Bank of America Corporation (BAC) reached a settlement with US regulators yesterday, over allegations that it misled more than a million customers into buying credit card protection products they did not need. Under the terms of the settlement, the financial giant will pay a total of $772 million in penalties, of which $45 million will be paid in fines, while $727 million will be refunded to customers.
The latest settlement over deceptive card practices was announced by the Consumer Financial Protection Bureau (CFPB), the bank regulator that protects consumer interests, which will receive $20 million of the fines from Bank of America. The remaining $25 million will be paid to the Office of Comptroller of the Currency.
CFPB Director Richard Cordray stated: “We have seen several cases of deceptive marketing and illegal billing in this market. Here, Bank of America was doing both.”
Bank of America was found guilty of getting customers to sign up for additional credit card products without letting customers know beforehand about the charges. The bank was also charged with misrepresentation for telling customers that the first 30 days of their card contracts were free when they actually were not.
Another practice employed by the bank involved automatically enrolling customers for add-on products, when customers thought they were only agreeing to receive information on a product.
Bank of America issued a statement saying it did not admit to, or deny the charges, but said it had already refunded a large portion of its customers, and had stopped marketing add-on products in 2012.
Regulators are also saying that Bank of America’s policies led to such predatory practices becoming prevalent and that the bank’s telemarketers “often went off-script to make sales pitches that were misleading and that omitted pertinent information.” Customers unknowingly bought credit card protection products that could result in, or did result in incidents of identity theft.
The CFPB is accusing the bank of pushing out such identity protection products without authorization from its customers. One of the more serious charges against Bank of America involves the promise of an automatic ‘death benefit’ of $25,000, when in fact the customer had to file extensive paperwork and gain approval to receive such a payment.
Yesterday’s settlement is the latest in a string of crackdowns on credit card companies who have been fined for deceptive practices. In recent times, the CFPB has announced settlement charges worth over $800 million with financial giants like American Express Company (AXP), JPMorgan Chase & Co. (JPM), and Capital One Financial Corp. (COF). Last year JPMorgan paid around $380 million to settle charges of fraudulent billing to customers, while American Express hammered out a similar settlement with the CFPB in December last year. Capital One had to refund $150 million to around two million customers in 2012 over deceptive card practices.
The latest fine to hit Bank of America comes a month after it settled with the Federal Housing Finance Agency for $9.5 billion over deceptive practices found in its mortgage sales division.