PENALTIES AND REQUIREMENTS IMPOSED ON THE BANK
Monetary penalties
The Bank agreed to pay a $10 million
penalty to the CFPB and to refund
at least $592,000 in fees charged to
customers. The order specifies that
this penalty should not offset against
damages assessed in any related
consumer litigation.
Provisions for out-of-state garnishments and exemptions
In addition to prohibiting the specific
practices addressed, the order imposes
affirmative requirements including the
following:
-
Compile accurate information on states’
out-of-state garnishment laws and
exemptions and implement compliance
policies and procedures accordingly.
Train personnel and monitor compliance.
-
Provide notice to the issuing entity
when no account is located in the
issuing state, notice to the debtor with
details of the garnishment, and in some
states, notice to the debtor of their
rights to assert exemptions.
-
Revise deposit agreements to exclude
any waivers of customer rights regarding
garnishments.
Enhanced regulatory oversight
The order imposes the typical ongoing,
detailed CFPB oversight, which will
place the bank under ongoing scrutiny
while it remediates its garnishment
processes. The reporting burdens may
ultimately prove to be the most onerous
sanction, and include these specific
requirements:
-
Develop and submit for CFPB approval
a compliance plan with detailed steps
and timeline for implementation. Provide
staffing and resources necessary to
comply.
-
Submit for CFPB approval a redress plan
for repaying fees, including template
customer communications, deadlines,
and details on customers, payments,
and how affected customers will be
identified and payments calculated,
tracked, and distributed.
-
Provide comprehensive reporting on
”the manner and form in which Respondent
has complied with … the Consent
Order” (including contact information
for everyone processing garnishments
for BofA).
GARNISHMENT COMPLIANCE AFTER THE CFPB ORDER
While garnishments and the CFPB
consent order present certain
complexities, ultimately, fundamentals
familiar to compliance professionals are
the foundation for success. An effective
compliance program entails at least
these elements: a compliant policy, an
individual responsible for the function,
staff training, a system to facilitate
execution, and feedback and audits.
Develop a compliant policy
In response to the order, compliance
professionals should review deposit
agreements and garnishment response
practices to identify appropriate
changes. The right answers will vary
with each FI’s circumstances. For
example, compliance for smaller FIs
located in only one or two states may
be considerably simpler than for larger
entities.
Perhaps the most important policy
decision is how to determine which
state’s laws govern whether the
garnishment is valid and which
exemptions apply. This decision may
implicate an FI’s deposit agreement.
Any policy decision likely will involve
weighing the risks of non-compliance—
with the CFPB order or with state
law—against the practical challenges of
administration.
For example, assume an FI adopts a
policy that strictly adheres to the order.
For each garnishment, the FI would
identify the issuing state, the account
location, and the debtor’s current state
of residence. The order suggests (with
some ambiguity) that the issuing state’s
law governs garnishment procedures,
while the debtor’s state of residence
“usually” determines exemptions.
In practical effect, discerning the
underlying facts, determining applicable
law for the garnishment itself and for
exemptions, and accurately executing
legal requirements could potentially
involve legal personnel in every
garnishment. That consideration must
be balanced against the competing
requirements of practicable process
and timely execution. In addition, an
FI following such a policy may dispute
more garnishments and, as a result,
respond to more challenges from
creditors’ attorneys (who likely will cite
state garnishment law rather than the
CFPB order).