Bank of America Corporation BAC should face a lawsuit for its failure to respond to unauthorized transactions on unemployment and disability benefits cards in California in 2020, per the U.S. District Judge Larry Alan Burns. The news was reported by Reuters.
The San Diego judge asked the affected cardholders to move ahead with a proposed class action lawsuit against BofA, claiming that it violated state law by issuing cards to millions of people in California that lacked standard security measures.
Per the benefits recipients, the bank broke federal law by failing to investigate fraud claims or summarily freezing tens of thousands of accounts.
The cardholders also claimed that BofA was unable to follow the Electronic Fund Transfer Act, which sets rules for banks to resolve account errors.
BAC also violated California’s consumer privacy law by issuing cards with outdated magnetic stripes, rather than chip technology, leaving them subject to fraud.
Hence, Burns said that the cardholders should move ahead with the above-mentioned claims and others.
However, Burns dismissed claims that BofA violated California’s Unfair Competition Law and that it breached its contract with the state.
A spokesperson for Bank of America refused to respond immediately to a request for comment yesterday.
BofA had previously agreed to cease using automated fraud detection software to freeze accounts.
Despite Bank of America’s cost-saving initiatives, continued legal issues faced by the entity are expected to increase its expense base in the near term. Elevated costs will, thus, hurt the company’s bottom line to an extent.
In May 2022, BAC was asked to pay a penalty of $10 million by The Consumer Financial Protection Bureau (“CFPB”) for processing illegal, out-of-state garnishment orders against customer bank accounts, thus violating state laws.
BofA allegedly froze customer accounts unlawfully, sent payments to creditors based on out-of-state garnishment court orders and charged garnishment fees on its customers’ accounts. However, the payments made to creditors should have been processed under the laws of the states where the customers lived.
In July 2022, the bank was fined $225 million by a pair of U.S. banking regulators over “botched” handling of jobless benefits during the pandemic.
The Office of the Comptroller of the Currency and CFPB said that BAC had a faulty fraud detection program that improperly froze the prepaid card accounts of thousands of people seeking jobless benefits in 2020-2021.
Apart from the fine, it was asked to pay redress to harmed consumers, which CFPB estimated would amount to hundreds of millions of dollars more.
Over the past six months, shares of BAC have lost 23.5% compared with the industry’s fall of 14.5%.
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Currently, Bank of America carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Financial Misconduct by Other Firms
Earlier this month, Wells Fargo & Company WFC agreed to pay $1 billion related to a lawsuit accusing it of overstating the progress on resolving its 2016 fake account scandal and thereby defrauding shareholders.
Since 2018, WFC has been under consent orders from the Federal Reserve and two other financial regulators to improve its governance and oversight.
But shareholders alleged that Wells Fargo and its past management misinformed them about how swiftly the company was addressing the governance issues and risk-management systems due to which the bank opened millions of fake accounts. Accordingly, when these shortcomings surfaced, WFC's market value fell by more than $54 billion over two years ending in March 2020.
However, Wells Fargo denied any wrongdoing and decided to settle to eliminate further litigation expenses.
HSBC Holdings plc HSBC was charged by the U.S. Commodity Futures Trading Commission (“CFTC”) for manipulative and deceptive trading, and record-keeping failures. Units of HSBC agreed to pay $75 million to settle the charges.
Per CFTC’s claim, between March 2012 and April 2016, HSBC traders engaged in manipulative and deceptive trading in interest rate swaps and other financial products.
HSBC has already been penalized by the Securities and Exchange Commission for related charges.
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