Last week, the U.S. District Judge in Miami preliminarily
approved
JPMorgan Chase & Co.
's (
JPM
) $110 million overdraft fees settlement agreement. This settlement
will take place between the company and more than one million
plaintiffs who accused the bank of charging high overdraft
fees.
Earlier, in February, The U.S. District Court of Southern
Florida (Miami) had directed JPMorgan to disburse $110 million to
resolve a class lawsuit pertaining to the charging of inappropriate
overdraft fees to its customers. The court held the company
responsible for manipulating transaction entries to generate larger
overdraft fees.
With a rise in debit card usage, overdraft fees have become an
important revenue driver for banks. These banks found it easier to
generate revenues through overdraft fees by allowing customers to
overdraw their accounts through debit purchases, ATMs, or any other
electronic payment gateways.
Moreover, the banks started reordering transactions from largest
to the smallest, causing the balances to deplete faster. This made
customers vulnerable to excessive fees.
Nationwide, the customers had opposed to this unfair practice
and had filed a class action lawsuit claiming compensation. This
approval would resolve the lawsuit filed by millions of customers
irked by undue charging of overdraft fees.
From the bank's point of view, this agreement would bring an end
to one of the several lawsuits that it is facing and to an extent
repair its dented image.
Similar Settlements by Other Banks
Last year,
Commerce Bancshares Inc
(
CBSH
) and
Bank of America Corporation
(
BAC
) were ordered to compensate for the damages to the claimants to
settle overdraft fees charges. For this, Commerce Bancshares
paid $18.3 million, while BofA shelled out a whopping $410 million
to the customers. BofA's settlement remains the largest till
date.
Several other banks, like Citizens Bank, a unit of
The Royal Bank of Scotland Group plc
(
RBS
), and
The Toronto-Dominion Bank
(
TD
) have agreed to pay out $137.5 million and $62 million,
respectively to settle similar lawsuit. Both the settlements are
pending for approval of U.S. District Judge in Miami.
The settlements of such claims are bound to affect the company's
financials. As the number of banks involved in malpractices and
misconduct has increased, the regulatory authorities have been
taking steps to reduce such unwarranted activities. Now, the banks
require obtaining prior consent of the customers before charging
any overdraft fees.
As the number of banks involved in malpractices and misconduct
has increased, the regulatory authorities have taken steps to
reduce such unwarranted activities in the future. Now, the banks
require obtaining prior consent of the customers before charging
any overdraft fees.
Currently, JPMorgan retains its Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the fundamentals, we
also maintain our long-term Neutral recommendation on the
stock.
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