By Alice Seeley

The Consumer Financial Protection Bureau (CFPB) ordered Bank of America Corp., the second-largest bank in the U.S., to pay a $10 million civil penalty for processing garnishments against customer bank accounts that violated state laws. The U.S. consumer watchdog also ordered Bank of America to repay the fees that the lender charged customers when garnishing wages.

According to the CFPB, the bank unlawfully froze customer accounts, charged garnishment fees, and sent payments to creditors based on out-of-state court orders that should have been processed under the laws of the states where the customers lived. Since August 1, 2011, Bank of America unlawfully garnished at least 3,700 out-of-state accounts, resulting in affected customers paying at least $592,000 in related fees.

In addition to the $592,000 in unlawful fees, the CFPB said Bank of America harmed consumers by misrepresenting their rights by imposing unenforceable clauses in take-it-or-leave-it consumers’ contracts and failing to adhere to consumer protections governing customers’ bank accounts.

“Bank of America imposed unlawful garnishment fees and injured its customers by inserting unenforceable clauses into contracts in an attempt to strip legal rights from families,” CFPB Director Rohit Chopra stated. “The CFPB is ordering Bank of America to fix its systems, clean up its contracts and make its victims whole.”

To right this wrong, the CFPB said the bank must pay the $10 million civil penalty, refund consumers the garnishment-related fees, and fix its broken garnishment system. Now, Bank of America must notify courts or other garnishment issuers for cases concerning out-of-state accounts. The bank must also eliminate unenforceable clauses from its contracts and stop using language in customer contracts that purports to limit customer rights to challenge garnishments.