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CFPB investigating Bank of America over phony accounts

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As part of a probe that grew out of the Wells Fargo phony-accounts scandal, the CFPB is investigating whether Bank of America also violated federal law by opening credit card accounts without customer authorization.

The civil investigation of BofA came to light Tuesday when the bureau posted documents online that detail its legal wrangling with the Charlotte, North Carolina company. Bank of America has argued that a March 2019 demand for emails and other records is unduly burdensome, while also calling on the agency to close its investigation. CFPB Director Kathleen Kraninger denied the bank’s petition in July.

In one of the newly posted documents, a lawyer for Bank of America acknowledged that the bank found specific instances of what he called “potentially unauthorized credit card accounts,” though he added that the number of such accounts that had been identified was “vanishingly small.”

BofA also acknowledged to the CFPB that before March 2017, it did not require customers who opened accounts in its branches to provide signatures that could have served as clear evidence of the customers’ intent. The bank noted that it later changed its practice.

Bank of America spokesman Andy Aldridge said Tuesday that the $2.4 trillion-asset company is working as quickly as it can to get the CFPB the information that it needs.

“These issues have been thoroughly investigated and we have worked with regulators to confirm that we have the right processes and controls in place to govern our sales practices, and that we have not experienced any systemic issues,” Aldridge said in an email. “We will continue to cooperate with the CFPB and look forward to demonstrating why they should reach the same conclusion.”

The CFPB’s probe of Bank of America is coming to light more than a year after the conclusion of a review of sales practices at more than 40 large and midsize banks by the Office of the Comptroller of the Currency. BofA is among the large banks that are regulated by the OCC.

Like the CFPB investigation, the OCC’s examination grew out of the sales scandal at Wells Fargo, where some 3.5 million customer accounts were ultimately suspected of being opened without authorization.

The OCC found specific examples of other banks opening accounts without proof of customers’ consent. But the agency also said that it did not identify any systemic issues involving bank employees opening accounts without customer permission.

American Banker reported last year that the OCC’s examination identified five industrywide issues that banks needed to address, in addition to more than 250 items that the agency wanted fixed at individual banks. The OCC has not revealed the substance of any of its industrywide or bank-specific findings.

The CFPB investigation of Bank of America was first reported Tuesday by Bloomberg Law.

One of the arguments that BofA made to the CFPB in late March was that it should drop its investigation in light of the OCC’s failure to identify any systemic issues.

“The bureau’s resistance to the work performed by and for other regulatory agencies is puzzling,” Daniel Chaudoin, a partner at Wilmer Hale and a former assistant director of enforcement at the SEC, wrote on the bank’s behalf.

The document request that the CFPB sent to BofA on March 1, known as a civil investigative demand, was the second the bank received as part of the investigation. Bank of America said in its petition that it produced documents in response to the first request.

The bank also noted that two of executives met with the bureau voluntarily to explain the structure of its incentive compensation system. That incentive pay system did not provide credit for accounts that were never used, according to the bank.

The CFPB’s second document request calls for the bank to produce a tally of specific instances of potentially unauthorized credit card accounts, as well as a manual assessment of card accounts that were never used by the customer. BofA said in its petition that the document request covers more than six years.

Some of the information in Bank of America’s petition was blacked out in order to protect trade secrets. But in arguing that the BofA investigation is not an appropriate use of the CFPB’s enforcement powers, the bank noted that it monitors for employee misconduct, conducts vigorous internal reviews to remediate wrongdoing and addresses customer complaints.

“The information already provided to the bureau and other regulators shows that the Bank’s corporate culture and controls worked as intended,” Chaudoin wrote.

But Kraninger largely rejected Bank of America’s arguments, writing that the bank had not established a legal ground for setting aside a civil investigative demand. In a July 19 decision, she directed the bank to fully comply with the demand for documents within 30 days.

The CFPB is looking into whether phony accounts were opened in violation of various federal laws and regulations, including the Fair Credit Reporting Act and the Dodd-Frank Act’s ban on unfair or abusive practices. — Additional reporting by Kate Berry

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