Chase Bank “Check Loan” Litigation: JPMorgan Agrees to $100 Million Settlement in Consumer Class Action

JPMorgan Chase & Co. has agreed to pay $100 million to settle a class action initiated by credit card holders who accused the banking giant of improperly increasing minimum payments as a means of generating higher fees. See In Re: Chase Bank USA, N.A. “Check Loan” Contract Litigation, No. 09-2032 (N.D. Cal. Aug. 9, 2012) (Order Granting Preliminary Approval of Class Settlement) (available here).

The plaintiffs allege that Chase breached the implied covenant of good faith and fair dealing by issuing each plaintiff a credit card and including in the Cardmember Agreement a provision that cardholders make minimum payments of two percent of the outstanding balance of any cash advances. The at-issue Agreement also provided that Chase reserved the right to change the terms of the Cardmember Agreement. The lawsuit’s core allegation is that Chase raised the minimum monthly payment from two to five percent with the primary objective of triggering a “penalty APR” of 29.99% plus late fees. The MDL-referred action acquired the shorthand title “Check Loan Litigation” because the initial offer to plaintiffs was accompanied by the balance-transfer checks familiar to most credit card holders.

The $100 million settlement preliminarily approved by Judge Maxine M. Chesney is said to represent 45 percent of the approximately $220 million in late fees and excess interest costs incurred as a result of Chase’s alleged practices. Attorneys’ fees may not exceed 27 percent of the full settlement fund. Class notice is scheduled to be mailed to the class members on August 24, 2012.

The Check Loan Litigation is perhaps the least of JPMorgan’s current concerns, having been among the financial entities that, along with Visa and Master Card, agreed to pay $6 billion to settle claims brought by retailers related to the merchant fees charged by credit card issuers in order to allow customers to pay with credit cards. Additionally, government regulators have included JPMorgan in their investigation of the LIBOR scandal, which implicates the London Interbank Offered Rate to which the interest payments on school, auto, and other loans are commonly tied.

The Check Loan settlement is expected to be well received by class members and to proceed to the final approval stage.