Th garnishment orders conducted by Bank of America (BAC) against customer accounts were illegal and the retail bank is required to pay a $10 million fine to the Consumer Financial Protection Bureau (CFPB).
The enforcement action from the CFPB occurred because the retail bank processed out-of-state garnishment orders against its customers’ bank accounts.
"Bank of America unlawfully froze customer accounts, charged garnishment fees, garnished funds and sent payments to creditors based on out-of-state garnishment court orders that should have been processed under the laws and protections of the states where the consumers lived," the CFPB said.
The bank also violated the law by adding "unfair and unenforceable language" into contracts that "purported to limit customers’ rights to challenge" the garnishments.
A Bank of America spokesperson said the company processed about one million garnishment court orders during the five years reviewed.
"We have enhanced our processes to ensure compliance with all applicable state laws as we execute court orders," said spokesman Bill Halldin. "As part of this agreement, we will refund associated fees to customers involved in approximately 3,700 cases."
The CFPB is requiring Bank of America to either refund or cancel the imposed fees from the unlawful garnishments and review and reform its system for processing garnishments.
“Bank of America imposed unlawful garnishment fees and injured its customers by inserting unenforceable clauses into contracts in an attempt to strip legal rights from families,” said Rohit Chopra, director of the CFPB.
“The CFPB is ordering Bank of America to fix its systems, clean up its contracts, and make its victims whole.”
Garnishments typically occur after a court order when a creditor takes a set amount of money from a bank account to pay back a debt.
State laws have set limits or “exemptions” for bank account and paycheck garnishments to "make sure people have money left to live on following garnishment," the CFPB said.
The Timeline
Bank of America began unlawfully garnishing at least 3,700 out-of-state accounts in August 2011.
These accounts paid a minimum of $592,000 in garnishment fees.
The bank engaged in both unfair and deceptive acts and practices when money from customers’ bank accounts was frozen or paid out even when local state laws deemed that impermissible due to the location of the accounts, the CFPB said.
Bank of America also harmed consumers by deceiving customers about their rights, imposing unenforceable clauses in take-it-or-leave-it customer contracts and failing to adhere to consumer protections governing customers’ bank accounts, the CFPB said.
Bank of America has conducted other illegal practices against its customers in the past.
The bank was sanctioned by the CFPB in 2014 for its illegal credit card practices and ordered by the CFPB to pay $727 million to its victims.
Charlotte-based Bank of America has $2.5 trillion in consolidated assets as of Dec. 31, 2021 and 4,100 branches, making it the second largest U.S. bank behind JPMorgan Chase (JPM).
Bank of America must now pay the $10 million civil penalty and also refund or cancel at least $592,000 in garnishment-related fees to consumers impacted by them.
The CFPB has the authority to take action against companies that violate consumer financial laws under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
