JPMorgan Chase (JPM) plans to make changes to its automatic withdrawal policies to better protect its customers from aggressive payday lenders.
The company announced an updated policy on Wednesday in response to criticism that it allows payday lenders to prey on borrowers by automatically deducting funds from their accounts, and that in some cases it lets these withdrawals go through even after the customer asks for the automatic withdrawals to stop. Chief Executive Jamie Dimon called the practice "terrible" after media reports surfaced last month and promised to reform Chase's policy.
Beginning in late May, Chase will charge customers only one "returned item fee" per month even when a lender tries to charge an account more than once. This is the fee that the bank charges each time a lender makes a withdrawal request that is rejected because the customer's account balance is too low. Chase will not make changes to its policies regarding its other types of overdraft fees.
Chase will also make it easier for customers to close their accounts even if there are pending fees on the account. If the bank considers these fees inappropriate, it will not require customers to pay them.
The bank also said it will improve communication and training to ensure better compliance with its existing policy to stop payments at a customer's request, and that it will make a greater effort to identify and report abuses of the Automated Clearing House system.
"We took a look at our policies and decided to make a number of changes," Ryan McInerney, CEO of Consumer Banking at Chase, said in the news release. "Some customers agree to allow payday lenders or other billers to draw funds directly from their accounts, but they may not know some of the aggressive practices that can follow. Those practices include repeated attempts for payment that can result in multiple returned items. We don't believe these practices are appropriate, and are making these changes to help protect customers from unfair and aggressive collections practices."
Industry lawyers have warned JPMorgan Chase and other banks that permit automatic withdrawals from payday lenders, including Bank of America (BAC) and Wells Fargo (WFC), that they face potential liability for allowing transactions to go through after customers have requested that they be stopped. The practice, which has come under scrutiny since it was detailed in a New York Times article last month, can be lucrative for banks, as overdraft fees and penalties build up as lenders repeatedly try to access customers' accounts.