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 The cards, which had been offered with cash and treasury services to
companies and governments, had become a headache of risks in
operations and regulations, according to a person familiar with the
matter who was not authorized to speak publicly.
Last month JPMorgan warned some 465,000 holders of the cards that
their personal data may have been accessed by computer hackers who
attacked its network in July.
The company mailed incorrect replacement cards to some 4,000 people
receiving payments from the state of Connecticut. The state
treasurer blasted the bank for its "obvious lack of attention to
detail.
Government regulators are focusing on whether corporate payroll
programs that use the cards have sufficient safeguards against
burdening employees with fees.
In July, New York State Attorney General Eric Schneiderman sent
letters to more than 20 companies asking for details on how they use
payroll cards. [ID:nL2N0F916H] The probe was started after
complaints from workers and advocacy groups about fees bank charge
for using the cards.
Employers have said that they offer the cards to employees as an
option along with paper paychecks and direct deposits to bank
accounts. Even with the fees, they can be cheaper than check-cashing
services.
But there have been complaints that direct deposit choices are hard
to exercise and a lawsuit was filed against a McDonald's franchisee
by an employee who claimed she was required to use a JPMorgan Chase
payroll card.
The bank was not sued in that case, but the complaint was bad for
the Chase brand name.
The U.S. Consumer Financial Protection Bureau in September issued a
bulletin to reiterate that laws and rules on electronic funds
transfers apply to payroll cards. The bulletin specifically noted
that the CFPB has authority over banks providing payroll cards,
which raised the possibility that banks might be expected to make
sure corporate clients were following rules when paying employees
with cards.
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JPMorgan became a target for law enforcers and regulators after the
biggest bank in the United States by assets lost $6.2 billion in a
derivatives bet in 2012 out of its London offices.
On Tuesday, the company agreed to pay $2.6 billion to settle
government and private claims against it for not reporting
suspicions of fraud by convicted Ponzi-schemer Bernie Madoff, its
long-time client. And, it agreed last year to pay $13 billion to
settle government claims over mortgage-related instruments sold
before the financial crisis.
Since then, JPMorgan has been moving to simplify its operations
after its risk controls and guards against money laundering were
found deficient by regulators. Critics have also said the bank is
too big to manage.
JPMorgan decided last summer to exit its physical commodities
business after concluding potential returns were not worth the
regulatory hassle. It is also getting out of lending to students, as
well as scaling back on international transactions that carry
heightened risks of money laundering.
According to JPMorgan's statement, the bank "will explore a full
range of options for its prepaid card business, including a sale."
In the meantime, it will continue to support current clients and
cardholders, but will not take on new business. The decision does
not affect Chase customers holding credit, debit or prepaid "Liquid"
cards, the company said.
The business contributes too little toward JPMorgan's nearly $100
billion in annual revenue to have to be disclosed in its income
statement.
(Editing by Phil Berlowitz and David
Gregorio)
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