CFPB Takes Action Against Bank of America
On May 4, 2022, the Consumer Financial Protection Bureau (CFPB) announced a $10 million civil penalty and the filing of a consent order against Bank of America, N.A. (BoA) for actions taken in respect to out of state garnishments.
In the Consent Order, the CFPB alleges the following conduct:
· BOA deceived customers about their rights by:
o Falsely representing that their customer’s rights to have funds exempted was governed by the law of the state that issued the garnishment.
o Informing customers that Bank of America applied the exemption law of the state that issued the garnishment when, generally, the law of the state where the customer resided applied.
· BOA imposed “take-it-or-leave-it” clauses in customer contracts that were unenforceable:
o Customer’s deposit agreements “directed” BoA to not contest garnishment orders on behalf of their customers and waived BoA’s liability regarding out of state garnishments.
o Clauses were meant to prevent customers from pursuing legal action against BoA for improperly handling garnishments.
o BoA represented that customers waived their right to hold BoA liable for improperly handling garnishment notices when such clauses were unenforceable under state law.
· BOA failed to follow consumer protections for customer’s bank accounts by:
o Acting on garnishment orders where the accounts were located out of state and protected from the out of state garnishment orders.
o Applying the law of the foreign state instead of the law of the state where the consumer resided.
o Improperly following out of state garnishment orders and turning over customer money to judgment creditors.
Credit unions may benefit from a review of the CFPB’s discussion on BoA’s conduct. The CFPB goes into much greater detail on what BoA did wrong and credit unions can use this discussion to ensure that they do not make the same mistakes with responding to garnishments that BoA allegedly did.
The consent orderrequires BoA and its staff to take the following actions:
· BOA is required to do the following:
o Process out of state garnishments in a way that does not violate section 1031 and section 1036 of the CFPA, 12 U.S.C. 5531 and 5536;
o Maintain accurate information regarding of out of state garnishments and exemptions;
o Create and maintain policies and procedures for complying with out of state garnishments;
o Train BoA personnel on the out of state garnishment policies and procedures;
o Respond to out of state garnishments;
o Cease freezing funds in out of state deposit accounts upon receipt of out of state garnishment;
o Maintain records of out of state garnishments;
o Remove “take-it-or-leave-it” clauses from deposit agreements;
o Cease communicating to consumers that they have waived rights regarding garnishments.
· Within 90 days of the effective date of the consent order, BoA must draft and submit a comprehensive compliance plan regarding out of state garnishments;
· BOA must revise compliance plan as directed by the Enforcement Director;
· BoA’s board of directors, or a committee, must ensure that BoA meets the requirements of the Consent Order;
· BOA must refund all garnishment related fees, not less than $592,000;
· BOA must draft and submit a redress plan that discusses how BoA will refund all garnishment related fees to BoA’s affected customers;
· BOA is ordered to pay a civil penalty of $10,000,000 to the CFPB;
Credit unions may find a review of the CFPB’s discussion of the above penalties informative. Even if some credit unions only operate in one state, credit unions can still learn from this. Member’s can and do move. It is likely that a credit union will receive an out of state garnishment. If the credit union is unsure of how to treat such a garnishment notice, it may ultimately want to speak to local counsel regarding the credit union’s requirements in dealing with such an out of state garnishment.
About the Author
Keith Schostag joined NAFCU as regulatory compliance counsel in February 2021. In this role, Keith assists credit unions with a variety of compliance issues.