More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Just as JPMorgan Chase agreed on Thursday to pay $920 million to settle trading losses related to the London Whale case, the Consumer Financial Protection Bureau ordered Chase Bank USA and JPMorgan Chase Bank to pay a $20 million penalty for charging credit card customers for services they weren't receiving.
On top of that, the Office of the Comptroller of the Currency ordered both Chase entities to pay a $60 million civil penalty.
The bank refunded about $309 million to customers in late 2012.
CFPB said that the enforcement action was the result of work started by the OCC that the CFPB joined last year. The agencies found that Chase engaged in unfair billing practices for certain credit card add-on products, charging consumers for credit monitoring services that they did not receive.
“At the core of our mission is a duty to identify and root out unfair, deceptive and abusive practices in financial markets that harm consumers,” said CFPB Director Richard Cordray. “This order takes action against such practices and requires Chase to fully refund more than $300 million to consumers who were charged illegal fees.”
According to the CFPB order, Chase enrolled consumers in programs that promised to monitor customer credit and alert consumers to potentially fraudulent activity. In order for consumers to obtain credit monitoring services, they generally must provide written authorization. “Chase, however, charged many consumers for these products without or before having the written authorization necessary to perform the monitoring services. Chase charged customers as soon as they enrolled in these products even if they were not actually receiving the services yet,” according to CFPB.
The agencies found that Chase engaged in these practices between October 2005, when Chase first offered the products, and June 2012, when Chase stopped billing consumers who were not receiving the promised benefits.
Chase stopped marketing the services in April 2011 and started giving consumers refunds in October 2012, according to CFPB.
The CFPB’s order requires that Chase Bank USA and JPMorgan Chase Bank:
- End unfair billing practices: Consumers will no longer be billed for these products if they are not receiving the promised benefits. Chase also must take steps, subject to the bureau’s approval, to ensure these unlawful acts do not occur in the future.
- Complete repayment, plus interest, to more than 2 million consumers: Chase must pay a full refund, approximately $309 million, to more than 2 million consumers who enrolled in the credit monitoring product and were charged for services that were not received. In addition to the amount paid for the product, Chase must refund interest and any over-the-limit fees resulting from the charge for the product.
- Conveniently repay consumers: If the consumers are still Chase customers, they received a credit to their accounts. If they are no longer a Chase credit card holder, they received checks in the mail. Consumers were not required to take any action to receive their credit or check. Most consumers should have received refunds by Nov. 30, 2012.
- Submit to an independent audit: Chase has engaged an independent auditor to help ensure the refunds have been provided in compliance with the terms as set forth in the CFPB’s order.
- Improve oversight of third-party vendors: The CFPB is also requiring that Chase strengthen its management of third-party vendors who manage these identity protection products.
- Pay a $20 million penalty: Chase will make a $20 million penalty payment to the CFPB’s Civil Penalty Fund.
This action is the third that the Bureau has taken in coordination with a fellow regulator to address illegal practices with respect to credit card add-on products. This action is being taken in coordination with a separate action of the OCC, which initiated the inquiry in 2011.
Check out JPMorgan to Pay $920 Million Penalty for London Whale Losses on ThinkAdvisor.