Bank of America’s $108M Settlement: 64,000 Predatory Loans Modified

The 2008–2010 Mortgage Crisis and the Rise of Predatory Lending

The years leading up to the 2008 financial crisis were defined by an explosion of aggressive, often deceptive mortgage lending practices. Lenders across the country — but none more notoriously than Countrywide Financial — pushed borrowers into loan products they could not afford, did not understand, and in many cases were actively misled about. Adjustable-rate mortgages with teaser rates, negative amortization loans, and subprime products with hidden balloon payments became standard tools of a lending industry chasing volume over responsibility.

Predatory lending, as regulators and courts would later define it, involves a pattern of unfair, deceptive, or abusive loan origination practices that strip equity from borrowers, trap them in unaffordable debt, or exploit their lack of financial sophistication. The victims were disproportionately low-income borrowers, elderly homeowners, and communities of color — people who had worked for years to achieve homeownership only to find themselves in loans designed to fail.

When the housing bubble burst in 2007 and 2008, millions of these borrowers faced foreclosure. The resulting financial crisis wiped out trillions in household wealth, triggered the worst recession since the Great Depression, and exposed the full scope of the predatory lending epidemic that had been building for years. The question of accountability — who would pay, and how — would occupy regulators, attorneys general, and courts for years to come.

Bank of America Acquires Countrywide — and Its Liabilities

In January 2008, at the height of the mortgage meltdown, Bank of America announced it would acquire Countrywide Financial Corporation for approximately $4 billion in stock — a fraction of Countrywide's peak valuation. At the time, Countrywide was the largest mortgage lender in the United States, responsible for originating roughly one in five American home loans. It was also, as investigators would document in exhaustive detail, one of the most aggressive practitioners of predatory lending in the country.

Countrywide's practices included steering borrowers into higher-cost loan products when they qualified for better terms, charging excessive fees and prepayment penalties, falsifying loan applications, and failing to adequately disclose the true costs and risks of adjustable-rate mortgages. Loan officers were compensated based on volume and the profitability of the loans they originated — creating powerful incentives to push borrowers into the most expensive products possible, regardless of suitability.

When Bank of America completed the acquisition in July 2008, it inherited not just Countrywide's loan portfolio but its legal liabilities. State attorneys general across the country had already been building cases against Countrywide, and the acquisition put Bank of America squarely in the crosshairs of one of the largest consumer protection enforcement actions in American history.

The Settlement: $108 Million and 64,000 Loan Modifications

In 2010, Bank of America reached a landmark settlement with the Federal Trade Commission and a coalition of state attorneys general over Countrywide's predatory lending practices. The settlement required Bank of America to pay approximately $108 million in restitution to borrowers who had been victimized by Countrywide's abusive practices — at the time, one of the largest predatory lending settlements in FTC history.

Critically, the settlement also required Bank of America to modify the loans of approximately 64,000 homeowners who had been placed into unaffordable or deceptive mortgage products by Countrywide. These were not voluntary modifications — they were mandatory relief for borrowers who had been demonstrably harmed by predatory lending practices. The scale of the modification program reflected the breadth of Countrywide's misconduct and the number of borrowers who had been affected.

The $108 million in restitution was distributed to two groups of borrowers: those who had paid excessive fees on their loans, and those who had been steered into subprime loans when they qualified for better terms. The FTC administered the restitution program, identifying eligible borrowers and distributing payments directly.

What “Loan Modification” Meant for Affected Borrowers

For the 64,000 homeowners whose loans were modified as part of the settlement, the relief took several forms depending on the nature of the harm they had suffered and the type of loan they held. Loan modification in this context was not a one-size-fits-all solution — it was a tailored restructuring designed to put borrowers in the position they would have been in had they not been victimized by predatory practices.

Principal reduction was available for borrowers who were significantly underwater — owing more than their homes were worth — as a direct result of being placed into inappropriate loan products. By reducing the outstanding principal balance, the modification restored some of the equity that predatory lending had stripped away and made the loan more sustainable going forward.

Interest rate reductions addressed borrowers who had been steered into higher-rate products when they qualified for lower rates, or whose adjustable-rate mortgages had reset to unaffordable levels. Lowering the interest rate directly reduced monthly payments and the total cost of the loan over its life.

Term extensions spread remaining loan balances over longer periods, reducing monthly payment obligations for borrowers who were struggling to keep up. While extending the term increases total interest paid over the life of the loan, it can be the difference between keeping a home and losing it to foreclosure.

