CFPB Orders Bank of America to Pay $10 Million Penalty for Illegal Garnishments
America’s second largest bank unlawfully garnished the accounts of thousands of its customers
MAY 4, 2022 | REPUBLISHED BY LIT: MAY 5, 2022
Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) finalized an enforcement action against Bank of America for processing illegal, 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.
Bank of America also violated the law by inserting unfair and unenforceable language into customer contracts that purported to limit customers’ rights to challenge garnishments.
The CFPB’s order requires Bank of America to refund or cancel imposed fees from unlawful garnishments, review and reform its system for processing garnishments, and pay a $10 million civil penalty.
“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.
“The CFPB is ordering Bank of America to fix its systems, clean up its contracts, and make its victims whole.”
Bank of America (NYSE: BAC) is a very large national bank headquartered in Charlotte, North Carolina, with approximately 4,100 branches and 16,000 ATMs.
It has been designated as a global systemically important bank by the Financial Stability Board, and as of December 31, 2021, the company had $2.5 trillion in consolidated assets, which makes it the second largest bank in the United States.
The bank has previously been sanctioned by the CFPB. In 2014, the CFPB ordered Bank of America to pay $727 million in redress to its victims for illegal credit card practices.
Garnishments occur when a creditor takes a portion of an individual’s paycheck, or money from their bank account, to collect a debt.
Most garnishments occur following court orders. State laws have limits or “exemptions” that apply to bank account and paycheck garnishments that are usually designed to make sure people have money left to live on following garnishment.
The exemptions in this case refer to state laws that limit what types and amounts of funds can be taken from a consumer’s bank account.
Since August 1, 2011, Bank of America unlawfully garnished at least 3,700 out-of-state accounts, and the customers whose accounts were garnished have paid at least $592,000 in garnishment fees.
The CFPB found that Bank of America engaged in unfair and deceptive acts and practices that resulted in money from customers’ bank accounts being frozen or taken when the garnishments were not permissible under the state laws where the accounts were located.
In addition to the $592,000 in unlawful fees, the company harmed consumers by:
Deceiving customers about their rights:
Bank of America falsely represented to customers that their rights to have certain funds exempted from garnishment were governed by the law of the issuing court’s state.
By stating to its customers that it applied the exemption law of the garnishment issuing state, Bank of America misrepresented to customers that their rights to have certain funds exempted from garnishment orders were governed by the laws of the issuing states when, actually, in most states, customers’ own state laws apply.
Imposing unenforceable clauses in take-it-or-leave-it customer contracts:
Bank of America required customers to “direct” it not to contest garnishment orders and to waive the company’s liability for its actions regarding the out-of-state garnishment orders.
This prevented customers from pursuing legal claims against Bank of America for improperly handling garnishments.
Bank of America also represented to its customers that they waived their right to hold the company liable for improperly responding to garnishment notices; however, account holders have the right to challenge garnishments despite any language in their account agreements to the contrary.
Failing to adhere to consumer protections governing customers’ bank accounts:
Bank of America acted on garnishment orders without disclosing that the accounts were located out-of-state and protected from the issuing courts’ garnishment orders.
Bank of America applied the consumer protections and exemption rights of the state that issued the garnishment order and not those of the state where the individual lived.
As a result, it improperly held, froze, and eventually turned over its customers’ funds to judgment creditors.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices.
The CFPB’s order requires Bank of America to:
Refund at least $592,000 in garnishment-related fees to harmed consumers:
Bank of America must refund or cancel all unlawful garnishment-related fees.
Fix its broken garnishment process:
Bank of America must review and reform its system for processing garnishments, and it must notify courts or other garnishment issuers when accounts are located out-of-state.
Eliminate unenforceable clauses from its contracts:
Bank of America must cease including language in customer contracts that purports to limit customer rights to challenge garnishments.
Pay a $10 million fine:
Bank of America must pay a $10 million dollar penalty to the CFPB, which will be deposited into the CFPB’s Civil Penalty Fund.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit consumerfinance.gov.
Enis alleges that BOA engaged in debt collection without obtaining a surety bond from the Secretary of State, in violation of Tex. Fin. Code Ann. § 392.101. Section 392.101 requires third-party debt collectors to obtain a surety bond. The Texas statute incorporates the definition of “third-party debt collector” from federal law, which defines a debt collector as any person who collects debts owed to another. See Tex. Fin. Code Ann. § 392.001(7); 15 U.S.C. § 1692a(6).
The amended complaint alleges that BOA holds the deed of trust and services the note, but that BOA does not own the note. Therefore, BOA is acting as a third-party debt collector and must obtain a surety bond. Enis’ allegation that BOA has not obtained a surety bond, taken as true, states a plausible claim that BOA violated § 392.101.
Enis v. Bank of Am., N.A., Civil Action No. 3:12-CV-0295-D, at *15-16 (N.D. Tex. Oct. 3, 2012)