- BAC is expected to pay $800 million over disputed add-on products for their credit cards.
- The latest loss for BAC comes after several other costly scandals, including being sued for exchange rate manipulation.
- We continue to recommend shareholders take profits in BAC as the megabank's capacity to pay dividends dwindles by paying massive fines.
Bank of America (NYSE:BAC) continues to lose money for its shareholders. This time, the settlement is expected to be $800 million because BAC pressured customers into signing up for extra credit card products.
BAC announced it was in talks with the Consumer Finance Protection Bureau, a new agency set up to oversee banks dealings with the U.S. public.
Next in line
The Great Recession and mortgage crisis of the late 2000s uncovered a number of shady practices that were eventually laid at the door of a number of financial institutions in the United States.
In 2008, Bank of America purchased Countrywide Financial, a mortgage company that had participated vigorously in the unsafe practices that occurred during that period. BAC ended up paying billions to shake off the legal problems of that acquisition, along with many millions in legal and accounting fees.
BAC is still far from sound legal footing. The megabank was recently sued by a group of institutional investors, who claimed BAC rigged foreign exchange rates. Previously, BAC settled for billions, over mishandling of mortgage securities. See additional information on BAC legal scandals and financial losses here.
Butting Heads With The Consumer Financial Protection Bureau
In question this time is a number of add-on products BAC allegedly pressured customers to accept on an ongoing basis. Because the tactics used were often confusing and appeared to be connected to consumers' ability to keep their cards, the agency felt that the practice caused customers to be unfairly treated. This action caused increased expense for the customer and helped to increase BAC profit margins.
The CFPB has arranged similar settlements with JPMorgan Chase and American Express. The agreement with the consumer protection agency would be the largest settlement they have made since their inception. The terms of the BAC $800 million settlement are expected to come in the next few days.
As Ripple Effect Continues, Shareholders Should Take Profits
The list of current obligations to pay off the mistakes of the past is likely to be a drag on future growth for the company at least in the short term.
Bank of America's CEO Brian Moynihan insists that the bank has positioned itself to deal with these lingering problems from the past; however, the tally has risen to an extent where it's hard to imagine it will have no impact on future gains.
Moynihan insists the rocky road the company traveled was worth it to get to its solid current position. Whether further legal problems can shake his confidence is yet to be determined.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.