How Bank of America's settlement affects you

It isn't a huge payout compared to others, but it shows that the Consumer Financial Protection Bureau means business.

By MSN Money Partner Apr 10, 2014 3:05PM

Caption: A Bank of America sign outside a bank branch in Arlington, Va.
Credit: © Saul Loeb/AFP/Getty ImagesBy Eric Volkman, The Motley Fool


Well, that settles it. Bank of America (BAC), the latest bank to hammer out a deal with a regulator, has agreed to pay out roughly $772 million to retire allegations of deceitful business practices. 


The Consumer Financial Protection Bureau -- the government's watchdog for customers of financial institutions -- claimed that Bank of America engaged in "deceptive marketing of their [credit card] add-on products." 


Let's dig in to the settlement a bit to see what it means for both the lender and its affected customers.


What exactly are the CFPB's allegations?
For years, Bank of America assertively hawked a series of credit card payment add-ons. Two of these, Credit Protection Plus and Credit Protection deluxe, promised the cancellation of a certain amount of card debt in the event of awful circumstances such as the customer being fired from a job.


Apparently, though, salespeople would promise the first 30 days of coverage free of charge, when in fact the customer was being levied fees for the service from the beginning of enrollment, says the regulator. It also claims that Bank of America representatives were less than honest about the enrollment process itself, claiming that it involved a number of steps but in actuality signing customers up for the program immediately.


As for the benefits of the programs, the CFPB says that in some cases the company exaggerated the period of time customers were eligible for them, and misled clients into thinking they would automatically be entitled to a $25,000 death contingency (actually, they could only qualify through a formal submission and approval process).


The regulator also says that Bank of America played shady games with its identity protection add-ons. Allegedly the bank charged for services never received by enrolled customers of  the products, which bear the reassuring titles Privacy Guard, Privacy Source, and Privacy Assist. Apparently the company also levied what the CFPB characterizes as "unfair" fees for the products, which in a number of instances led to clients exceeding their credit card account limit . . . in turn, generating penalty interest and more monies for the bank.


According to the CFPB figures, around 1.4 million Bank of America customers were affected by the "deceptive" marketing claims, while 1.9 million were improperly charged for services they did not receive.


And who's getting that money?
Nearly all of the settlement amount -- up to $727 million -- will be paid to the affected customers in the form of refunds and "additional redress" paid as credit to their accounts or by check. How much they get depends on the product(s) they were enrolled in, the length of time enrolled, and whether or not they filed a formal request for benefits or a complaint regarding same to the bank or the CFPB.


Bank of America has already gotten the ball rolling. According to the CFPB, almost 1.4 million clients who purchased the credit protection add-ons have already been compensated, or will be in the future, to the tune of at least $250 million in total. 


The company will also have to fork over piles of dough to the Feds. It is to pay a $20 million civil money penalty to the CFPB, and a $25 million to the Office of the Comptroller of the Currency.  


Bank of America will not only be coughing up cash for the settlement. It has also agreed to a set of enforcement actions, namely to stop marketing credit protection and monitoring add-ons until it submits a compliance plan to the regulator for approval. Almost needless to say, it will also cease the "unfair" billing practices the CFPB found so irksome.


Will other big banks be investigated by the CFPB?
Most likely, yes. Since it began life in 2011, the CFPB has been active in going after financials it believes engage in manipulative or unfair practices with their clients. And it certainly hasn't shied away from the big guys in doing so; in a similar case to Bank of America, last September it ordered two subsidiaries of JPMorgan Chase (JPM) to refund approximately $309 million to more than 2 million customers for unfair billing of credit monitoring services that were never provided.


That was a little over a year after the regulator's first enforcement action, a collective $140 million in refunds it obligated Capital One (COF) to pay around 2 million of its customers in order to compensate for, yes, deceptive marketing practices for credit card add-ons.


The Bank of America settlement isn't a huge one by the incumbent financial's standards -- it's dwarfed by the roughly $9.5 billion pact the bank agreed with the Federal Housing Finance Agency in late March over the sale of mortgage-backed securities. The credit card case does, however, indicate that the CFPB means business, and has the will and resources to come after financials it believes don't play fair with their customers. Considering that, we should expect more such investigations -- and settlements -- in the future from this determined regulator. 


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Disclosure: Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Bank of America, and owns shares of Bank of America, Capital One, and JPMorgan Chase. 


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10Comments
Apr 10, 2014 6:22PM
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Government as a whole is just letting these banks walk all over everyone. Government has to ok new charges and fees for banks. Does it just make you wonder if there isn't some money passing under the table. We should have let them all go broke.
Apr 11, 2014 9:23AM
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wow...$250 million..they probably made 4 times that amount.....and continue the same practices
Apr 11, 2014 7:04AM
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Big banks scamming people - really? Who would have thunk. I'm not a fan of government overseers, but this CFPB seems to be doing something to help the public. How about more teeth in the USDA and other food safety overseers? Practically all food and drink is loaded with chemicals and packaging is deceptive. Our government allows labels on food to "omit" listing crap in the product and saying there is "something" in a product when it's not there. Haven't figured out yet why a certain percentage of something(bad for you) in a product can be listed as 0%. Zero is zero and something is something! Must be driven by the same mentality as "but I never inhaled" and "undocumented people" vs. "illegal" Screw the politically correct BS - illegal is illegal! OK TGIF - my rant for the day is over.
Apr 11, 2014 10:45AM
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We all know of the lucrative illegal business practices (and there were many) of and for the big financial institutions and they are are now being held accountable with monetary fines. Why are the people in charge not prosecuted and held accountable for illegal wrong doing??? Individuals working for those institutions made those decisions. 
Apr 14, 2014 7:43AM
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Responding  to governmentmmmmgood. "....let them all go broke". Easier said than done. Those largest banks as so huge and so intertwined with each other nationally - even internationally - that if one of them were allowed to "go broke" the impact on the economy would be severe, and might bring another down with them. The solution should be to restrict their activities to their core function: commercial banking, forbidding the complex, creative and risky financial products that few understand and are not products that are useful to the economy.  Gambling belongs in Las Vegas.
Apr 10, 2014 9:22PM
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The TBTF banks are all run by crooks and liars.
Apr 14, 2014 3:07PM
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If corporations get the same freedom of speech as individuals, Why can't individuals have the same protection from going to jail. People have said on this site why don't they go to jail for the s--- they pull?

Apr 14, 2014 11:05AM
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What about taking five months to close escrow on a refinance, for a reduced interest rate with hundreds of dollars per month reduction, for no good reason!  I have refinanced with Bank of America several times prior, that took less than a month!  We paid nearly a thousand dollars extra, because of the delay of closure!  This was at a time we really needed the money.
Apr 14, 2014 3:08PM
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Government should stop monitoring private businesses. Leave it to the market to regulate themselves.  So what if banks rip us off in the process. Get government out of the way NOW....
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