BofA Must Pay Customers $372 Million in Fee Case

Bank of America Corp. must pay at least $372 million in damages and interest to hundreds of thousands of Californians, a judge has ruled, saying Social Security funds in their accounts were seized illegally to cover overdraft and bounced-check fees.

In a tentative ruling late Wednesday, San Francisco Superior Court Judge Anne Bouliane also said she agreed with a jury’s finding that the bank should in addition pay $1,000 to each of the affected customers, retired or disabled Californians whose Social Security payments were directly deposited in BofA accounts.

If all those assessments are made, plaintiffs attorneys said Thursday, the bank’s liability could top $1 billion.

In a Securities and Exchange Commission filing, Bank of America said the rulings wouldn’t be final until after a Nov. 30 hearing addressing the bank’s many objections. The Charlotte, N.C.-based institution, the largest retail bank in the nation, said it would appeal any judgment against it.

“This case is far from over,” said bank spokeswoman Shirley Norton. In a similar dispute over fees charged to Social Security recipients, she said, Washington Mutual Inc. prevailed.

Trade groups have said that Bank of America was following standard industry practice when it dipped into the accounts and have warned that Social Security recipients may be unable to get overdraft protection at any bank if the verdict is upheld.

But plaintiffs attorney Thomas Brandi, noting that the judge used words like “unconscionable,” said the decision sent a strong message that California law barred banks from tapping government benefits such as Social Security to cover fees.

“Hopefully as a result of this decision, not only will Bank of America change its conduct but so will any other financial institution that tries to profit by taking advantage of the most vulnerable,” Brandi said.

A jury decided the case in February, though the final determination of damages was left to the judge.

The plaintiffs complained that the bank illegally took money out of accounts that held direct-deposited government checks to cover fees for overdrafts and bounced checks. They also argued that the bank’s procedures were designed to multiply the number of such charges by paying large checks first so that many smaller checks would bounce, each yielding a separate fee for insufficient funds.

The class-action lawsuit was brought on behalf of all the bank’s customers in California who had such fees deducted from their Social Security funds from August 1994 through the end of 2003.

It was unclear exactly how many customers that might be. According to testimony at the trial, Bank of America had about 700,000 California accounts in 1994 that held Social Security and other government benefits, a number that grew to 1.1 million by 2003. Not all those accounts paid the fees, however, while others presumably were docked repeatedly.

In any case, Bouliane wrote, the bank’s conduct caused a “substantial” loss of government benefits “intended for the exclusive use of eligible recipients and essential to the health and welfare of substantial numbers of senior citizens and disabled Social Security recipients.”

“Given that 85% of the class members have an average balance of $1,000 or less,” she wrote, “the assessment of even one [insufficent-funds] fee had a significant impact on the individual account holder.”

Testimony at the trial indicated that Bank of America collected more than $284 million in such fees from August 1994 on. The interest on that amount totaled $88 million, the judge ruled.

Bouliane also issued an injunction barring the bank from charging the fees and ruled it would have to pay the plaintiffs’ attorney fees.