Bank of America Penalized for Illegal Garnishments

Bank of America has been ordered to pay a $10 million penalty and make refunds to customers who were hit by illegal garnishments and the fees it charged for those illegal actions.

“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,” said Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB). “The CFPB is ordering Bank of America to fix its systems, clean up its contracts, and make its victims whole.”

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, CFPB said.

Bank of America also violated the law by inserting unfair and unenforceable language into customer contracts that purported to limit customers’ rights to challenge garnishments. The CFPB’s order requires Bank of America to refund or cancel imposed fees from unlawful garnishments, review and reform its system for processing garnishments, and pay a $10 million civil penalty.

The bank, second largest in the United States, has previously been sanctioned by the CFPB. In 2014, the CFPB ordered Bank of America to pay $727 million in redress to its victims for illegal credit card practices.

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Garnishment regulations

Garnishments occur when a creditor takes a portion of an individual’s paycheck, or money from their bank account, to collect a debt. Most garnishments occur following court orders. State laws have limits or “exemptions” that apply to bank account and paycheck garnishments that are usually designed to make sure people have money left to live on following garnishment. The exemptions in this case refer to state laws that limit what types and amounts of funds can be taken from a consumer’s bank account.

Since August 1, 2011, Bank of America unlawfully garnished at least 3,700 out-of-state accounts, and the customers whose accounts were garnished have paid at least $592,000 in garnishment fees.

The CFPB found that Bank of America engaged in unfair and deceptive acts and practices that resulted in money from customers’ bank accounts being frozen or taken when the garnishments were not permissible under the state laws where the accounts were located.

Bank of America is a very large national bank headquartered in Charlotte, North Carolina, with approximately 4,100 branches and 16,000 ATMs. It has been designated as a global systemically important bank by the Financial Stability Board, and as of December 31, 2021, the company had $2.5 trillion in consolidated assets.  

Read today’s order.

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