Major Bank To Pay $575 Million Settlement Over Fake Accounts
Inside Subprime: Jan 21, 2019
By Lindsay Frankel
A major bank will pay $575 million to resolve claims of phony accounts and other disreputable sales tactics that impacted millions of customers. The settlement agreement with 50 states and the District of Columbia is one of the largest to occur between a national bank and state Attorneys General.
In an aggressive sales tactic, the bank was found to have opened 3.5 million accounts without consent from customers. The $1.9 trillion-asset bank also allegedly “improperly charged” insurance fees on more than 2 million accounts and imposed rate-lock fees on mortgage borrowers.
In February of 2018, The Federal Reserve voted to restrict the bank’s growth, an unprecedented action that happened as a result of the fake accounts scandal and other issues. The bank said in a statement that the settlement would resolve these recent issues. “This agreement underscores our serious commitment to making things right in regard to past issues as we work to build a better bank,” said CEO and president Tim Sloan.
The bank will pay $385 million to about 850,000 auto finance customers as part of the settlement. These customers were charged for force-placed insurance coverage, even though they already had existing auto insurance policies. The bank will also pay $37 million in restitution to customers who had Guaranteed Asset/Auto Protection products that were not paid out. In addition, the bank will pay $100 million to mortgage borrowers who were wrongfully charged.
“This agreement is unique and one of the largest multi-state settlements with a bank since the National Mortgage Settlement in 2012,” said Attorney General Tom Miller in a press release.
Previously, the bank paid a separate $1 billion fine to regulators including the Comptroller of the Currency and the Consumer Financial Protection Bureau after the agencies began investigating the bank. The bank said the sales practices which led to the fake accounts and wrongful charges have been replaced.
The bank’s “sales goals and the incentive compensation program created an impetus for employees to engage in improper sales practices to satisfy such sales goals and earn financial rewards,” said the Attorneys General. “Those sales goals became increasingly harder to achieve over time, the states alleged, and employees who failed to meet them faced potential termination and career-hindering criticism from their supervisors.”
The bank will also be required to establish a program within 60 days for other customers to seek restitution, in case some were left out of the bank’s restitution efforts so far. The bank “will create and maintain a website for consumers to use to access the program and will provide periodic reports to the states about ongoing restitution efforts,” the AGs said.