Yahoo Finance Bank of America (BAC) Penalized $10M for Illegal Garnishments
Bank of America BAC has been asked to pay a penalty of $10 million by The Consumer Financial Protection Bureau for processing illegal, out-of-state garnishment orders against customer bank accounts, thus violating state laws.
The bank allegedly froze customer accounts unlawfully, sent payments to creditors based on out-of-state garnishment court orders and charged garnishment fees on its customers’ accounts. However, the payments made to creditors should have been processed under the laws of the states where the customers lived.
Since August 2011, Bank of America has unlawfully garnished at least 3,700 out-of-state accounts. The customers whose accounts were garnished have paid over $592,000 in fees for the same.
Bank of America has also violated the law by deceiving customers about their rights, imposing unenforceable clauses in take-it-or-leave-it customer contracts and failing to adhere to consumer protections governing customers’ bank accounts.
The bank has been directed to refund or cancel imposed fees from unlawful garnishments, and review and reform its system for processing garnishments, along with paying the penalty, as per the enforcement order.
Prior to this, the bank was involved in other malpractices as well, leading to legal issues. In May 2021, Bank of America had agreed to pay a penalty of $75 million in order to settle a lawsuit related to the extraction of overdraft fees that the bank did not earn from customers’ savings and checking accounts.
Despite Bank of America’s cost-saving initiatives, legal issues faced by the entity are expected to increase its expense base in the near term. Going forward, this will likely hurt the company’s bottom line.
Shares of BAC have lost 17.7%, less than the industry’s fall of 20.9%, in the past six months.
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Currently, Bank of America carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Malpractices by Other Firms
Several other banks continue to encounter legal hassles and are charged with huge sums of money for business malpractices.
A unit of The Bank of New York Mellon Corporation BK was charged with a record fine and handed a reprimand by the Central Bank of Ireland. Per an article by Bloomberg, the company broke the rules on outsourcing fund administration services and provided “inaccurate and incomplete information” to the regulators.
BNY Mellon Fund Services DAC admitted to the breaches, which took place between July 2013 and December 2019. The company was fined €10.78 million ($11.8 million) for 16 regulatory breaches. The penalty was reduced from €15.4 million as the company decided to settle.
The Central Bank of Ireland’s director of enforcement, Seana Cunningham, said that BNY Mellon “failed to act with expediency, transparency and openness even once it was aware that there were further issues with its outsourcing arrangements.”
In April, Wells Fargo & Company WFC agreed to pay $32.5 million to resolve allegations made in March 2020 of self-dealing with the company’s 401(k) plan. The settlement represents approximately 40% of the plan participants’ estimated damages.
According to papers filed in the Minnesota federal court, Wells Fargo breached its fiduciary duties by favoring its own funds in its retirement plans for employees above other similar investments that offered better results at lower fees.
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