JPMorgan Chase Faces Lawsuit Over Alleged Low-Interest Cash Sweep Accounts

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JPMorgan Accused of Using Cash Sweep Program to Shortchange Customers with Low Interest Rates

JPMorgan Chase, the largest bank in the United States, is facing a new legal challenge as it has been accused of transferring customers’ idle cash into accounts with “unreasonably” low interest rates. The lawsuit, which seeks class-action status, was filed on Friday night in the Manhattan federal court, marking the latest in a series of legal actions against major financial institutions over similar practices.

The lawsuit was initiated by Dan Bodea, an Illinois resident, who alleges that JPMorgan’s cash sweep program has been designed to benefit the bank at the expense of its customers. According to Bodea, the bank has been presenting itself as a fiduciary—an entity that is supposed to act in the best interest of its clients—while instead channeling funds into accounts that offer minimal returns, thereby allowing JPMorgan to enjoy “outsized benefits” from the arrangement.

In his complaint, Bodea accuses JPMorgan of breaching its fiduciary duty, engaging in gross negligence, and unjustly enriching itself through these practices. The lawsuit seeks unspecified compensatory and punitive damages, aiming to hold the bank accountable for its alleged misconduct.

The exact interest rates offered by JPMorgan on these uninvested cash accounts were not detailed in the lawsuit, nor were specific comparisons made with rates offered by other financial institutions. However, Bodea’s claims come at a time when some brokerages are providing sweep account rates that exceed 4%, while U.S. Treasury bills maturing within three months are yielding more than 5%.

JPMorgan Chase has declined to comment on the lawsuit, maintaining silence as the legal proceedings unfold. The lawsuit against JPMorgan is part of a broader trend, with similar legal actions recently filed against other major banks and brokerage firms, including Ameriprise, LPL Financial, Morgan Stanley, UBS, and Wells Fargo.

The issue of low-interest cash sweep accounts has drawn increasing scrutiny from regulators as well. Earlier this month, both Morgan Stanley and Wells Fargo disclosed that they are under investigation by the U.S. Securities and Exchange Commission (SEC) for their cash sweep practices. Wells Fargo also revealed that it is currently engaged in settlement talks with the SEC over the matter.

In response to mounting pressure, Wells Fargo announced last month that it had adjusted the pricing on its sweep deposits late in the second quarter, a move that is expected to reduce its future net interest income. This action reflects the growing concern among financial institutions about potential legal and regulatory repercussions related to their cash management practices.

As the lawsuit against JPMorgan Chase progresses, it highlights the ongoing debate over the fairness and transparency of cash sweep programs. These programs, which are commonly used by banks and brokerages to manage uninvested client funds, have come under fire for offering low returns to customers while providing significant financial benefits to the institutions that manage them.

The outcome of this lawsuit could have far-reaching implications for JPMorgan and other financial institutions engaged in similar practices. If the court rules in favor of Bodea and the proposed class, it could lead to significant financial penalties for JPMorgan and prompt other banks to re-evaluate their cash sweep programs to avoid similar legal challenges in the future.

In the meantime, customers of JPMorgan and other financial institutions may become more vigilant about the interest rates offered on their idle cash, potentially driving demand for greater transparency and better returns on their funds.