By David Henry
NEW YORK, Jan 9 (Reuters) - JPMorgan Chase & Co
plans to sell or exit over time its business of issuing prepaid
cards for corporate payrolls and government tax refunds and
benefits, the company said on Thursday.
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
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. 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
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.
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