JPMorgan Chase has allegedly withdrawn credit card suits because suit documents were "robo-signed." Photo Credit: jebb/Flickr.com/CC-BY-SA

JPMorgan Chase withdrew more than 1,000 lawsuits nationwide against delinquent credit card holders over the past few months, for unknown reasons. However, it is rumored the suits are being dropped because many of the suits were “robo-signed,” or initiated without sufficient review of the paperwork.

Spontaneous withdrawal of credit card suits raises eyebrows

Credit card companies sue people for not paying their credit card debts every day. Any person can look at the court filings section of the local newspaper and see several suits being initiated against a delinquent borrower on any given day of any given week. However, when one of the nations’ largest banks withdraws a large number of suits without explanation, it looks odd.

Recently, according to the Wall Street Journal, JPMorgan Chase withdrew a large number of lawsuits from various courts in several states over the past few months. It is believed that more than 1,000 individual suits were withdrawn from courts in California, New York, New Jersey, Illinois and Florida since April without much explanation. However, it is rumored that the suits were “robo-signed” just like the rubber-stamped mortgage foreclosures that caused a scandal.

Too many potential robo-signings to ignore

JPMorgan is the second largest bank in the United States in terms of assets. JPMorgan is owed $45 billion in the five states where the suits were withdrawn, in delinquent and current accounts. It is said that paperwork in credit card lawsuits, though, is not up to snuff. A New York judge was quoted in the Wall Street Journal as saying that that number of potentially “robo-signed” credit card lawsuits was “significant.” The judge also had dismissed 150 credit card suits in the past year for having large amounts of paperwork signed by the same people.

A lawsuit was filed against JPMorgan in San Antonio last year, according to Fortune, due to large stacks of legal papers having been signed by the same attorney without having done the due diligence on the numbers. Forbes notes that at least one person has been fired for questioning practices of selling off portfolios of write-offs to debt collectors, which are delinquent credit card debts for collectors to try and collect on.

Not unheard of

Banks not following the best practices concerning legal action on bad debts is not unheard of. Earlier this year, no less than 38 state attorneys general petitioned for a class action suit settlement to be far higher in the case where Encore Capital Group was sued by 1.4 million people for “robo-signing” affidavits in debt collection suits, according to Reuters. Encore settled for less than $6 million, which was considered pitifully low by the panel of state lawyers, as it amounts to about $10 per person. The banking industry was infamously found to have signed foreclosure documents regularly nationwide without having done all the legwork to see if the foreclosures were valid, and a debt collection company is not likely to go through a bank’s files to see if they are suing to collect a valid debt.

Sources

Wall Street Journal

Fortune

Forbes

Reuters

The number of people entering into strategic default has decreased slightly. Photo Credit: Gentle/Wikimedia Commons/CC-BY-SA

Over the past few years, the term “strategic default” has entered into the national consciousness. People who owe more on a mortgage than the home is worth simply stop paying and walk away because it isn’t worth the trouble. This practice had begun to increase since the 2008 housing crash, but now the tide is starting to recede, if only slightly.

Credit bureaus and banks getting wise

Banks, loan lenders and credit bureaus have been perturbed by the rise in the number of strategic defaults on mortgages in the past few years. Borrowers that owe more on a mortgage than the house is actually worth will default on their mortgage when the value of the home has dropped so low that it no longer makes any sense to continue. In order to ferret out which consumers were defaulting because the cruelty of circumstances left them unable to make payments from the ones who were just giving up, Fair Isaac and Company, one of the main credit rating agencies in the United States, devised a way to find out which troubled homeowners are likely to engage in strategic default. According to the Chicago Tribune, an estimated 35 percent of all mortgage defaults were strategic in September 2010.

New car and cards a dead giveaway

People who strategically default usually will use available lines of credit just before walking away from the mortgage. New credit cards will be opened up, personal loans taken out to finance the move and new cars will be purchased. Then the underwater homeowner walks. FICO is also working with loan lenders and banks to help them identify potential defaulters before they walk. However, according to SmartMoney, the number of people walking away when it suits them is dropping. It is estimated by the University of Chicago Booth School of Business that strategic defaults dropped to 30 percent in March of this year, down from 37 percent in January. JPMorgan Chase analysts, according to Mortgage Wire, found that the overall rate was decreasing.

