Much of Chevy Chase Bank settlement may go to nonprofits

A large portion of the $16.1 million that Chevy Chase Bank is paying to settle a 7-year-old lawsuit will likely go to nonprofits and charitable groups, rather than potential claimants, a lawyer involved with the case said.

Chevy Chase Bank, the third largest bank in deposits in Maryland with $7.5 billion, recently agreed to settle the lawsuit, which alleges that the bank charged excessive interest rates on credit cards.

After legal fees and costs to track down potential claimants, about $11 million is expected to be left to potentially pay thousands of cardholders, said F. Paul Bland Jr., the lead plaintiffs’ attorney with Trial Lawyers for Public Justice, a public interest law firm in Washington, D.C., that filed the class-action lawsuit.

But the problem is finding those who were allegedly overcharged during the past decade. Poorman-Douglas Corp., a Portland, Ore., information technology company that specializes in class-action settlements, was appointed by a Baltimore judge to locate and send notices to as many claimants as possible, as well as administer the funds. There will likely soon be an Internet site and toll-free phone number set up, Bland said.

While Poorman-Douglas has a good reputation for ‘‘making sure that consumers get what is owed to them,” past experience suggests that it will be difficult to locate ‘‘anywhere near all of the class members, and that many persons who are contacted will not submit claims,” Bland said.

‘‘We are trying to maximize the recovery to the class members, but realistically, a large amount of the settlement will likely go to nonprofit and charitable groups,” he said.

The settlement stipulates that any money not distributed to claimants will go to organizations such as consumer and legal aid organizations, which are agreed upon by both sides.

Thomas H. McCormick, executive vice president and general counsel at Chevy Chase who signed the agreement, declined to comment.

The case involves credit card holders who obtained cards from Chevy Chase starting in 1996 that promised a top interest rate of 24 percent — the maximum allowed by Maryland law — but then rose above that maximum rate. About 1 million customers had the cards, but some of those likely didn’t use them or get overcharged, Bland said.

In 1998, Chevy Chase sold its credit card business to First USA, now owned by JPMorgan Chase and Co. But Chevy Chase agreed to defend JPMorgan and pay the entire $16 million in this case, according to the settlement agreement. The case also challenged some late fees and over-the-limit fees charged by the banks from 1996 through 2006.

Chevy Chase denied it violated the Maryland Consumer Protection Act, though the bank wanted to resolve the matter ‘‘without the necessity of further protracted and expensive litigation,” according to the agreement. A Baltimore circuit court judge preliminarily approved the settlement last week.

Chevy Chase also agreed to remove negative reports sent to credit bureaus for involved cardholders.

The lawsuit was twice blocked by lower courts, though those rulings were eventually overturned by the Maryland Court of Appeals.

Chevy Chase is headquartered in Bethesda, according to the bank’s 2005 annual report. But the Federal Deposit Insurance Corp. lists Chevy Chase’s headquarters in McLean, Va. McCormick’s office is in Bethesda.

As of July, the bank had 227 branches — 124 in Maryland, 80 in Virginia, 21 in the District and two in Delaware, according to the FDIC. Chevy Chase recently opened branches in Laurel, Bowie and Gainesville, Va.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.