Bank of America (BOA) must pay $800 million in refunds and fines for illegal credit card promotion and billing practices. The amount set by the Consumer Financial Protection Bureau (CFPB) includes more than $700 million in refunds to BOA customers.
The misleading marketing and billing practices took place from 2000 to 2011. During that time, roughly 1.9 million Bank of America customers were charged illegally for additional products that they did not actually receive. The products included credit monitoring and credit reporting services, according to the CFPB. Those customers will share in refunds of approximately $459 million.
Another 1.4 million customers were determined to be victims of deceptive marketing practices, which included marketing materials that led them to sign up for products, like credit protection services, that were not what they thought they were purchasing. Those people will share $268 million in refunds.
Besides paying customer refunds, the bank and a subsidiary, FIA Card Services, are receiving hefty fines. They are required to pay a $20 million penalty to the CFPB. The bank is also being fined $25 million by the Office of the Comptroller of the Currency.
The CFPB director. Richard Cordray, noted that Bank of America deceived customers and unfairly billed consumers for services that were not performed. He emphasized that his organization will not tolerate such practices. The CFPB intends to continue being vigilant in pursuing companies who wrong consumers.
BOA has indicated that it stopped offering the add-on products over a year ago. They also claim to have already issued refunds to most of the impacted customers. A bank spokeswoman emphasized that they are “committed to ensuring that our products and services are marketed and billed responsibly.”
This action against BOA is just the latest that the CFPB has taken against a bank for illegal actions surrounding credit card add-on products. The $800 million in refunds and fines the CFPB is requiring BOA to pay is the largest the government watchdog agency has ever ordered a credit card issuer to compensate customers. This is partly because of the size of the bank and also because of the length of time involved (other illegal actions by banks occurred over shorter time periods).
The agency’s first enforcement action against a bank was for a similar issue. The CFPB ordered Capital One to reimburse $150 million to more than two million consumers. The agency has struck settlements with American Express and Discover Card as well. Most recently, they got JP Morgan Chase to agree to give 2.1 million customers refunds, although the bank does not admit any wrongdoing.
Together, the regulatory actions take aim at one of the most questionable bank profit generators – add-on credit protection products. They are often promoted as a way to shield borrowers from identify theft or other financial hardships, including unemployment or disability, but have come under increasing fire and scrutiny from state attorneys general and federal regulators.
The recent regulatory actions show that the bureau is trying to flex the enforcement muscle it received as part of the Dodd-Frank regulatory overhaul in the aftermath of the 2008 financial crisis. There is particular concern that the add-on products lure consumers, still frightened and trying to dig out from the recession, because they promise to protect them from unforeseen economic hardship. However, many of the products being pushed have been misleading in both their expensiveness and effectiveness. It is hoped that the $800 million that BOA has been directed to pay in fines and refunds will give both banks and consumers pause over similar credit card products in the future.
By Dyanne Weiss