Consequences of default

Fannie Mae conducted a survey some time ago that found 27 percent of respondents, according to the Chicago Tribune, found the idea of strategic default acceptable. Consulting agencies began springing up that would advise consumers about how and when to default to their best advantage, such as the website YouWalkAway.com, according to Forbes. Yet people who do strategic default face potentially stiff penalties, according to MarketWatch. Credit scores can lose up to 200 points, leading to a host of other consequences. Landlords and insurers may be less willing to rent to or insure someone who has defaulted, and Fannie Mae has declared that it will not insure a new mortgage for someone who has strategically defaulted. It is estimated that 42 percent of all homes are “underwater,” or worth less than the amount of money owed on the mortgage.

Sources

Chicago Tribune

Chicago Tribune

HousingWire

SmartMoney

Forbes

MarketWatch

ATM fees may not be climbing too much higher, at least for now. Image from Wikimedia Commons.

JPMorgan Chase is bringing an end to its higher ATM fee test run. Chase began a pilot program some time ago where out-of-network ATM transaction fees for non-Chase customers were raised to $4 and $5 in some areas as a test. The high fees just so happened to not be very popular with consumers.

Consumers not amused by high ATM fees

In February of this year, JPMorgan Chase announced that it was going to start testing a new fee structure for non-Chase members that used Chase ATMs. The new fees were instituted in Texas and Illinois, according to CNN. Chase maintains one of the largest ATM networks in the country, and was trying to get people to pay a little more for the convenience of using that network. So the large nationwide bank raised its fees on a trial basis to $4 in Ill., and to $5 in Texas. The Chase network comprises more than 16,000 ATMs nationwide, and there is a reasonable expectation that people should pay to use such a large network. However, people in those states were not amused.

Chase canceling program

JPMorgan Chase is canceling the higher fees. Though Chase does maintain the second largest ATM network in the nation and about 25 percent of all Chase ATMs are in those states, according to USA Today, people stopped using Chase ATMs if an ATM with lower fees or one in their network was nearby. Chase will revert to the standard $3 fee. The nationwide average fee at automatic teller machines, according to MSN, was $2.11 in January. The city that had the highest fees on average as of November was Seattle, Wash., according to the New York Times, and the city with the lowest ATM fees was Cleveland, Ohio. ATM fees have been going up, as financial reform laws have been restricting certain types of fee-assessment practices at banks.

Fewer people after loan capital

Though banks are just as willing to lend consumer loans, there are fewer people lining up to apply for them. The Federal Reserve has noted looser lending criteria for consumer loans such as credit cards, installment loans and other types of personal loans, but demand has been down for some time, according to the Wall Street Journal. If people don’t feel as secure in employment, they are less likely to want to go into debt. Interest earnings for major banking institutions has been declining for months, as fewer consumers are interested in going into more debt after the nightmare of the past few years.

Sources

CNN

USA Today

MSN

New York Times

Wall Street Journal

Two major national banks, JPMorgan and Wells Fargo, are rolling out EMV chip equipped smart cards for high end credit card customers. The chip is in the upper left of the picture. Photo Credit: Channel R/Wikimedia Commons/CC-BY-SA

The nation’s largest banks are starting to compete for customers that want EMV chip-equipped credit cards. EMV chips are actually a very small integrated circuit built into a credit card, and the technology was developed by a joint venture between Europay, Mastercard and Visa. The chips provide greater security than magnetic stripe cards that are more typical in America.

International jet set wants greater utility from credit cards

A common complaint among jet set types traveling overseas and using their credit cards is that European merchants often have problems processing American credit cards that have antiquated magnetic stripes instead of EMV chip cards more common overseas, according to Bloomberg. So, in order to capitalize on the need among wealthier credit card users, Wells Fargo and JPMorgan Chase are bringing EMV chips to their high-end lines of credit cards. Wells Fargo is launching a pilot program, where about 15,000 customers will be invited to use the Wells Fargo EMV chip card sometime this summer. JPMorgan Chase is diving straight into the deep end, and will be issuing EMV cards to customers enrolled in its Palladium program for high net worth clients.

Americans have to be unique

The need to have an EMV card, also commonly called a smart card, for travelers is not a joking matter. An increasingly fewer number of merchants in Europe can still accept magnetic strip cards, and that technology gap accounted for $4 billion in losses to merchants and $447 million in lost revenue for card providers in 2008. Smart cards, according to Wikipedia, differ from magnetic stripes as smart cards use a technology called “Chip and PIN.” Chip and PIN cards use a small computer chip and integrated circuit board, about 3 by 5 millimeters in total, that stores the information of the user. Merchants carry a smart card reader, where the card is inserted and read, rather than swiped. The user simply gives their Personal Identification Number, and the sale is made. The benefit is that smart cards are less easily corrupted by thieves.

