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Bank of America will pay $250mn to settle charges over credit card and banking abuses that include opening accounts for consumers without their consent and repeat overdraft fees, US financial watchdogs said.
Customers will be reimbursed roughly $100mn and Bank of America will pay $150mn in fines as part of the settlement announced on Tuesday with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
“Bank of America wrongfully withheld credit card rewards, double-dipped on fees and opened accounts without consent,” said CFPB director Rohit Chopra in a statement. “These practices are illegal and undermine customer trust. The CFPB will be putting an end to these practices across the banking system.”
The CFPB alleged in the settlement that BofA, as recently as early last year, would charge a $35 overdraft fee numerous times on the same transaction. For example, if a BofA customer had signed up for their bank account to be automatically billed a gym membership or a utility bill, and they had insufficient funds, BofA would deny the transaction and assess a fee. If the provider resubmitted the transaction before the customer’s balance had recovered, BofA would charge another fee. The CFPB said the repeat charges were illegal and generated hundreds of millions of dollars in excess fees for BofA.
BofA is paying $120mn in penalties, split equally between the CFPB and the OCC, to settle the overdraft charges. The CFPB also said BofA agreed to reimburse customers for $80mn in excess overdraft fees that were identified by the regulator and BofA had not previously refunded.
BofA will take a charge for the settlement in its expenses when it reports second-quarter earnings next week, people familiar with its plans said.
“We voluntarily reduced overdraft fees and eliminated all non-sufficient fund fees [in 2022],” BofA said on Tuesday, adding that “revenue from these fees has dropped more than 90 per cent.” BofA settled the disputes without admitting or denying wrongdoing.
Last month, the CFPB issued an industry-wide report on overdraft fees that specifically praised BofA, saying the bank had done a better job than rivals last year in eliminating unfair levies.
The remaining $50mn of the settlement pertained to credit card rewards for new credit card customers and allegations that BofA opened credit cards for clients who had not applied, harming their credit.
The CFPB said the bank regularly advertised online cash or reward point rewards for new credit cards. But it did not deliver on those promises for customers who signed up for new accounts over the phone or in person, rather than online. The CFPB said BofA eliminated the sales incentives that led to the phoney accounts in January.
This is the second largest settlement that BofA has reached with the CFPB over abuses in its credit card division. It paid $727mn in 2014 over the marketing and billing for add-on products and credit monitoring.
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