The CFPB has ordered Bank of America to pay $727 million in consumer relief for illegal credit card practices. Hewlett-Packard will have to pay $108 million to settle SEC and DOJ charges of FCPA violations, while FINRA increased the suspension term of an advisor who appealed its earlier judgment regarding his use of private client information.
Other recent enforcement actions by the SEC include a $20 million penalty against CVS for misleading its investors and committing accounting violations; charges against a Las Vegas transfer agent for disclosure failures; and charges against a Honolulu woman for fraud via social media.
CFPB Penalizes Bank of America $727 Million
The Consumer Financial Protection Bureau has ordered Bank of America to fork over $727 million in consumer relief to repair harm caused by the bank’s deceptive credit card practices.
Roughly 1.4 million consumers were affected by Bank of America’s deceptive marketing of credit card add-on products. The bank also illegally charged approximately 1.9 million consumer accounts for credit monitoring and credit reporting services that they were not receiving. Bank of America will pay a $20 million civil money penalty to the CFPB.
From 2010 through 2012, Bank of America actively marketed two credit card payment protection products, “Credit Protection Plus” and “Credit Protection Deluxe.” Both products allowed customers to request that Bank of America cancel some amount of credit card debt in the event of certain hardships like involuntary unemployment or disability and certain life events such as entering college or retirement.
The CFPB found that the telemarketing scripts Bank of America used for these products contained misstatements. Additionally, telemarketers often went off script to make sales pitches that were misleading and that omitted pertinent information. Over 1.4 million card members were affected by this deceptive marketing.
Among other things, Bank of America misled consumers about the cost of the first 30 days of coverage; the enrollment process for credit protection products; and the benefits of credit protection products.
In addition, consumers were also hit with unfair billing practices by the bank. Bank of America enrolled consumers in identity protection credit card add-on products, known as “Privacy Guard,” “Privacy Source” and “Privacy Assist,” that promised to monitor customer credit and alert consumers to potentially fraudulent activity.
Under federal law, in order for Bank of America or its vendors to obtain consumers’ credit information, the consumers generally must authorize access to credit information. But Bank of America billed consumers for these products without or before having the authorization necessary to perform the credit monitoring and credit report retrieval services.
As a result, the company billed consumers for services they did not receive; unfairly charged consumers for interest and fees; illegally charged about 1.9 million consumer accounts; and, to top it off, failed to provide product benefits.
The CFPB has ordered that Bank of America be prohibited from engaging in illegal practices; end unfair billing practices; repay affected consumers, and do it for the consumers’ convenience; and pay that $20 million penalty to the CFPB’s civil penalty fund.
The Office of the Comptroller of the Currency (OCC) has also ordered Bank of America to pay $25 million in civil money penalties for the unfair billing practices, in addition to those ordered by the CFPB.
Penalty for HP Violations Set at $108 Million
After the SEC charged that Hewlett-Packard violated the Foreign Corrupt Practices Act (FCPA) when its subsidiaries in three different countries made improper payments to government officials to get or retain lucrative public contracts, the company agreed to pay $108 million to settle those charges and the charges in a parallel criminal case brought by the Department of Justice. Ironically, two of those violations occurred in connection with foreign law enforcement agencies.
The Russian subsidiary of Palo Alto, Calif.-based HP paid more than $2 million through agents and various shell companies to a Russian government official to hold onto a multimillion-dollar contract with the federal prosecutor’s office. And in Poland, HP’s subsidiary provided gifts and cash bribes worth more than $600,000 to a Polish government official to obtain contracts with the national police agency.
Another violation occurred as part of HP’s bid to win a software sale to Mexico’s state-owned petroleum company. Hewlett-Packard’s subsidiary in Mexico paid more than $1 million in inflated commissions to a consultant with close ties to company officials, and money was funneled to one of those officials.
According to the agency, the scheme involving HP’s Russian subsidiary occurred from approximately 2000 to 2007. The bribes were paid through agents and consultants to win a government contract for computer hardware and software. Employees within the subsidiary and elsewhere questioned the significant markup paid to the agent on the deal and the subcontractors that the agent expected to use, but no meaningful due diligence was conducted despite the red flags.
Bribes involving Hewlett-Packard’s subsidiary in Poland occurred from approximately 2006 to 2010. Acting primarily through its public sector sales manager, the subsidiary agreed to pay a Polish government official so that it could win contracts for IT products and services. The official got a percentage of net revenue earned from the contracts, and the bribes were delivered in cash from off-the-books accounts.
In the Mexican case, HP’s subsidiary in Mexico paid a consultant to help the company win a public IT contract worth about $6 million. The consultant had connections with a government official at the state-owned company, and at least $125,000 was funneled to the official. Although the consultant was not an approved deal partner and had not been undergone the due diligence company policy required, HP Mexico sales managers used a passthrough entity to pay the consultant inflated commissions. This was internally referred to as the “influencer fee.”
The company has agreed to pay $29 million in disgorgement (approximately $26.47 million to the SEC and $2.53 million to satisfy an IRS forfeiture as part of the criminal matter). It also agreed to pay prejudgment interest of $5 million to the SEC and fines totaling $74.2 million in the criminal case for a total of more than $108 million in disgorgement and penalties.