The Consumer Financial Protection Bureau (CFPB) ordered Bank of America and subsidiary FIA Card Services to pay a record-setting $727 million for deceptively marketing credit card add-on products the agency said were sometimes not even provided—plus an additional $20 million civil penalty.
Pursuant to its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act to take action against unfair, deceptive or abusive practices, the CFPB’s allegations fell into two categories: deceptive marketing and charges for services not provided.
Over a two-year period, Bank of America marketed its “Credit Protection Plus” and “Credit Protection Deluxe” as means to cancel some credit card debt for specified hardships or life events, such as disability or retirement.
But the agency said more than 1.4 million card members were misled about the enrollment process (some customers were signed up thinking they were simply agreeing to receive additional information), the coverage of the products (the bank led customers to believe that the first 30 days were free of charge) and the benefits of the products (like the need to submit a request and be approved; some customers believed the benefits were automatic).
The bank will pay $268 million to customers for the alleged misrepresentations.
Bank of America also charged customers for services that were not received, the agency said, such as fraud and identity theft credit monitoring services “Privacy Guard,” “Privacy Source” and “Privacy Assist.” Federal law requires that consumers provide authorization for banks to obtain consumer credit information, but the CFPB said Bank of America billed customers either before obtaining approval or without the necessary consent. And for some customers, the fraud and identity theft services were either only partially performed or not performed at all, the agency alleged.
For the almost two million accounts affected by the alleged illegal practices between October 2000 and September 2011, the bank will pay $459 million to customers.
In addition to the $727 million in consumer redress, Bank of America will pay a $20 million civil penalty to the CFPB. The bank has already halted the marketing of the add-on products and agreed to a prohibition from any marketing of such products until a compliance plan has been submitted to the agency.
The challenged billing practices are also prohibited under the consent order.
The enforcement action began with an investigation by the Office of the Comptroller of the Currency (OCC), and the CFPB jumped on board. Separately, the OCC ordered a $25 million civil penalty for Bank of America’s billing practices, which the regulator said was based on “a number of factors, including the scope and duration of the violation and financial harm to consumers from the unfair practices.”
To read the CFPB’s consent order, click here.
To read the OCC’s consent order, click here.
Why it matters: It is the largest settlement over credit card add-ons with federal regulators and marks the largest refund amount ordered by the CFPB. In light of the crackdown by regulators on credit card add-ons, many banks have elected to discontinue these products. Given this settlement, along with prior settlements arising out of CFPB enforcement actions against Capital One, Discover, JPMorgan Chase and American Express, it is likely we will see a continuation of this trend. “We have consistently warned companies about illegal practices related to credit card add-on products,” CFPB Director Richard Cordray said in a statement about the case. “Bank of America both deceived consumers and unfairly billed consumers for services not performed. We will not tolerate such practices and will continue to be vigilant in our pursuit of companies who wrong consumers in this market.”