Just as the Department of Justice is pursuing Bank of America (NYSE:BAC) for alleged crisis-era financial misconduct — tied to Countrywide Financial’s home loan origination process — two federal regulatory agencies are also preparing to hit JPMorgan Chase (NYSE:JPM) with a series of enforcement actions and fines to penalize the bank for how it dealt with consumers during the recession.
As with Bank of America, this development is only the latest legal action to be handed to JPMorgan, which is also dealing with the regulatory fallout of its 2012 London Whale losses.
Sources told The New York Times on Tuesday that the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau — an independent federal agency created in 2011 by the Dodd-Frank Wall Street Reform and Consumer Protection Act — are finally looking into how the bank pursued credit card and other consumer debts, which, unlike its mortgage practices, has largely been ignored by regulators thus far.
The passage of the Dodd-Frank financial reform act in 2010 has enabled federal authorities to take a tougher position with lenders like JPMorgan. It prohibits banks from using any “unfair, deceptive or abusive practices,” as Richard Cordray, the director of the Consumer Financial Protection Bureau, explained at a July public hearing.
Civil orders are expected as early as next month.
Both regulatory agencies are separately looking into concerns that JPMorgan mislead customers who purchased credit cards with identity-theft protection through a third-party vendor. In part, the investigation is attempting to discover whether it was the bank or its vendor that led customers to believe the protection was free, mandatory, and would improve credit scores, according to the sources.
Under the terms of regulators’ planned civil orders, JPMorgan will have to acknowledge “internal flaws” and pay fines of at least $80 million, the sources told the Times. Of course, even if the bank ends up paying that total amount, the penalty will barely affect JPMorgan’s bottom line, as the bank has recorded record profits in the past several quarters. Still, the government’s examination of the way in which the institution handled customer debt is part of a broader federal probe into JPMorgan’s operations.
In a filing made with the Securities and Exchange commission in August, the bank revealed that authorities are leading numerous investigations into the bank’s financial crisis-era mortgage business, the $6 billion London Whale trading loss, and its alleged manipulation of energy markets in California and the Midwest.
In a second investigation, regulators are looking at how the bank collected overdue credit card bills, but those briefed on the matter told the Times that it is unclear whether any fines will be collected. In a preliminary review, the comptroller’s office found mistakes were made in 9 percent of the more than 1,000 lawsuits JPMorgan brought over credit-card nonpayments.
When it came to light that employees working in its mortgage division had approved a large number of foreclosures without reviewing the underlying documents, the bank launched its own review of its collections-litigation practices, in 201o, to determine whether similar problems existed elsewhere in its business. JPMorgan concluded in an internal document that the mistakes it uncovered were “mostly small” and “had a minimal” impact on customers.
As regulators keep digging into JPMorgan’s operations, the bank looks less like the sterling example of a financial powerhouse than it once did. It emerged from the financial crisis a much stronger institution than many of its peers, and, as a result, was seen in a favorable light by regulators. But the SEC is looking to win an admission of wrongdoing in the London Whale debacle, and the Federal Housing Finance Agency has refused the bank’s offer to settle.
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