What You Need to Know About Bank of America's Latest Settlement

Bank of America is obligated to pay at least $772 million to retire allegations of misleading credit card customers. Here are the whys and wherefores of the deal.

Apr 10, 2014 at 11:00AM

Traffic
Source: Flickr / dwightsghost.

Well, that settles it. Bank of America (NYSE:BAC), the latest bank to hammer out a deal with a regulator, has agreed to pay out roughly $772 million to retire allegations of deceitful business practices. The Consumer Financial Protection Bureau -- the government's watchdog for customers of financial institutions -- claimed that Bank of America engaged in "deceptive marketing of their [credit card] add-on products." Let's dig in to the settlement a bit to see what it means for both the lender and its affected customers.

What exactly are the CFPB's allegations?
For years, Bank of America assertively hawked a series of credit card payment add-ons. Two of these, Credit Protection Plus and Credit Protection deluxe, promised the cancellation of a certain amount of card debt in the event of awful circumstances such as the customer being fired from a job.

Apparently, though, salespeople would promise the first 30 days of coverage free of charge, when in fact the customer was being levied fees for the service from the beginning of enrollment, says the regulator. It also claims that Bank of America representatives were less than honest about the enrollment process itself, claiming that it involved a number of steps but in actuality signing customers up for the program immediately.

As for the benefits of the programs, the CFPB says that in some cases the company exaggerated the period of time customers were eligible for them, and misled clients into thinking they would automatically be entitled to a $25,000 death contingency (actually, they could only qualify through a formal submission and approval process).

The regulator also says that Bank of America played shady games with its identity protection add-ons. Allegedly the bank charged for services never received by enrolled customers of  the products, which bear the reassuring titles Privacy Guard, Privacy Source, and Privacy Assist. Apparently the company also levied what the CFPB characterizes as "unfair" fees for the products, which in a number of instances led to clients exceeding their credit card account limit... in turn, generating penalty interest and more monies for the bank.

According to the CFPB figures, around 1.4 million Bank of America customers were affected by the "deceptive" marketing claims, while 1.9 million were improperly charged for services they did not receive.

And who's getting that money?
Nearly all of the settlement amount -- up to $727 million -- will be paid to the affected customers in the form of refunds and "additional redress" paid as credit to their accounts or by check. How much they get depends on the product(s) they were enrolled in, the length of time enrolled, and whether or not they filed a formal request for benefits or a complaint regarding same to the bank or the CFPB.

Bank of America has already gotten the ball rolling. According to the CFPB, almost 1.4 million clients who purchased the credit protection add-ons have already been compensated, or will be in the future, to the tune of at least $250 million in total. 

The company will also have to fork over piles of dough to the Feds. It is to pay a $20 million civil money penalty to the CFPB, and a $25 million to the Office of the Comptroller of the Currency.  

Bank of America will not only be coughing up cash for the settlement. It has also agreed to a set of enforcement actions, namely to stop marketing credit protection and monitoring add-ons until it submits a compliance plan to the regulator for approval. Almost needless to say, it will also cease the "unfair" billing practices the CFPB found so irksome.

Will other big banks be investigated by the CFPB?
Most likely, yes. Since it began life in 2011, the CFPB has been active in going after financials it believes engage in manipulative or unfair practices with their clients. And it certainly hasn't shied away from the big guys in doing so; in a similar case to Bank of America, last September it ordered two subsidiaries of JPMorgan Chase (NYSE:JPM) to refund approximately $309 million to more than 2 million customers for unfair billing of credit monitoring services that were never provided.

That was a little over a year after the regulator's first enforcement action, a collective $140 million in refunds it obligated Capital One (NYSE:COF) to pay around 2 million of its customers in order to compensate for, yes, deceptive marketing practices for credit card add-ons.

The Bank of America settlement isn't a huge one by the incumbent financial's standards -- it's dwarfed by the roughly $9.5 billion pact the bank agreed with the Federal Housing Finance Agency in late March over the sale of mortgage-backed securities. The credit card case does, however, indicate that the CFPB means business, and has the will and resources to come after financials it believes don't play fair with their customers. Considering that, we should expect more such investigations -- and settlements -- in the future from this determined regulator. 

Credit cards may soon be completely worthless, anyway
Considering the latest legal woes, perhaps this is a good thing -- the plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Bank of America, and owns shares of Bank of America, Capital One, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers