On May 4, 2022, the Consumer Financial Protection Bureau published a consent order concerning Bank of America’s garnishment practices whereby Bank of America agreed to:
- Refund at least $592,000 to its customers for garnishment fees that were improperly assessed;
- Pay a civil penalty of $10 million; and
- Submit a compliance plan for redressing unfair and deceptive acts in its garnishment processing.
The order has significant implications for the banking industry and the processing of garnishments. Accordingly, it would be prudent for all banks to undertake an immediate review of the following.
The Processing of Certain “Out-of-State” Garnishments
The consent order finds that Bank of America engaged in an “unfair practice” by processing garnishments from Alabama, Arizona, California, Florida and Oregon―so-called restriction states―when the underlying account was located in another state. The order does not define account location, but looks to Bank of America’s deposit agreement, which in turn states that accounts are “located” in the state where the customer opened the account.
The most conservative interpretation of the order is that Bank of America should not have processed garnishments from the restriction states where the account opening documents showed that the customer had opened the account in another state. By way of illustration:
- A customer opens an account in New Jersey.
- A judgment creditor serves Bank of America with a Florida writ of garnishment.
- Bank of America should decline to process the writ of garnishment because it is “out of state” as the account is “located” in New Jersey.
The order further suggests that Bank of America should have alerted the issuing party and court to the fact that the funds sought were located in a different state. Accordingly, banks should review:
- Their processes for responding to garnishments to determine if they differentiate between the state from which the judgment creditor issued the notice and the state where the account is “located”; and
- Their deposit agreements to determine how account locations are defined.
At a minimum, it would be best practice to review current processes for responding to garnishments from Alabama, Arizona, California, Florida and Oregon.
Applying Exemptions of the Issuing State and Not the Customer’s State of Residence
The consent order finds that Bank of America engaged in an “unfair practice” when it processed out-of-state garnishments from nonrestriction states by applying the exemption laws of the issuing state (where the garnishment notice came from) instead of the exemption laws of the state where the customer resided. Thus, per the order, if a Bank of America customer resided in California and a judgment creditor served Bank of America with a New Jersey garnishment notice, Bank of America should have applied California exemptions to the account when responding.
Accordingly, it would be best practice for banks to examine their processing of state exemptions when the customer resides in a different state from the one where the judgment creditor issued the garnishment notice. Unfortunately, the order offers no clarity on how to determine an account holder’s current state of residence, which could conceivably be different from the state where the customer opened the account. A good starting point is to look to where the customer opened the account―but because it is possible that a customer resides in a different jurisdiction than where they opened their account, it is best practice to check any current residential information available in making this determination.
Deceptive and Unfair Clauses in Deposit Agreement
The consent order finds that it was an “unfair” and “deceptive” practice for Bank of America to include language in its deposit agreement that purported to be a direction from the customer to the bank not to contest any legal process and that waived any claims against Bank of America for improperly processing garnishments.
Accordingly, it would be best practice for banks to review their current deposit agreements to analyze the language concerning legal process and limitations of liability against this framework and, where necessary, consider revisions to the language.