JPMorgan Chase, the largest US bank, must face part of a proposed class action lawsuit alleging it paid brokerage and retirement account holders near-zero interest rates on idle cash. The lawsuit claims that customers were automatically enrolled in Cash Sweep programs that allegedly “siphoned billions of dollars in net interest income.” These programs purportedly paid artificially low interest rates of 0.01% to 0.03%, even as the federal funds rate and rates on short-term US Treasury bills surpassed 5%. JPMorgan Chase is a global financial services firm that provides investment banking, asset management, and other financial services. It serves millions of consumers, small businesses, and corporate clients.
Judge Lorna Schofield of the US District Court in Manhattan ruled that JPMorgan must address claims that it breached deposit account agreements. The claims allege the bank failed to adjust interest rates “based on business and economic conditions” and breached individual retirement account agreements by not paying a “reasonable rate” of interest. However, the judge dismissed claims that JPMorgan breached its fiduciary duties and failed to act in customers’ best interest, stating that automatic enrolment in the Cash Sweep programs did not constitute a “recommendation” by JPMorgan or its brokers.
JPMorgan declined to comment on the matter. The bank had previously argued that it honoured customers’ “instructions” to deposit uninvested cash into interest-bearing accounts and that the plaintiffs were “seeking a windfall for decisions they elected not to make.” The proposed class action covers JPMorgan customers dating back to August 24, 2018.
Similar lawsuits have been filed against numerous large banks and brokerages in recent years, alleging that sweep accounts failed to keep pace with rising interest rates. These lawsuits have seen varying degrees of success. Wells Fargo and Bank of America previously agreed to pay a combined $60 million to settle US Securities and Exchange Commission charges related to their cash sweep practices, without admitting any wrongdoing.
