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In yet another enforcement action, the Consumer Financial Protection Bureau (CFPB) has ordered Bank of America to pay a $10m civil penalty for unlawfully freezing customer accounts and sending payments to creditors.
According to the CFPB, Bank of America processed illegal, out-of-state garnishment orders against its customers’ bank accounts.
Garnishments occur when a creditor takes a portion of an individual’s paycheck, or money from their bank account, to collect a debt.
The agency says Bank of America unlawfully froze customer accounts, charged garnishment fees, garnished funds and sent payments to creditors based on out-of-state garnishment court orders that should have been processed under the laws and protections of the states where the consumers lived.
Specifically, since August 2011, Bank of America unlawfully garnished at least 3,700 out-of-state accounts, and the customers whose accounts were affected by this have paid at least $592,000 in garnishment fees.
Bank of America also violated the law by inserting “unfair and unenforceable” language into customer contracts that “purported to limit customers’ rights to challenge garnishments”.
For instance, the bank falsely told its customers that their rights to have certain funds exempt from garnishment orders were governed by the laws of the states that issued the order. In fact, in most cases, it was the customer’s own local state laws that apply.
The bank then acted on this belief and improperly held, froze, and turned over its customers’ funds to judgement creditors.
In addition, Bank of America required customers to “direct” it not to contest garnishment orders and to waive the company’s liability for its actions regarding the out-of-state garnishment orders.
This prevented customers from pursuing legal claims against Bank of America for improperly handling garnishments whereas, the CFPB stressed, account holders have the right to challenge garnishments despite any language in their account agreements to the contrary.
With its $2.5trn consolidated assets, Bank of America is the second-largest bank in the United States and is designated as a global systemically important bank.
Previously, in 2014, the CFPB ordered Bank of America to pay $727m in redress to its victims for illegal credit card practices.
The order now requires the bank to refund the $592,000 in garnishment-related fees to consumers and pay a $10m penalty to the CFPB.
In addition, the bank will have to amend its garnishment process and eliminate unenforceable clauses from its contracts.
“Bank of America imposed unlawful garnishment fees and injured its customers by inserting unenforceable clauses into contracts in an attempt to strip legal rights from families,” said CFPB director Rohit Chopra.
The announcement comes hot on the heels of recent lawsuits against TransUnion and MoneyGram, both of which have been labelled a “large, repeat offender” by Chopra.
Last week, the CFPB director told Congress that his agency’s enforcement focus is now set on large companies that repeatedly breach the law and cause a larger extent of harm to customers.
