BofA in talks to pay $800m in credit card case

Bank of America is in talks to pay about $800m to settle allegations it misled customers who were sold additional credit card products, in what could mark the largest settlement yet levied by the US’s Consumer Financial Protection Bureau.

Discussions are continuing and a final deal has not yet been reached between BofA and the consumer regulator, which was created from the Dodd-Frank financial reform legislation of 2010, people familiar with the matter said. BofA and the CFPB declined to comment.

The regulator has been cracking down on companies accused of selling add-on credit card products to consumers without being transparent about the costs. The regulator, under director Richard Cordray, has been increasingly flexing its muscles across consumer banking – from mortgage servicing practices to credit card sales.

A final agreement with BofA would mark an important step in its broader investigation that started with enforcement against Capital One in July 2012.

Last year, JPMorgan Chase had to refund $309m to customers and pay an $80m fine to settle allegations it wrongly charged consumers for credit monitoring programmes that they did not actually receive.

JPMorgan’s case related to an offering at the bank to monitor customers’ credit and alert them to potentially fraudulent activities. Some customers were charged for the service but never authorised the process as is required by law and hence never received the benefits.

GE’s retail finance business, Synchrony, has also warned of the threat of regulatory uncertainty, particularly from the CFPB, as it prepares for its initial public offering.

Credit card companies American Express and Discover Financial have also agreed to settlements with the CFPB.

The $2.2tn US credit card industry is particularly competitive and as post-crisis regulation has been implemented banks have looked to rewards programmes to differentiate themselves from their rivals.

Card issuers are positioning themselves to benefit from the early stages of economic recovery, as improving credit quality and consumer confidence are translating into lower defaults and higher spending on cards.

The CFPB has also targeted non-bank mortgage servicers such as Ocwen Financial over concerns about the treatment of ‘underwater borrowers’, or borrowers whose mortgages are larger than the value of their house.

The largest non-bank mortgage servicing company in the US reached a $2.1bn deal with state and federal authorities to resolve allegations that it took advantage of homeowners, provided false information and charged unauthorised fees.

However, the agreement included a commitment to reduce principal balances for underwater borrowers by $2bn over the next three years. Principal forgiveness does not cost Ocwen “other than the operating expense incurred in arranging the modification”, the company said.