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JPMorgan Gains Despite Lawsuit Charge

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Although a new lawsuit was filed against JPMorgan Chase & Co. (JPM - Free Report) , the company’s stock price rose 2.7% on Dec 18. The price appreciation was primarily driven by the Federal Reserve’s announcement of the “tapering” of bond buying, which reflects signs of growth in the U.S. economy.

Earlier this week, JPMorgan was sued by the state of Mississippi. The state Attorney General (AG) accused the bank of violating several provisions of the Consumer Protection Act while collecting credit card debt from customers.

Apart from JPMorgan, Couch, Conville & Blitt, a New Orleans-based law firm that was hired for collections litigation beginning 2009; Mann Bracken LLP, a now defunct firm hired for arbitration claims; and NCO Financial Systems, one of the many collection agencies, were accused in the lawsuit.

In the case filed in the Chancery Court of the First Judicial District of Hinds County, the AG accused the company of deliberately making false and misleading statements while collecting credit card debts. The lawsuit was filed after 18 months of investigation and several months of discussions with the company.

The suit alleged that JPMorgan’s debt collection process had several flaws ranging from violation of the Service members Civil Relief Act to errors in record keeping in Microsoft Excel. The company pressured customers to pay for debts that had been already collected or were not owed by them. Additionally, the bank sold debt collection rights on credit card accounts – that were closed due to bankruptcy – to outside agencies and condoned repeated errors by its third-party collections attorneys.

The lawsuit further alleged that JPMorgan’s faulty debt collection practices are not recent but date back to 2007. It claims that such malpractices increased manifold following the financial crisis that led to a rise in the number of credit card defaults.

All these had adversely affected customers’ credit score. It became difficult for them to refinance their residential mortgages and take a car or a student loan.

The state AG is seeking up to $10,000 from JPMorgan for each violation of the Consumer Protection Act and compensation for the state’s legal cost for pursuing the litigation.

This is the second lawsuit filed against JPMorgan concerning its debt collection practices. In May 2013, California sued the company on similar charges. Moreover, several other states are investigating the bank’s collection processes. Additionally, in Sep 2013, the Office of the Comptroller of the Currency (OCC) fined JPMorgan a sum of $80 million and ordered it to refund $309 million to aggrieved customers for charging fees for services it never provided.

We believe that JPMorgan’s run-in with regulators and other investigation agencies will likely continue for some time now. Higher litigation costs continue to hamper the company’s performance.

Currently, JPMorgan carries a Zacks Rank #4 (Sell). Some better-ranked finance stocks worth considering include Comerica Incorporated (CMA - Free Report) , Fifth Third Bancorp (FITB - Free Report) and Huntington Bancshares Inc. (HBAN - Free Report) . All these carry a Zacks Rank #2 (Buy).

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