SAN FRANCISCO -- Bank of America has agreed to a $35 million settlement of a class-action lawsuit alleging it gouged thousands of trust accountholders and then shortchanged them on their refunds.
The settlement announced Friday ends six years of jousting over whether Bank of America should be penalized for alleged financial wrongdoing involving trust accounts -- also known as escrow accounts -- held by Security Pacific National Bank.
Bank of America, now based in Charlotte, N.C., bought Security Pacific in 1992 and inherited its liabilities.
The suit alleges that Security Pacific improperly raised the charges assessed on 2,600 trust accounts that were opened with a fixed annual fee. Attorneys in the case argued that a bank can only raise the fixed fees on trust accounts with a court approval and, as a fiduciary trustee, should warn the beneficiaries that a fee increase is against their best interests.
"This will send a signal to other banks that if they mess with trust fees, they will face major exposure," said Attorney Robert W. Mills of San Rafael, who represented Bank of America's customers.
The bank did not acknowledge any wrongdoing in the settlement.
Bank of America spokeswoman Shirley Norton said the bank decided to settle the case to limit its liability and eliminate a time-consuming legal distraction. Had punitive damages been assessed, the bill could have run into the hundreds of millions of dollars. About 6,500 trust account beneficiaries, including many children and charities, are expected to divvy up between $20 million and $25 million, Howard said.
The settlement won't close the books on the case, which began in 1994 shortly after Bank of America refunded $42 million in trust account fees and simple interest. Account holders sued the bank saying they should have been paid compounded interest. That part of the case is still pending. If an appellate court sides with the account holders, they could get as much as $40 million more. Under a complex formula developed as part of the settlement, Bank of America will pay the accountholders a lump sum of $12.5 million or $40 million if the appellate court determines compounded interest should have been paid on the initial refunds.
Bank of America won't owe any additional money if the appellate court upholds a trial court's verdict that paying simple interest on the refunds was sufficient.<
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