According to a report in the Wall Street Journal, Bank of America is near a deal with the Consumer Financial Protection Bureau to settle allegations that the lender pressured consumers into dubious credit card add-on products. The settlement is reportedly in excess of $800 million. It would be the fifth settlement with a credit card company in the last year and would be the largest CFPB settlement yet. Click here for the blog post the CFPB wrote about this.
The CFPB is responding to allegations that Bank of America, the nation’s second-largest bank, misled consumers about the value and effectiveness of credit card add-on products. Since 2012, Capital One, American Express , Discover Financial Services and JPMorgan Chase all have paid fines to resolve allegations of unfair practices related to such products. The CFPB is continuing to look at add-on products at other lenders as well, according to Journal sources.
The CFPB found that Bank of America aggressively sold products to consumers without clearly explaining the costs associated with them, claiming that they would protect the credit rating of cardholders if they were unable to make their payments. The investigators said these products offer little actual benefit to consumers and were regularly marketed in a deceptive manner. For example, the service advertised as “Credit Protection Plus” promised to make a payment if the consumer was unable to. However, the cost of the service was 94 cents per $100 of balance. So a cardholder seeking to purchase the service would pay almost $50 each month, in addition to their minimum payment. A product called “Card Protection Deluxe” claimed to cover payments in the event of unemployment, but did not fully explain that the coverage didn’t begin until the customer had been unemployed two full months and thus already subject to late fees.
After facing criticism from regulators, Bank of America ceased to provide these products to new customers in 2012. A spokesman for the bank told the Journal that money had already been refunded to many affected consumers during the past two years. Until the settlement becomes official, it is unclear how much of the reported $800 million would be refunded to consumers and how much would be paid in penalties to the CFPB.
Although the 2009 Credit Card Accountability, Responsibility and Disclosure Act eliminated many credit card fees and rate changes that critics had said trapped consumers in debt, the CFPB continues to scrutinize many remaining fees and ad-ons in the industry.