Bank of America Corp., the second-biggest U.S. credit-card lender, reached a $783 million accord with regulators who said the firm deceptively sold debt cancellation and identity theft-protection products to millions of consumers.
The deal with agencies including the Consumer Financial Protection Bureau calls for $738 million in refunds and $45 million in penalties, the Charlotte, North Carolina-based bank said today in a statement. The accord will have little impact on first-quarter results because the company has been reimbursing customers for the past two years, said a person with direct knowledge of the process. The person asked for anonymity because earnings haven’t been released yet.
“Bank of America both deceived consumers and unfairly billed consumers for services not performed,” CFPB Director Richard Cordray said in a statement. “We will not tolerate such practices and will continue to be vigilant in our pursuit of companies who wrong consumers.”
Bank of America didn’t admit or deny breaking the law, according to the CFPB’s consent order for the accord, which the agency said was its biggest ever. The Office of the Comptroller of the Currency also ordered the lender to improve oversight of outside vendors that provide “add-on” consumer products and submit a risk-management program.
The announcement helps Bank of America Chief Executive Officer Brian T. Moynihan move past another regulatory hurdle as he seeks to turn around a firm that once ranked as the nation’s biggest consumer lender. Moynihan has committed more than $50 billion to resolve claims related to shoddy mortgages and foreclosures.
Bank of America joined much of the rest of the industry in halting the sale of credit-monitoring products that promise to inform customers of changes in their credit records or identity theft. The bank already had ceased selling debt-protection products, which ease payment obligations in case of job loss or other major life changes.
Most of the refunds have already been sent, Bank of America said. A sticking point in negotiations had been the amount of restitution, two people with knowledge of the discussions said in November.
About 1.4 million consumers were affected by the lender’s deceptive marketing of credit-card add-on products from 2010 to 2012, the CFPB said in a statement. The lender also illegally charged 1.9 million accounts for credit monitoring and reporting services that weren’t delivered from 2000 to 2011, the agency said.
The CFPB has wrung settlements from five of the six biggest U.S. credit-card lenders. It previously reached deals with JPMorgan Chase & Co., the largest issuer, as well as American Express Co., Capital One Financial Corp. and Discover Financial Services. No. 3 Citigroup Inc. said in March 2013 that it may face penalties from U.S. regulators over the sale of the products.
In the other cases, the consumer bureau penalized banks for allegedly deceptive marketing of the products. For example, telemarketers, which included call centers run by contractors for the banks, spoke very rapidly to customers or enrolled them without their knowledge.
When pressed about how the CFPB arrived at its $20 million portion of the civil penalty against Bank of America, Acting Enforcement Director Anthony Alexis said every case is “unique” and several factors are involved, including the size of the firm, length of the conduct being penalized and, in some cases, cooperation of the company.