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Chase "Check Loan"
- Issue: Breach of covenant of good faith and fair dealing
In re Chase Bank USA, N.A. "Check Loan" Contract Litigation
Lieff Cabraser, with co-counsel, represents credit cardholders in a class action lawsuit charging that Chase Bank ("Chase") breached the implied covenant of good faith and fair dealing by unilaterally modifying the terms of long-term fixed rate loans.
Background on the Check Loan Case
For years, Chase promoted the transfer of balances on loans held by other lenders, such as home equity loans, auto loans or other credit card balances, to their Chase credit card accounts. Chase offered to consolidate the debt into a "fixed" loan with terms that would apply "until the balance is paid off."
In addition to balance transfers, Chase offered to consolidate new debt through so-called credit card checks. With these checks, a Chase cardholder could purchase large ticket items, such as home furnishings or a family vacation, under the same basic terms, namely, a long term loan with terms fixed until the balance was paid off.
A typical offer presented the customer with two options:
- The customer could accept a 0% fixed rate for a specified period of time, such as one year. After that time, the Annual Percentage Rate (APR) on the loan would increase. Or,
- The customer could accept a loan with a higher APR that is a "fixed APR until the balance is paid in full."
In other words, Chase proposed two methods of debt management, one for the short term, and one for the long term.
Plaintiffs and the members of the proposed Class are customers who selected Chase's long term debt management offer. They accepted Chase's offer to transfer the balances on loans held by other lenders to their Chase credit card accounts. In return, Chase consolidated the debt into a fixed, long term loan, the key terms of which would apply until the balance was paid off.
Plaintiffs' Factual Allegations
Having obtained Plaintiffs' and the Class members' business with the offer of a long term loan, starting in November 2008 Plaintiffs allege that Chase unilaterally changed the terms of loans by increasing the minimum monthly payment from 2% to 5% of the outstanding loan balance.
For example, a cardholder carrying a $20,000 balance on a long term fixed rate loan will see his or her required minimum monthly payment increase from $400 to $1000. As a result, cardholders were required to make a payment 2.5 times the minimum monthly payment under the original terms Chase offered.
If a cardholder failed to comply with the new terms, Plaintiffs allege that Chase demanded repayment of the full loan balance immediately or the cardholder agree to higher, variable APR. Chase also unilaterally imposed a $10 monthly charge on, which it apparently refunded in response to this litigation.
Plaintiffs charge that Chase used its superior position to breach its contracts and unlawfully deprive cardholders of the terms of the long term loans they had entered into with Chase.
The Court has not made any determination on the merits of Plaintiffs' allegations.
Check Loan Litigation Case Status
On August 9, 2012, the Court granted preliminary approval of a $100 million settlement of the case. The Court also approved the parties proposed notice program and forms of notice to class members, set deadlines for class members to submit comments or objections to the settlement, and set the date for a hearing, the fairness hearing, on whether to grant final approval of the settlement.
Earlier on May 13, 2011, U.S. District Court Judge Maxine M. Chesney granted plaintiffs' motion for class certification in the Chase Bank "Check Loan" Contract Litigation. The Court certified the following class:
All persons or entities in the United States who entered into a loan agreement with Chase, whereby Chase promised a fixed APR until the loan balance was paid in full, and (i) whose minimum monthly payment was increased by Chase to 5% of the outstanding balance, or (ii) who were notified by Chase of a minimum payment increase and subsequently closed their account or agreed to an alternative change in terms offered by Chase.