The Consumer Financial Protection Bureau (CFPB) fined Bank of America $10 million for processing “unlawful” garnishments of customer accounts dating back to 2011.

Bank of America, the country’s second largest bank with $2.5 trillion in consolidated assets as of Dec. 31, “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,” the CFPB said Wednesday in a press release. The bank also inserted “unfair and unenforceable language into customer contracts that purported to limit customers’ rights to challenge garnishments,” according to the regulator.

The CFPB said Bank of America “unlawfully” garnished the accounts of at least 3,700 customers between August 2011 and March 2022, charging those customers at least $592,000 worth of unjust garnishment-related fees.

In addition to the fine, the agency ordered Bank of America to reimburse the $592,000 in garnishment-related fees to harmed customers, fix its garnishment process, and eliminate unenforceable clauses in its contracts.

Compliance lessons: According to the CFPB’s consent order, Bank of America violated state garnishment laws in so-called “restriction states” that included Alabama, Arizona (before August 2019), California, Florida (after August 2014), and Oregon when it failed to follow certain state-specific requirements and treated all garnishments the same nationally.

For example, if a garnishment notice was issued from a state where Bank of America had a financial center, the bank responded to the notice by indicating the identified consumer had a deposit account with potentially garnishable assets and froze or held the consumer’s account, regardless of whether the account was located outside of the issuing state, the order said.

Bank of America would also respond to out-of-state garnishment notices by identifying all accounts it held for the consumer anywhere in the nation and held or froze funds in those accounts, regardless of where the deposit accounts were located, according to the order.

While the bank’s training materials made it clear to employees some states limited the reach of out-of-state garnishment notices, the materials did not include all restriction states and did not consistently apply those instructions, the CFPB said. The bank also failed to notify the issuing court or other issuing entity the funds were located outside the state.

The CFPB ordered Bank of America to compile and maintain accurate and up-to-date information about the limits of out-of-state garnishment notices, as well as a list of all restriction states; create, maintain, and implement policies that consistently and accurately comply with all state laws regarding out-of-state garnishments; train responsible personnel on the proper procedures for handling out-of-state garnishments in restriction states; and notify the court or issuing entity a relevant deposit account is not located in the state that the out-of-state garnishment notice was issued.

Bank of America must also stop holding or freezing funds in those accounts and cease notifying customers they had waived their rights regarding garnishments by signing a deposit agreement, the agency said.

Within 90 days of the order, the bank must submit a comprehensive compliance-related plan for its garnishment procedures, with specific timeframes and deadlines, to the CFPB’s enforcement director.

Bank of America response: “We have enhanced our processes to ensure compliance with all applicable state laws as we execute court orders,” a bank spokesman said in an email. “As part of this agreement, we will refund associated fees to customers involved in approximately 3,700 cases.”

The spokesman also noted Bank of America processed about one million garnishment court orders during the time period reviewed by the CFPB.