For many of the 64,000 affected borrowers, these modifications represented the difference between foreclosure and homeownership. The settlement acknowledged that these borrowers had been wronged and attempted — imperfectly, given the scale of the harm — to make them whole.

The Role of State Attorneys General

The Bank of America settlement was not solely a federal action. A coalition of state attorneys general played a central role in investigating Countrywide's practices, building the evidentiary record, and negotiating the terms of the settlement. Their involvement reflected the reality that predatory lending is fundamentally a consumer protection issue — and consumer protection has historically been a domain where state law enforcement has been particularly active.

State AGs from California, Illinois, Florida, Texas, New York, and other states had been investigating Countrywide independently before the FTC action. Their investigations documented specific patterns of misconduct in their states, identified affected borrowers, and provided the factual foundation for the settlement's scope and terms.

The multi-state nature of the enforcement action also sent a powerful message to the lending industry: predatory practices that harm consumers in multiple states will attract coordinated enforcement from multiple regulators simultaneously. This model of coordinated state-federal enforcement would become a template for subsequent mortgage settlements, including the landmark $25 billion National Mortgage Settlement of 2012.

State attorneys general continue to play a critical role in consumer financial protection today, particularly in areas where federal regulation has been inconsistent or inadequate. Their involvement in the Countrywide case demonstrated that state-level enforcement can achieve meaningful relief for consumers even when federal action is slow or limited.

Lasting Impact on Lending Regulation and Consumer Protection

The Bank of America–Countrywide settlement was one of several enforcement actions that collectively reshaped the regulatory landscape for mortgage lending in the years following the financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created the Consumer Financial Protection Bureau (CFPB), a new federal agency with broad authority to regulate consumer financial products and services — including mortgages.

The CFPB's Ability-to-Repay rule, finalized in 2013, directly addressed one of the core failures that enabled predatory mortgage lending: lenders were required to make a reasonable, good-faith determination that borrowers could actually afford the loans they were being given. The rule established the “Qualified Mortgage” standard, which provided a safe harbor for loans meeting certain criteria — including limits on points and fees, restrictions on risky loan features, and requirements for income and asset verification.

These regulatory changes, combined with the chilling effect of multi-billion-dollar enforcement actions, significantly reduced the most egregious forms of predatory mortgage lending. The housing market that emerged from the crisis was, in important respects, more transparent and better regulated than the one that preceded it.

However, the history of financial regulation suggests that predatory practices rarely disappear — they evolve and migrate to less-regulated sectors. The lessons of the mortgage crisis, and of settlements like the one involving Bank of America and Countrywide, remain urgently relevant today.

Modern Parallels: How Predatory Lending Has Evolved

The predatory lending practices that devastated millions of homeowners in the 2000s did not vanish after the mortgage crisis — they adapted. Today, the most aggressive and least-regulated form of predatory lending is not aimed at homeowners but at small business owners, and the product at the center of the crisis is the merchant cash advance (MCA).

Like the subprime mortgages of the 2000s, merchant cash advances are structured to obscure their true cost. Rather than quoting an interest rate, MCA providers quote a “factor rate” — a multiplier applied to the advance amount that, when converted to an annualized percentage rate, often exceeds 100%, 150%, or even 300%. Like Countrywide's loan officers, MCA brokers are typically compensated based on volume, creating incentives to push businesses into the largest, most expensive advances possible.

The structural parallels are striking. Both products were marketed as accessible financing for borrowers who couldn't qualify for conventional loans. Both used complex structures — adjustable rates and teaser periods for mortgages; factor rates and daily debits for MCAs — that made the true cost difficult to understand. Both relied on aggressive sales tactics and inadequate disclosure. And both have left a trail of financial devastation among the borrowers who were most vulnerable.

The regulatory response to MCA lending is still developing. Several states, including California and New York, have enacted disclosure requirements for commercial financing products. The CFPB has signaled interest in the small business lending market. But for now, many small business owners facing predatory MCA debt have limited regulatory protection — and must rely on negotiation and business debt relief strategies to escape the trap.

The Bank of America–Countrywide settlement is a reminder that predatory lending, however it is structured and whoever it targets, ultimately attracts accountability. The question for small business owners today is not whether the regulatory environment will eventually catch up to MCA lending — it will — but whether they can survive until it does.