Card companies already have them

EMV chips are only one particular kind of smart card chips, developed in a joint venture between European credit card company Eurocard, MasterCard and Visa, hence “EMV.” American Express also has EMV chip equipped cards in its Express Pay line. However, the smartcard reader technology is not as widespread in America as in Europe, as the U.S. is slow to adopt technologies from other countries at times. JPMorgan intends to distribute EMV chip cards to the rest of its customers after implementing them in its credit cards for high end customers first.

Sources

Bloomberg

Wikipedia

14 financial institutions have been ordered to pay back any homeowners that were wrongfully foreclosed upon in the robosigning scandal. Photo Credit: respres/Flickr/CC-BY

Federal authorities have ordered more than a dozen large financial institutions to compensate homeowners who were victims of fraudulent foreclosures. The number of homes that were foreclosed because of robosigning have not been totaled up, and the owners of those improperly foreclosed homes will be paid for their anguish.

Largest banks in the nation to pay the price of incompetence

Federal regulators recently reached a settlement with the financial institutions involved in the robosigning scandal, in which foreclosure proceedings were improperly started against homeowners because bank officers could not be bothered to do their due diligence on the paperwork regarding the state of the homeowners’ personal loans. Part of the settlement agreement, according to Reuters, is that any homeowners who were wrongly foreclosed on have to be repaid by the bank that did it. There were 14 companies in all, according to USA Today, including lending companies Ally Financial, Aurora Bank, EverBank, HSBC, Sovereign Bank, SunTrust Banks, MetLife Bank, OneWest Bank, PNC, U.S. Bank, Wells Fargo, Bank of America, JPMorgan Chase, Citigroup and subsidiary Citibank. Loan servicing companies MERSCORP and Lender Processing Services have also been ordered to pay back improper foreclosures. Affected homeowners will likely be contacted by these institutions in the near future to make arrangements.

Total fallout to be determined

It isn’t known yet how many people will be recompensed or how much in fines lenders will have to pay. Some government officials have been recommending up to $20 billion in fines be levied against the financial institutions involved. To further add to the headaches of these institutions, this is only from the settlement with the Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency. Other settlements with other federal agencies are still pending as well as every state attorney general in the nation.

Costs of mortgages to increase

Banking and real estate insiders are insisting that the new legislation and increased regulatory scrutiny will increase the costs of lending a mortgage to a prospective homeowner. New Federal Reserve rules on mortgage officer compensation, according to MarketWatch, may cut into commissions for loan officers. Mortgage brokers and loan officers at lending institutions cannot receive a commission based on the interest rate at which a mortgage is lent at any longer, which analysts predict will eat into profits. The Center for Responsible Lending, a consumer advocacy group that has endorsed reform of financial products from mortgages to payday loans, insists that costs to consumers will not go up, but decreasing revenues are usually passed to consumers in the form of increased costs.

Sources

Reuters

USA Today

MarketWatch

Many active-duty servicemembers are facing even tougher financial realities if they bank with JPMorgan Chase. Image: Flickr / troismarteaux / CC-BY

JPMorgan Chase is facing tough questions about its treatment of servicemember finances. JPMorgan Chase has foreclosed on many active servicemembers’ homes under questionable circumstances. Now, Chase is re-thinking how they handle active duty servicemembers’ student loans.

JPMorgan Chase and active service members

JPMorgan Chase is a mega-finance bank that provides financial services such as student loans, mortgages, checking, savings and lines of credit. Congressional committees and federal prosecutors are both investigating how JPMorgan Chase has handled the finances of active-duty military service members, including military loans. The accusation is that Chase is overcharging active duty servicemembers.

Student loans for service members

Active-duty servicemembers who have their student loans through JPMorgan Chase received surprising news over the last few weeks. Their student loans, which had previously been deferred, were coming due. The policy of JPMorgan Chase had been to defer all student loans while military members were on active duty. This short term loan policy was reversed in late January 2011. Some servicemembers were informed that they would owe over $400 per month extra, starting in just weeks. After multiple complaints from servicemembers saying they would need to take out a payday loan to cover these costs, and the threat of additional congressional inquiries, Chase re-reversed the policy.

