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Financial Services Law Insights and Observations

CFPB fines bank $10 million over garnishment practices

Federal Issues CFPB Consumer Finance CFPA UDAAP Enforcement Unfair Deceptive

Federal Issues

On May 4, the CFPB announced a consent order against a national bank for allegedly engaging in unfair and deceptive acts or practices in violation of the CFPA by processing out-of-state garnishment orders against its customers’ bank accounts. According to the consent order, since August 2011, the respondent allegedly garnished approximately 3,700 out-of-state accounts. Customers whose accounts were garnished paid at least $592,000 in garnishment fees, the CFPB contended. The respondent allegedly, among other things, misrepresented to customers that their rights to have certain funds exempted from garnishment were governed by the law of the issuing court’s state when, actually, in most states, customers’ own state laws applied. The respondent also allegedly unfairly required customers to “direct” it not to contest garnishment orders and to waive the bank’s liability for its actions regarding the out-of-state garnishment orders, which prevented customers from pursuing legal claims against the respondent for improperly handling garnishment notices. Additionally, the respondent allegedly deceptively represented to customers that since they signed a deposit agreement that included broad language directing respondent not to contest the legal process, customers waived their right to hold the respondent liable for improperly responding to garnishment notices. Under the terms of the consent order, the respondent must, among other things: (i) refund $592,000 in garnishment-related fees to harmed customers; (ii) establish a compliance plan designed to ensure that its garnishment-related conduct pertaining to out-of-state garnishment notices and state exemptions complies with all applicable federal consumer financial laws; (iii) cease communicating to customers that they have purportedly waived any rights regarding garnishment notices as a result of entering into respondent’s deposit agreement; and (iv) pay a $10 million civil penalty to the Bureau.

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