Bank of America Ordered to Pay $540,261,499 for Underpaid Insurance Fees

Bank of America has been ordered to pay $540,261,499 after a district judge ruled that the lender significantly underpaid its deposit insurance fees over a period of more than a year. The Federal Deposit Insurance Corporation (FDIC) initially filed a lawsuit in 2017, alleging that Bank of America failed to pay $1.12 billion in mandatory fees between the second quarter of 2013 and the fourth quarter of 2014. The FDIC also accused the bank of unjustly enriching itself by retaining the unpaid fees.

The lawsuit revealed that Bank of America did not accurately report its counterparty exposures, which resulted in lower risk scores and consequently lower insurance payments. An FDIC audit in 2016 uncovered that the bank had not consolidated its counterparty exposures to the ultimate parent level as required, leading to a reduced concentration measure and significantly lower assessment payments for those quarters.

Bank of America argued that it had correctly interpreted the regulations established post-2008 financial crisis to enhance the stability of the banking system and improve risk-based deposit insurance assessments. The bank also claimed that it lacked fair notice of the FDIC’s interpretation of the rule, describing the rule as “arbitrary and capricious and procedurally flawed.”

US District Judge Loren L. Alikhan rejected most of Bank of America’s arguments but reduced the claim from $1.12 billion to $540,261,499 plus interest. The judge validated the rule and supported the FDIC’s pursuit of the underpaid fees, stating that Bank of America should have been able to identify the standards it was expected to apply by reading the text of the 2011 Rule and acting in good faith.

This ruling underscores the importance of accurate reporting and compliance with regulatory requirements in the banking sector. The significant underpayment of deposit insurance fees by Bank of America highlights the need for stringent oversight and enforcement to ensure that financial institutions adhere to the rules designed to protect the stability of the banking system. The outcome of this case serves as a reminder to other banks to meticulously review and comply with regulatory standards to avoid similar penalties in the future.