Bank of America has been ordered to pay about $772 million in refunds to customers and fines to federal regulators to settle claims that the bank used deceptive marketing and billing practices involving credit card products. Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), said that Bank of America had deceived consumers.
The CFPB charged Bank of America with “illegally charging” its customers for credit monitoring and credit reporting services that were not received. As part of a consent order agreed to by Bank of America with the agency, announced on April 9, the bank was ordered to give refunds to more than a million customers who purchased these add-on products for their credit cards. The bank must also pay a $20 million fine to the Consumer Financial Protection Bureau and $25 million to the Office of the Comptroller of the Currency.
Some of the misleading practices, according to the regulators, included the bank’s telemarketers telling customers that the first 30 days of service were free when, in fact, customers were charged. The bank also misled customers to believe that they were merely agreeing to receive additional information about the add-on services. But the bank was actually enrolling these consumers in the products during these calls, the consumer protection agency said.
The products allowed customers to request that Bank of America cancel some amount of credit card debt in case they lost their job or became disabled. Richard Cordray, the director of the consumer agency, had this to say:
Bank of America both deceived consumers and unfairly billed consumers for services not performed. We will not tolerate such practices and will continue to be vigilant in our pursuit of companies who wrong consumers in this market.
The CFPB also cited Bank of America for billing consumers for credit protection services that they never fully received. In some cases, the agency said these practices caused customers to exceed their monthly credit limits, resulting in additional costs. According to the agency, Bank of America engaged in these billing practices from 2000 to 2011, affecting 1.9 million customers.
The bank said in a statement it had already refunded money to a “majority” of the affected customers. This action against Bank of America is the latest by the CFPB, which has gone after a number of banks for selling credit card products to consumers that they never wanted and could not use. In fact, the agency’s first enforcement action against the financial industry centered on this very issue. It came when the federal regulator demanded in 2012 that Capital One reimburse $150 million to more than two million consumers. American Express entered into a similar settlement with the agency last year. Its rival Discover brokered a settlement with the regulator in 2012.
Most recently, JPMorgan Chase, the nation’s largest bank, in a settlement with the Consumer Financial Protection Bureau and the comptroller’s office, agreed to make refunds to 2.1 million customers. These regulatory actions aim at one of lenders’ most questionable profit generators. The products, promoted as a way of shielding borrowers from identify theft or other hardships, including unemployment or disability, have also come under fire from state attorneys general. For example, in 2012 the Hawaii attorney general accused some of the nation’s biggest banks of improperly selling similar add-on products.
Part of the problem with the add-ons, according to consumer advocates, is that they are both expensive and ineffective. The add-on products can lure consumers still trying to dig out from the depths of the recession, because the products promise to protect them from unforeseen economic hardship. The regulatory action comes as the CFPB uses its enforcement authority. The Dodd-Frank regulatory overhaul, passed after the 2008 financial crisis, gave the agency this authority. It’s good to see the law being used to protect and help consumers.
Source: New York Times
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