30 percent. Do I think this was part of an evil master plan? No. Do I think it was aggressive? Yes. And now they’re paying the penalty for it.”
Chase’s view, according to the proposed settlement, which still must be approved by a judge, was that raising payment minimums was “a reasonable and sensible response to unprecedented economic turmoil and impending regulatory changes” — meaning the credit card reform act of 2009.
The proposed settlement includes a complex allocation plan for divvying up the $100 million between members of the class. Class members get a flat payment of $25 plus a pro-rata share of the settlement fund (after legal fees and costs have been deducted). The plan gives $72 as a representative amount.
“At the end of the day,” says Dvorkin, “it’s the lawyers who make the money.”
A spokesperson for JPMorgan Chase, contacted by ABC News, declined to comment on the settlement.
Copyright 2012 ABC News Radio
Sarah Anderson, Deseret News
Aaron Smith, CNN Newswire
Tara Bench, KSL.com