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The Consumer Financial Protection Bureau has fined Bank of America $10 million for processing what the agency said were illegal, out-of-state garnishment orders against its customers’ bank accounts.
Instead of processing garnishments under the state laws applicable where the consumers lived, the CFPB said in a statement yesterday, “Bank of America used out-of-state court orders to unlawfully freeze customer accounts, charge garnishment fees, garnish funds and send payments to creditors.”
The CFPB also alleged that Bank of America had unfair and unenforceable language in customer contracts to limit customers’ rights to challenge garnishments, which the CFPB said violated the law.
In addition to a $10 million civil penalty, the CFPB’s enforcement action requires Bank of America to refund or cancel at least $592,000 in fees for garnishments affecting at least 3,700 out-of-state accounts. The bank must also review and reform its system for processing garnishments.
“Bank of America imposed unlawful garnishment fees and injured its customers by inserting unenforceable clauses into contracts in an attempt to strip legal rights from families,” CFPB Director Rohit Chopra, said. “The CFPB is ordering Bank of America to fix its systems, clean up its contracts, and make its victims whole.”
The enforcement action with Bank of America involved states that have laws to limit the types and amounts of funds that creditors can take from a consumer’s bank account to cover a debt. These limits that apply to bank account and paycheck garnishments are usually designed to ensure people have money left to live on following the garnishment, the CFPB said, adding that most garnishments occur following court orders.
The CFPB accused Bank of America of deceiving customers by saying that their rights to have certain funds exempted from garnishment were governed by the law of the issuing court’s state, when, in most cases, the customers’ own state laws applied.
According to the CFPB, Bank of America unlawfully garnished at least 3,700 out-of-state accounts since 2011. Those customers affected by the garnishments have paid at least $592,000 in garnishment fees.
The CFPB also said that Bank of America required customers to direct the company not to contest garnishment orders and to waive the company’s liability for its actions regarding the out-of-state garnishment orders. Bank of America also represented to its customers that they waived their right to hold the company liable for improperly responding to garnishment notices, the CFPB said, adding that account holders do have the right to challenge garnishments.
