NEW YORK -(Dow Jones)- J.P. Morgan Chase & Co. (JPM) wrongly foreclosed on 14 active-service military families and overcharged thousands more on their mortgages, an ongoing internal bank review has found.
While the bank said it is repaying the families and admitting to mistakes, it may also face legal fallout, according to comments made about the matter in court and by Washington officials.
In a separate case involving bank error, Capital One Bank, a unit of Capital One Financial (COF), said Tuesday, as part of a settlement with a unit of the Department of Justice, it is returning $2.35 million to consumers after it erroneously collected on debts that had been discharged in bankruptcy.
J.P. Morgan said about a year ago it launched the internal audit that found mistakes in accounting for active military service under the Servicemembers Civil Relief Act. That law says active-duty military families' interest rates on homes can be no more than 6%, and they aren't subject to the delinquency process including foreclosures.
"We made mistakes here and we are fixing them," the bank said in a statement. "Any customer mistake is regrettable. We feel particularly badly about the mistakes we made here."
The bank said it is refunding about $2 million to more than 4,000 families that were overcharged. The bank said some refunds were for minor fees.
It added that it has worked quickly on the foreclosures, and has already handled 13 with discussions ongoing on the last one.
The review is ongoing, the bank said, and it now has a specific team dedicated to military lending.
Richard A. Harpootlian, an attorney for one service member who sued the bank, said returning the money isn't enough. He said the lawsuit, which seeks class-action status and was brought by U.S. Marine Corps Capt. Jonathan Rowles, looks to obtain punitive damages as well.
Harpootlian said J.P. Morgan lawyers said in a hearing that federal prosecutors are looking into the incident, and that he received an inquiry from a congressional committee.
"When men and women are on the front lines defending this country, they shouldn't have to worry about the banks putting their families out on the street," Harpootlian said.
The U.S. Attorney for South Carolina, Bill Nettles, said he can neither confirm nor deny any investigation that is ongoing. But he did say that "this district takes violations of this stature very seriously." Nettles said he often speaks with law enforcement officers, a group that often is closely tied with active service members, and that "every single time I speak to a group of law enforcement officers I remind them to be on the lookout for this and to contact us."
The head of the newly created Consumer Financial Protection Bureau, Elizabeth Warren, said J.P. Morgan's errors "emphasize" why the bureau is needed. Warren was visiting an Air Force base with the bureau's military liaison Holly Petreaus.
And Sen. Jack Reed (D., R.I.) said he has asked Attorney General Eric Holder to examine the issue.
Rowles' lawsuit, filed in July in federal court in South Carolina, says Chase repeatedly violated the law.
Rowles took out a $255,000 loan in 2004, a loan that was eventually purchased by Chase. He notified Chase of his active-duty status a few months after it happened. Chase did change the mortgage rate, but it didn't retroactively apply the change, the suit says.
The mistakes were earlier brought to light by NBC News, when Rowles discussed his fight on the "Today" show.
This is the latest foreclosure issue to face one of the nation's biggest banks. J.P. Morgan also reviewed its nationwide foreclosure operations and temporarily halted all foreclosures late last year when it became embroiled in the "robo-signing" issue. The bank said Friday it had implemented new strategies and retrained employees as it restarted foreclosures.
The latest situation is likely to be particularly embarrassing to Chief Executive Jamie Dimon, who has repeatedly touted the bank's policies in dealing with military personnel. In November, Dimon vowed to hire more military veterans.
Meanwhile, Capital One's settlement is related to a 2008 allegation by the U.S. Trustee Program, part of the Department of Justice, that Capital One had filed 5,600 claims in bankruptcy cases and had received $340,000 it wasn't entitled to receive. The U.S. Trustee Program oversees case administration in bankruptcy courts.
An independent auditor reviewed 700,000 Capital One claims on $24.7 million in debts that had previously been discharged, and found the bank erroneously collected $2.35 million on 5,100 of them. The bank is also reimbursing attorneys' fees.
Capital One said, "This matter relates to a process error corrected in 2007. Working closely with the USTP, we identified the impacted customer accounts and have provided restitution.
--Liz Moyer, Maya Jackson Randall and Robin Sidel contributed to this article.
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