Bank of America to Pay $727 Million For Unfair Credit Card PracticesBanker Resource
April 16, 2014 — 1,946 views
The Consumer Financial Protection Bureau (CFPB) has brought another errant company to book. It has ordered Bank of America to pay its customers $727 million in damages for indulging in unfair practices on the sales of add-on credit card products.
Roughly 1.4 million customers were affected by the Bank's deceptive marketing practices which brought in a windfall of cash for the company. The Bank was also held guilty of illegally charging 1.9 million customer accounts for credit reporting and monitoring services that it did not render. The Bank will also have to pay a $20 million fine to the CFPB which will go to the Civil Penalty Fund.
CFPB warns other financial institution to desist from such predatory activities
Richard Cordray, CFPB Director said that the agency has been consistently warning financial companies about indulging in illegal practices concerning add-on products (credit cards). He said that Bank of America had deceived its customers by billing them for services that it not give. He said that the CFPB was not going to tolerate such practices and will vigilantly pursue companies like Bank of America who wrong consumers.
From 2010-2012, Bank of America marketed two add-on services in the credit card payment protection category called Credit Protection Deluxe and Credit Protection Plus. According to the agreement, consumers could request the bank to cancel some of their debt in case they faced hardships like disability, involuntarily unemployment, retirement or entering college.
What did the bank actually do?
The CFPB said that the telemarketing scrips that the Bank used to market these product were full of misstatements. Moreover, the telemarketers often deviated from the script and made misleading statements, even hiding important information. For example, the bank provided misleading information about the coverage cost for the first 30 day, enrollment process and the benefit of the product.
The bank also enrolled customers in many identity protection add-on credit card services like Privacy Source, Privacy Assist and Privacy Guard without their permission. As per Federal law, the bank has to get its customers' ascent before it can obtain their credit information but the bank started billing its customers for the services without taking any authorization from them. In most cases, the services were not even rendered.
CFPB gets power from new consumer protection act
The Doff-Frank Wall Street Reform and Consumer Protection Act has given the CFPB the authority to initiate action against financial institutions that indulge in abusive, unfair or generally deceptive practices. Bank of America stopped offering the credit protection add-on service in August 2012. The also stopped marketing the identity protection services in December 2011.