Congressional inquiry into Chase mortgages

JPMorgan Chase was the subject of an ABC News investigation that kicked off congressional inquiries just a few weeks ago. Chase has admitted that they overcharged and wrongly foreclosed on several service member’s homes, including homes in Reno, Nevada and Irving, Texas. These actions, and possibly the student loan policy, may violate the Servicemembers Civil Relief Act. The act limits the legal and financial actions for which servicemembers can be held responsible while they are on active duty.

Sources

MSNBC

The New York Mets: second in New York, first in Ponzi lawsuits. (Photo Credit: CC BY-SA/Koe/Wikipedia)

The New York Mets have been used to coming in second when it comes to the race for New York City baseball fans’ hearts. However, when it comes to profiting from Ponzi schemes, ESPN reports that the New York Mets – as well as team owner Fred Wilpon and family – have been finishing first. Bernie Madoff victims’ fund trustee Irving Picard is suing the team and the Wilpon family as part of investor fund recovery. Mets Limited Partnership – a division of the New York Mets organization – is known to have invested and profited from dealings with Madoff and his investment company.

The New York Mets are in settlement negotiations

Like many well-off Bernie Madoff clients who have agreed to return funds to help repay other victims, the New York Mets are currently in settlement negotiations with the U.S. Bankruptcy Court for the Southern District of New York. Team executives have assured Mets fans that this situation will not impede operations of the team. According to the New York Times, the Mets Limited Partnership invested $522.7 million with Bernie Madoff and walked away with $570.5 million, a $47.8 million profit.

In a statement by the Wilpon-owned real estate company Sterling Equities, it was revealed that further details regarding ongoing settlement negotiations remain confidential. Much like the case between Irving Picard and JPMorgan Chase, however, more details could be revealed with time.

The pain of loss is greater for some

New York Mets owner Fred Wilpon, 74, told ESPN that he sympathizes with the victims of Bernie Madoff, saying that “(lost) money smarts,” but that the most painful element for people like himself is the betrayal.

“I’ll go to my grave (with) that one, as will (team president) Saul (Katz) and Jeff (Wilpon) and the rest of our partners. That was a total betrayal of us. We were investors for something like 25 years,” he said.

Wilpon assured the media that returning the money will not leave the New York Mets and Wilpon group of companies destitute. Real estate and development businesses were “running the shop,” by the owner’s estimation.

Sources

Boston Globe

ESPN

The New York Mets appear to be hiring…

JPMorgan Chase may be on the hook for billions of dollars for allegedly aiding and abetting Bernie Madoff. (Photo Credit: CC BY-ND/Market Mix Up)

The latest chapter in the Bernie Madoff financial scandal involves one of the United State’s largest banking and investment companies, reports PR Newswire. It has been announced via press release that Irving Picard, the trustee for liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS), is filing a complaint in U.S. Bankruptcy Court for the Southern District of New York against several arms of JP Morgan Chase , including banks and securities companies. Picard seeks to recover $1 billion in fees and profits, plus $5.4 billion in damages for Madoff clients, from JPMorgan Chase, previously BLMIS’ primary banker. The allegation is that JPMorgan Chase aided and abetted Bernie Madoff and company in the largest known Ponzi scheme in U.S. history.

Case says JPMorgan Chase was center of Ponzi scheme

David Sheehan, court-appointed counsel for Irving Picard, said that “JP Morgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff.” While JPMorgan Chase was not the only financial organization involved in Bernie Madoff’s intricate investing scheme, Sheehan places the banking and investment corporation at the center of the misdeeds and says it was thoroughly complicit, despite knowing of various warning signs regarding Madoff’s activities over the span of 20 years. Despite what the prosecution calls overwhelming evidence, JPMorgan Chase says it “simply continued to collect fees and derive profit.” Without JPMorgan Chase’s participation, says Sheehan, the Madoff Ponzi scheme would not have been possible.

Currently, nearly all financial data involved in the complaint is filed under seal with the Bankruptcy Court. This is because JPMorgan Chase has designated all of the information confidential. Picard is fighting for the seal to be removed as soon as possible.

Madoff’s main account was held by JPMorgan Chase

If JPMorgan Chase had taken the initiative to review internal account records of the massive amounts of cash being moved, it could have easily seen that something was illegitimate, claims Sheehan. As suspicious activity was quickly discovered once the FTC began to investigate, supporters of Irving Picard believe that JPMorgan Chase was negligent in its duty to expose the fraud.

Sources

PR Newswire

Recent interview with Irving Picard re. SIPC Insurance

TeacherMate means schools don't have to rely on old, bulky computers anymore. Image from Flickr.

