Bank of America fined $10 million by CFPB for poor garnishment

Bank of America was fined $10 million by the Consumer Financial Protection Bureau (CFPB) for processing "illegal" garnishments of customer accounts dating back to 2011.

In a press release issued Wednesday, the Consumer Financial Protection Bureau said 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." According to the regulator, the bank also inserted "unfair and unenforceable language into customer contracts that purported to limit customers’ rights to challenge garnishments."

According to the Consumer Financial Protection Bureau, between August 2011 and March 2022, Bank of America "unlawfully" garnished the accounts of at least 3,700 customers, charging them at least $592,000 in unjust garnishment-related fees.

In addition to the fine, the agency ordered Bank of America to reimburse customers for $592,000 in garnishment-related fees, improve its garnishment process, and remove unenforceable contract clauses.

Bank of America violated state garnishment laws in so-called "restriction states" such as Alabama, Arizona (before August 2019), California, Florida (after August 2014), and Oregon, according to the CFPB's consent order, by failing to follow certain state-specific requirements and treating all garnishments the same nationally.

If a garnishment notice was issued in a state where Bank of America had a financial center, the bank responded by indicating the identified consumer had a deposit account with potentially garnishable assets and froze or held the account, regardless of whether the account was located outside of the issuing state, according to the order.

According to the order, in response to out-of-state garnishment notices, Bank of America would identify all accounts it held for the consumer anywhere in the country and hold or freeze funds in those accounts, regardless of where the deposit accounts were located.

The CFPB said that while the bank's training materials made it clear to employees that some states limited the reach of out-of-state garnishment notices, the materials did not include all restriction states and did not apply the instructions consistently. The bank also failed to inform the issuing court or other issuing entity that the funds had been moved out of state.

The Consumer Financial Protection Bureau (CFPB) ordered Bank of America to compile and maintain accurate and up-to-date information about the limits of out-of-state garnishment notices, as well as a list of all restriction states; create, maintain, and implement policies that consistently and accurately comply with all state laws regarding out-of-state garnishments; train responsible personnel on the proper procedures for handling out-of-state garnishments in restriction states; and notify the court or issuer of the garnishment notice.

The bank must also stop holding or freezing funds in those accounts, as well as notifying customers that they had waived their garnishment rights by signing a deposit agreement, according to the agency.

The bank must submit a comprehensive compliance-related plan for its garnishment procedures to the CFPB's enforcement director within 90 days of receiving the order, with specific timeframes and deadlines.

In an email, a Bank of America spokesman said, "We have enhanced our processes to ensure compliance with all applicable state laws as we execute court orders." "As part of this agreement, we will refund associated fees to customers involved in approximately 3,700 cases."

During the time period examined by the CFPB, Bank of America processed about one million garnishment court orders, according to the spokesman.

By fLEXI tEAM