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1 More Threat to Bank of America's Earnings

Just when you thought Bank of America (NYSE: BAC  ) was in the clear, it's about to be hit with another large litigation-related loss.

According to multiple sources, the nation's second largest bank by assets is in talks with the Consumer Financial Protection Bureau to settle charges that it deceived customers into paying for credit protection services as a part of the credit card application process.

While the deal appears to be nearing completion, it's been in the works for some time. Bloomberg News reported last November that the two parties had begun negotiations. Additionally, it's the fifth such settlement reached with a major bank by the CFPB related to the practice.

Essentially all of the major credit card issuers have ceased the practice over the last few years. Both Capital One  (NYSE: COF  ) and JPMorgan Chase  (NYSE: JPM  ) led the way, stopping new enrollments in 2012 -- the former after entering into the first of such deals with the CFPB in July of that year.

In Bank of America's case, a final agreement would represent an added chapter to a private settlement it reached in July 2012. In that case, the bank agreed to reimburse affected card-credit customers between $50 and $100 depending on the specific circumstances. All told, it was expected to cost Bank of America $20 million -- click here to see a full list of Bank of America's legal settlements since 2008.

With the benefit of hindsight, that figure seems reasonable if not downright deficient. Media reports peg the current settlement at $800 million, which would amount to the largest yet from a credit card issuer in the CFPB's campaign to reign in the abusive practice.

For shareholders in Bank of America, this adds to a $9.5 billion deal announced last week between the bank and the Federal Housing Finance Agency. That case concerned claims that Fannie Mae and Freddie Mac suffered losses from toxic mortgage-backed securities purchased from Bank of America subsidiaries -- namely, Countrywide Financial.

With this in mind, it would be ridiculous to claim that $800 million doesn't matter. That's a lot of money for any bank, including Bank of America.

At the same time, however, the sooner these issues are addressed by Bank of America, the sooner it can put all of its past abhorrent practices behind it. And it's at that point that shareholders can truly expect to see a new trajectory for both earnings and the amount of capital flowing their way via higher dividends and bigger share buybacks.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 05, 2014, at 1:06 PM, Rifleman3006 wrote:

    Tell us something we don't already know!

  • Report this Comment On April 05, 2014, at 2:27 PM, srcpl wrote:

    Chump change, even if it happens !! BAC's attorneys are the best in the world !!! I know for a fact, because my ..................................

  • Report this Comment On April 05, 2014, at 5:02 PM, maestrolindo wrote:

    Another bank getting off lightly for defrauding Fannie and Freddie.. meanwhile senators are still stroking themselves over fake housing reform bills.

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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