Despite the rough economy and the overall drop in charitable donations, Innovations for Learning, a nonprofit that supplies schools with the TeacherMate system, is doing quite well. The foundation has only been around for 18 months, but thanks to the founder’s focus on cost-efficiency, this nonprofit business is booming.

Perhaps that’s because companies like JPMorgan Chase recognize the social and education value of TeacherMate. JPMorgan has donated $300,000 per year since 2007, before the foundation was officially launched. While other nonprofits are struggling to find small cash loans, Innovations for Learning founder Seth Weinberger’s business savvy has attracted plenty of donors, to the tune of about $800,000.

What is TeacherMate?

TeacherMate is a literacy program that’s run on small, hand-held computers. Thanks to Innovations for Learning’s partnership with a Chinese manufacturer, the TeacherMate computers cost schools about $100 each. According to the TeacherMate web site:

Imagine having a handheld computer for every student in the classroom, with activities that not only cover all beginning reading and math skills, but also precisely aligns with what is being taught that week in the classroom. Imagine having a tool that provides an individualized lesson plan for each student and delivers up-to-the-minute student progress reports based on data automatically uploaded from the handheld computers.

The web site also emphasizes how engaging it is for students. It says it keeps students focused, and even the hardest-to-reach students’ scores improve.

It’s all about the kids

TeacherMate uses educational games to hold students’ interest, and several teachers and educational administrators have provided tesimonials about TeacherMate that illustrate its effectiveness. One JPMorgan excutive credits Weinberger’s business model and social conscience with the success of the foundation.

“Seth is not in it to make money, which is key to making education technology accessible to the classroom,” said Mark Rigdon, national director of educational grant making at JPMorgan Chase. “He is very nimble at blending his business innovations with the education needs of early elementary students and teachers.”

Though Innovations for Learning charges schools $100 per device, sales of TeacherMate computer systems only make up 20 percent of the foundation’s budget, and the rest comes from donations. Weinberger himself has contributed $350,000.

Banks have suffered through the recession with huge mortgage industry defaults, but a new fear that credit cards will do the same is looming. Ken Lewis, Bank of America CEO, stated he believes that despite the government’s $700 billion rescue program, it will be “an awful year” for credit cards and companies that issue them.

It’s estimated there are almost $76 billion in credit card loans, and more than half of that debt is held by Bank of America, JPMorgan Chase and Citigroup.

The charge-off rate

Already setting the stage for disaster is the banking industry’s estimate that  their charge-off accounts have reached a historic high of 7.73 percent. Most experts anticipate that figure will increase, as the unemployment rate is still dangerously high.  This rate is commonly accepted as the most accurate indicator of future losses in the banking, mortgage and credit card industries.

Analyst Mike Taiano believes that the charge-off rate could be higher than 10 percent by year’s end. “With the economy the way it is, most consumers are still struggling. … Though there are some indicators that we are through the recession, there is still a long way to go to recover,” he said.

Bracing for the loss

Unlike the recession of the ’80s, when unemployment rates ran high also, this generation brings its own set of problems. First, new proposed legislation is set to allow consumers to request their banks reduce their mortgage debt if they have filed bankruptcy. Experts are fearful that this will cause more people to file bankruptcy so they can default on credit cards and other outstanding debts.

On the brighter side

David Robertson, publisher of the Nilson Report, stated that it’s “encouraging” that banks are adept at maneuvering recessionary periods after “years of practice.” When facing credit card losses, they know what cautionary actions to take.

For example, banks are slashing limits already and raising interest rates to bring in as much revenue as possible.  They are also working their customer service teams exceptionally hard, encouraging communication with customers. American Express is a leader in the mitigation process and recently offered their credit card holding customers a $300 cash-back return if they paid their account balances off and the closed their accounts before April.

Citibank

There is also news that Citibank is joining the ranks of a banks coming up with strategies to mitigate loss.  The company is looking to work out a joint venture for its private credit card division that serves retailers, as a way of moving out of the credit card business altogether.  However, experts say Citibank is alone in wanting to distance themselves from the credit card industry.

Most banks know they will have a difficult time attracting a completely new set of customers and would rather work hard to keep the ones they have, while easing their own risk.  Stuart Gunn, director of Bridge Strategy Group, stated: “If you want to be the retail bank of choice, it means you have to have CDs, debit cards, home equity loans and credit cards. Do you really want to exit one of the major lines of business?”