Feds hit Bank of America with $250M in fines, restitution for fake accounts, junk fees

Charlotte-based Bank of America is paying over $100 million to compensate customers, and another $150 million in penalties, for actions that hurt “hundreds of thousands of consumers,” a federal agency said Tuesday.

The Consumer Financial Protection Bureau announced the moves after it found that the bank “systematically” double-dipped on fees imposed on customers with insufficient funds, withheld bonuses promised to credit card customers and misappropriated personal information to open accounts without customers’ knowledge or authorization.

Those actions “harmed hundreds of thousands of consumers over a period of several years,” the bureau stated in a news release. “These practices are illegal and undermine customer trust,” CFPB Director Rohit Chopra said in a statement.

Bank of America stipulated it agreed to a consent order “in the interest of compliance” and to resolve the matter, without admitting or denying any wrongdoing.

In its news release, the CFPB detailed findings of its investigation that led to the quarter-billion-dollar action against the second-biggest bank in the country:

▪ Bank of America had a policy of charging people $35 if the bank declined a transaction because of insufficient funds in their accounts. But the CFPB said it found that the bank “double-dipped” by letting fees be charged a number of times for the same transaction. That provided “substantial additional revenue” for the bank over a number of years, the bureau said.

▪ To compete with other credit card companies, Bank of America made special offers of cash and points when people signed up for a credit card. But the bank illegally withheld bonuses, such as cash rewards or bonus points, to tens of thousands of consumers, according to the CFPB.

▪ And from at least 2012, to reach now disbanded sales-based incentive goals and evaluation criteria, bank workers illegally applied for and enrolled consumers in credit card accounts without the customer authorizing or knowing about it, the CFPB said. It said the bank illegally used or obtained consumers’ credit reports without their permission to complete applications. Because of that, customers were charged unjustified fees and had negative effects on their credit profiles.

Bank of America’s response to the CFPB

The bureau ordered Bank of America to stop opening unauthorized accounts, and accurately market bonuses for rewards cards. The bank has reduced its reliance on junk fees, the bureau said, but it must stop repeatedly charging fees for insufficient funds.

When asked for comment on Tuesday’s actions, Bank of America said in a statement to The Charlotte Observer, “We voluntarily reduced overdraft fees and eliminated all non-sufficient fund fees in the first half of 2022. As a result of these industry leading changes, revenue from these fees has dropped more than 90 percent.”

Bank of America noted that the consent order stated that the unauthorized opening of accounts “were contrary to (the bank’s) policies and procedures and involved a small percentage of (the bank’s) new accounts.”

The bank also noted the order stated it had addressed a root cause of the issue by “eliminating sales goals both for compensation incentives and for performance management for financial center employees primarily responsible for the sale of consumer credit card accounts.”

And Bank of America said it already had provided redress on the credit card issue.

Details of the Bank of America consent order

The order requires Bank of America to compensate consumers who were charged unlawful non-sufficient fund fees, if they have not yet been made whole by the bank. That comes to about $80.4 million, and is in addition to the $23 million the bank already paid people who were denied credit card rewards bonuses.

Bank of America will pay the CFPB $90 million in penalties for charging repeat non-sufficient funds fees, for its credit card rewards practices and for opening unauthorized accounts. And the bank will pay the Office of the Comptroller of the Currency a $60 million penalty for double-dipping fee practices.

U.S. Sen. Sherrod Brown, D-Ohio, the Senate Banking Committee chair, had harsh words for Bank of America in the wake of Tuesday’s actions.

“Bank of America has clearly broken the law in yet another case of Wall Street banks taking Americans’ money to pad their already-massive profits,” Brown said in a statement.

As of March, Bank of America has $3.2 trillion in assets, with 68 million consumer and small business clients according to its latest quarterly filing. The bank will report its second-quarter financial results July 18.

In 2021, Bank of America had 16,000 workers in the Charlotte area.

Prior action against Bank of America

In May 2022, the bureau ordered Bank of America to pay a $10 million civil penalty for illegal garnishments — money taken out of a user’s paycheck to pay a debt. Later that year, the bank was ordered to pay back $225 million to customers after mishandling disbursement of state unemployment benefits from the pandemic.

Bank of America was sued in November for its marketing of Zelle, its digital payment network, for marketing the service as low-risk, after multiple users said they were scammed using Zelle’s direct connection to a user’s bank account.

Wells Fargo fake accounts scandal

Another bank with strong local ties, Wells Fargo, has faced a series of major fines, penalties and investigations following its 2016 fake accounts scandal.

That involved bank employees creating millions of fake accounts for customers without their knowledge in order to meet aggressive sales goals.

Regulators subsequently detailed a number of other problems at Wells Fargo, including how it handled mortgages, auto loans and consumer deposit accounts. In December, that led to a massive $3.7 billion settlement between the bank and the CFPB covering fines and restitution.

Wells Fargo is based in San Francisco but has its largest employee base in Charlotte, with about 27,000 workers.

Wells Fargo to pay $3.7 billion in penalties, restitution over ‘widespread mismanagement’

3 things to know about Wells Fargo, Charlotte’s biggest bank by employee totals