WASHINGTON — JPMorgan Chase & Co. acknowledged to lawmakers Wednesday that it had failed to properly enforce laws that protect military personnel from foreclosure, but its defense suggested that the problem could be prevalent throughout the banking sector.
The Servicemembers Civil Relief Act makes it illegal to foreclose on active-duty members of the armed services or to charge them more than a 6% interest rate — including fees on any consumer debt incurred before military service.
At a House Veterans Affairs Committee hearing, Chase acknowledged that it had unintentionally violated the law, and said it had found similar problems in other banks it acquired. A Chase executive said it may be an industrywide issue.
"The problems we have experienced across our organization have shown up with loans we have acquired in the last couple of years with Washington Mutual and Bear Stearns, which we acquired, and given the fact that the problems reach across those organizations, it suggests to me that there may be issues out there amongst others," said Stephanie Mudick, Chase's executive vice president of the office of consumer practices, at a hearing on the issue.
Mudick said that, in doing an internal audit, Chase found several compliance gaps in enforcing servicemember protections and is correcting them. Problems included misinterpreting military orders, miscalculating rates, incorrectly coding the status of active-duty servicemembers and failing to ensure that foreclosure sales were not ordered for them.
The breakdown at Chase, which the bank said had led to overcharging at least 4,500 servicemembers, 18 improper foreclosures (12 of which have since been rescinded or otherwise settled) and at least three pending lawsuits, came to light recently in a story featured on television news outlets and on the front page of The New York Times.
Chase said that, to correct the problems, it is repaying the roughly $1.8 million it overcharged servicemembers, which is about $70 per person.
It is also working on settlements of the remaining improper foreclosures, has created a hotline for problem calls, bolstered internal controls and added staff dedicated to compliance with the law.
During the hearing, Chase made no excuses.
Mudick acknowledged that the bank had failed to comply with the law, and she apologized profusely to wronged servicemembers, including Capt. Jonathan Rowles, a Marine who sued and who testified before the panel.
"We are deeply disappointed that we have let down men and women of the military," Mudick said. "We take full responsibility … both with respect to the Rowles family and for others and we are deeply disappointed in ourselves."
Lawmakers from both sides of the aisle took turns lambasting Chase for gouging soldiers fighting in Iraq or Afghanistan.
"You've broken the law. You've ruined people's lives, and you should be held accountable for that," said Rep. Bob Filner of California, the committee's ranking Democrat. He went so far as to suggest the bank is guilty of "homicide" regarding soldiers who committed suicide under financial stress.
"There is a cause and effect," he said. "People who are under pressure do commit suicide.
"I would call it homicide, frankly. You have caused tremendous harm. You are not going to make them whole with $70 bucks; I'll tell you that. They have committed suicide, and you are responsible."
Rep. Cliff Stearns, R-Fla., suggested that the chairman send a letter asking either the Government Accountability Office or the inspector general to do a full investigation.
"I would recommend at your earliest convenience to send that letter out to begin it," he said. "We are appalled and outraged by what happened."
Rep. Joe Donnelly, an Indiana Democrat, asked Rowles how he was able to focus on his military duty while confronting so much financial stress and vowed to fix the problem.
"I also have the privilege of serving on the Financial Services Committee, and we promise you this will change," he said.
Rep. Michael Michaud, a Maine Democrat, called the situation a "disgrace" and asked Mudick whether Chase should face stiff penalties.
"Would you support increasing penalties?" he asked. "Should corporations be held liable for not following the law under wrongful death if we can demonstrate financial stress was the source of pains?"
In response, Mudick offered several mea culpas.
"The Rowleses did not get the right customer service. We are deeply embarrassed by that," she said. "We clearly made mistakes. The customer service we provided to him and his wife was inexcusable. We deeply regret it. We are trying to fix it."
Committee Chairman Jeff Miller asked Mudick point-blank whether the bank had violated the law. "We failed to comply with the act, that's right," she said.
After more criticism from Rep. Brad Miller, D-N.C., who was one of several Democrats supporting the notion of bolstering civil and criminal penalties that can be imposed on banks, including legal fees, Mudick again apologized.
"We take it very seriously. I think we did a bad job at satisfying the Rowleses, but we understand our obligations," she said. "We did a terrible job. We want to be sure we compensate the people whose rights we didn't enforce to the fullest extent."
Lawyers representing servicemembers urged lawmakers to increase civil and criminal penalties on banks that fail to comply with the act and to cover victims' legal fees. "They went through hell. … while they are trying to protect us, they are catching friendly fire at home, so to speak," said Richard Harpootlian, a lawyer representing the Rowleses and other servicemembers.
"The systematic failure of SCRA protections in the Rowles litigation is evidence that the enforcement provisions of the SCRA deserve reconsideration," he said.