Bank of America, the second-largest bank in the country, has been instructed to compensate customers with over £100 million due to multiple wrongdoings, including charging insufficient fund fees twice, withholding reward bonuses, and opening accounts without customers’ consent or knowledge. Additionally, the bank is liable to pay an extra £150 million in penalties for the same violations.
The Consumer Financial Protection Bureau (CFPB) revealed on Tuesday the outcome of an investigation that uncovered Bank of America’s engagement in unlawful practices over several years, affecting hundreds of thousands of customers across various product lines. Consequently, the bank has been directed to reimburse customers with over £100 million and pay an additional £90 million in penalties. The Office of the Comptroller of the Currency has also imposed a separate fine of £60 million for contravening regulations regarding overdraft fees.
Rohit Chopra, Director of the CFPB, stated in a press release that Bank of America’s actions of charging fees twice, opening unauthorised accounts, and withholding rewards are illegal and erode customer trust. He emphasised that the CFPB is determined to eradicate such practices throughout the banking system.
The CFPB’s investigation revealed that Bank of America employed a “double-dipping scheme” to accrue excessive fees from customers. By charging a fee of £35 whenever customers had insufficient funds, the bank repeatedly charged them for the same transaction, generating substantial additional revenue, according to the CFPB.
Chopra explained to NPR Business Correspondent David Gura that establishing a business model based on double dipping fees is unequivocally unlawful, which is why Bank of America has faced sanctions and has been ordered to reimburse the affected customers.
The OCC’s findings indicate that the bank unlawfully charged “tens of millions of dollars” in fees for resubmitted transactions, in violation of Section 5 of the Federal Trade Commission Act. This section prohibits financial institutions from engaging in unfair or deceptive practices.
Michael J. Hsu, Acting Comptroller of the Currency, stated in a press release, “Overdraft programs should benefit consumers, not harm them. Today’s action demonstrates the OCC’s commitment to safeguarding consumers and promoting fairness and trust in the banking sector. We expect banks to conduct their operations in compliance with all applicable laws and standards, and when they fail to do so, we will take appropriate action.”
Naomi R. Patton, Senior Vice President of Media Relations at Bank of America, informed NPR that the bank voluntarily reduced overdraft fees and eliminated all non-sufficient fund fees in the first half of 2022. These changes resulted in a revenue drop of over 90% from these fees. Furthermore, the bank reduced the overdraft fee from £35 to £10 in May 2022.
Bank of America attracted potential customers by offering special cash and point rewards as an incentive for signing up for their credit cards, a common practice among credit card companies. However, the CFPB found that the bank unlawfully withheld these bonuses from tens of thousands of customers.
Chopra emphasised that Bank of America has been instructed to fulfill its promises regarding these rewards. He highlighted the importance of consumer choice and the fair market, stating that Bank of America’s actions undermined both.
Bank of America employees opening accounts without customer consentSince at least 2012, Bank of America employees have engaged in unauthorised applications and enrolment of customers for credit cards to meet sales-based targets and evaluation criteria, in violation of the law, according to the CFPB. Employees obtained and used customers’ credit reports and completed applications without their permission, resulting in unjust fees and negative impacts on their credit scores.
Chopra expressed to NPR that such actions amount to assuming someone’s identity and exploiting it for financial gain, which is entirely inappropriate and inexcusable. He emphasised the gravity of the situation, irrespective of whether it affected a few or millions of customers.
This is not the first time the bank has faced penalties for engaging in illegal practices. In 2014, Bank of America paid £727 million to the CFPB for deceitful marketing practices that affected approximately 1.4 million customers. Additionally, the bank was ordered to pay a £20 million civil penalty for charging 1.9 million consumers for credit monitoring and reporting services they never received, according to the CFPB.
In 2022, the bank faced two further fines amounting to £235 million. One was a £10 million civil penalty for unlawfully processing out-of-state garnishments, which involved removing customer funds for debts, and the other was a £225 million fine for automatically and unlawfully freezing customer accounts using a fraud detection program during the COVID-19 pandemic.
Mike Litt, U.S. Public Interest Research Groups Consumer Campaign Director, remarked on Tuesday, “Bank of America is a repeat offender. Despite being a well-known institution that has previously been penalised, it allegedly deceived customers by charging them tens of millions of pounds in fees and withholding credit card rewards, as well as opening unauthorised accounts. The CFPB’s robust enforcement action demonstrates the significance of having a federal agency continuously monitoring the financial market.”
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