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BofA (BAC) to Pay $250M in Fines for Unscrupulous Practices
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Bank of America (BAC - Free Report) has been hit with substantial financial penalties that amount to $250 million. This includes $100 million in customer reimbursements and $150 million in fines due to a trio of unsavory practices involving overdraft fees, withholding credit card rewards and opening unauthorized accounts.
Allegations
The Consumer Financial Protection Bureau (“CFPB”) and the Office of the Comptroller of the Currency (“OCC”) have levied this colossal fine after BofA's actions were deemed illegal and a detriment to customer trust. The bank must refund $100 million to affected customers and pay $90 million to the CFPB and $60 million to the OCC.
Part of this penalty stems from the lender's policy of charging customers a $35 fee after declining transactions due to insufficient funds. The CFPB determined that BAC was guilty of "double-dipping" by allowing fees to be repeatedly charged for the same transaction.
BofA also faced scrutiny for withholding promised credit card bonuses and for its employees opening unauthorized credit card accounts, a practice that has been in place since 2012, according to the CFPB.
The allegations of opening accounts without customer consent echo those involving Wells Fargo (WFC - Free Report) . In September 2016, it came to light that WFC’s employees had opened millions of fake accounts for unsuspecting customers to meet unrealistic sales goals. Since then, the company has been grappling with numerous penalties and sanctions, including a cap on the asset position imposed by the Federal Reserve.
In a statement, a BofA spokesperson said, “We voluntarily reduced overdraft fees and eliminated all non-sufficient fund fees in the first half of 2022. As a result of these industry leading changes, revenue from these fees has dropped more than 90 percent.” The company ended these practices and reduced its overdraft fee to $15 last year.
Historical Precedence of Similar Penalties
This is not the first instance wherein BofA has faced substantial penalties for malpractice. In 2014, the CFPB ordered the bank to pay $727 million for illegal credit card practices.
Last year, BofA faced a $10 million penalty over unlawful garnishments and a staggering $225 million fine by the CFPB and the OCC due to improper handling of state unemployment benefits during the COVID-19 pandemic.
Parting Thoughts
It's critical to note that BAC has been actively working toward rebuilding its reputation, with a pronounced shift from dependency on overdraft fee income and other illicit practices to a focus on consumer financial health. Despite the hefty fines, the bank's decisive actions in rectifying the highlighted issues and its dedication to improving its practices offer a promising sign for future stability.
Over the past six months, shares of BofA have lost 17.6% compared with the industry’s fall of 10.1%.
BofA and WFC aren’t the only ones facing such penalties. Several major global lenders, including JPMorgan (JPM - Free Report) , has paid billions of dollars as fine over business misconduct in the past years.
These allegations and fines have not only hurt JPM’s financially but has dented its reputation.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.
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BofA (BAC) to Pay $250M in Fines for Unscrupulous Practices
Bank of America (BAC - Free Report) has been hit with substantial financial penalties that amount to $250 million. This includes $100 million in customer reimbursements and $150 million in fines due to a trio of unsavory practices involving overdraft fees, withholding credit card rewards and opening unauthorized accounts.
Allegations
The Consumer Financial Protection Bureau (“CFPB”) and the Office of the Comptroller of the Currency (“OCC”) have levied this colossal fine after BofA's actions were deemed illegal and a detriment to customer trust. The bank must refund $100 million to affected customers and pay $90 million to the CFPB and $60 million to the OCC.
Part of this penalty stems from the lender's policy of charging customers a $35 fee after declining transactions due to insufficient funds. The CFPB determined that BAC was guilty of "double-dipping" by allowing fees to be repeatedly charged for the same transaction.
BofA also faced scrutiny for withholding promised credit card bonuses and for its employees opening unauthorized credit card accounts, a practice that has been in place since 2012, according to the CFPB.
The allegations of opening accounts without customer consent echo those involving Wells Fargo (WFC - Free Report) . In September 2016, it came to light that WFC’s employees had opened millions of fake accounts for unsuspecting customers to meet unrealistic sales goals. Since then, the company has been grappling with numerous penalties and sanctions, including a cap on the asset position imposed by the Federal Reserve.
In a statement, a BofA spokesperson said, “We voluntarily reduced overdraft fees and eliminated all non-sufficient fund fees in the first half of 2022. As a result of these industry leading changes, revenue from these fees has dropped more than 90 percent.” The company ended these practices and reduced its overdraft fee to $15 last year.
Historical Precedence of Similar Penalties
This is not the first instance wherein BofA has faced substantial penalties for malpractice. In 2014, the CFPB ordered the bank to pay $727 million for illegal credit card practices.
Last year, BofA faced a $10 million penalty over unlawful garnishments and a staggering $225 million fine by the CFPB and the OCC due to improper handling of state unemployment benefits during the COVID-19 pandemic.
Parting Thoughts
It's critical to note that BAC has been actively working toward rebuilding its reputation, with a pronounced shift from dependency on overdraft fee income and other illicit practices to a focus on consumer financial health. Despite the hefty fines, the bank's decisive actions in rectifying the highlighted issues and its dedication to improving its practices offer a promising sign for future stability.
Over the past six months, shares of BofA have lost 17.6% compared with the industry’s fall of 10.1%.
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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.
BofA and WFC aren’t the only ones facing such penalties. Several major global lenders, including JPMorgan (JPM - Free Report) , has paid billions of dollars as fine over business misconduct in the past years.
These allegations and fines have not only hurt JPM’s financially but has dented its reputation.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.