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Bank of America has agreed to pay a settlement of $250 million to resolve allegations of credit card and banking misconduct brought by US financial regulatory bodies. The abuses included opening fraudulent accounts without customer consent and charging excessive overdraft fees.
Under the terms of the settlement, affected customers will be reimbursed approximately $100 million, and Bank of America will pay $150 million in fines. This agreement was jointly announced by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
Director of the Consumer Financial Protection Bureau, Rohit Chopra, stated, “Bank of America engaged in illegal practices such as wrongfully withholding credit card rewards, charging unauthorized fees, and opening accounts without customer consent. These actions undermine customer trust and are strictly prohibited. The CFPB is committed to putting an end to such practices within the banking system.”
In the settlement, the CFPB alleged that Bank of America had been repeatedly charging customers $35 overdraft fees for the same transaction, even as recently as early last year. For instance, if a customer had set up an automatic bill payment for a gym membership or a utility bill, and there were insufficient funds in the account, Bank of America would deny the transaction and assess a fee. If the provider resubmitted the transaction before the customer’s balance had recovered, additional fees would be charged. The CFPB declared these repeat charges illegal and estimated that they had resulted in hundreds of millions of dollars in excessive fees for Bank of America.
To settle the overdraft charges, Bank of America will pay $120 million in penalties, evenly split between the CFPB and the OCC. Additionally, the bank agreed to reimburse customers for $80 million in excessive overdraft fees that were identified by the regulatory bodies and had not been previously refunded.
Bank of America will record the settlement amount as an expense when it reports its second-quarter earnings next week, according to sources familiar with the matter. The bank clarified that it voluntarily reduced overdraft fees and eliminated non-sufficient fund fees in 2022, leading to a more than 90% drop in revenue from these fees. Bank of America settled the disputes without admitting or denying any wrongdoing.
Last month, the CFPB released a comprehensive report on overdraft fees within the industry. The report specifically commended Bank of America for its efforts in eliminating unfair charges and stated that the bank had performed better than its competitors in this regard throughout last year.
The remaining $50 million of the settlement pertains to allegations that Bank of America opened credit card accounts without the clients’ consent and failed to deliver promised rewards to new credit card customers. The CFPB stated that the bank regularly advertised cash or reward point rewards for new credit cards online but did not fulfill those promises for customers who applied for accounts over the phone or in person. Bank of America discontinued the sales incentives that led to the creation of unauthorized accounts in January.
This settlement is the second-largest that Bank of America has reached with the CFPB concerning misconduct in its credit card division. In 2014, the bank paid $727 million to address issues related to the marketing and billing of add-on products and credit monitoring.
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