The Consumer Financial Protection Bureau (CFPB) ordered Bank of America (NYSE: BAC) to pay a civil penalty of $10 million for processing illegal garnishments against its customers' accounts.

In addition to the civil penalty, the CFPB also ordered Bank of America to refund at least $592,000 in garnishment-related fees to customers harmed by its practice.

Furthermore, the federal regulator directed the second largest bank in the United States to review and fix its broken garnishment process. It must inform courts or other garnishment issuers when customers' accounts are located out-of-state.

Moreover, the CFPB instructed Bank of America to remove unenforceable clauses from its contracts including a language purporting to limit customers' rights to challenge garnishments.

In a statement, CFPB Director Rohit Chopra said, “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." He added that the federal regulator is ordering the bank to fix its systems, clean up its contracts, and make its victims whole.”

Bank of America engaged in deceptive and unfair practices

The CFPB's enforcement action comes after reviewing the Bank of America's garnishment-related practices. The federal regulator found that the bank engaged in deceptive and unfair business practices by:

•  failing to apply appropriate state exemptions to certain customers' deposit accounts after receiving garnishment notices. State laws have limits or exemptions on bank accounts and paycheck garnishments to ensure that people have money left to live on.
• misrepresenting to customers the applicable state exemption rights for garnishment by applying the exemptions of the issuing state instead of the exemptions of the customers' state of residence.
• using a deposit agreement that required customers to direct the bank not to challenge the legal process and waive its liability for illegal garnishment practice.
• suggesting that customers could not bring legal claims, misrepresenting their legal rights against the bank regarding garnishment proceedings.

Bank of America's deceptive and unfair practices related to garnishments are a violation of Sections 1031(a) and 1036(a)(1)(B) of the Consumer Financial
Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

This is not the first time, the CFPB ordered Bank of America to pay a penalty for engaging in deceptive and unfair business practices. In 2014, the bank paid $727 million in relief to consumers harmed by its unlawful credit card billing practices.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to penalize financial institutions for violating consumer financial laws.

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