The $150 million settlement was funded by the Charlotte, NC-based bank through its aptly named Bank of America Fair Fund back in February. A spokesman from Bank of America was not available to field specific comments.

The back-story of this settlement involved the ongoing lawsuit that was filed by the Securities and Exchange Committee in 2009. The suit claimed that Bank of America did not disclose that shareholder bonuses were paid to Merrill brokers and they did not report the multibillion dollar loss the bank was about to assume just before closing on the merger. The big bank had already settled with SEC earlier this year following the months-long court controversy.

Further Concerns

Bank of America’s former CEO and Chairman Ken Lewis had characterized the merger as a great deal, a “deal of a lifetime” when it was originally announced back in September of 2008. Yet, Lewis ended up losing his position in the ensuing problems surrounding the merger. This put the mess into the hands of new CEO Brian Moynihan.

Other problems await Bank of America and its troubles with Merrill Lynch, even following the approval of the fair fund distribution. There is still the matter of the lawsuit that was filed by New York Attorney General Andrew Cuomo alleging fraud.

The settlement is available to shareholders on record as of January 16, 2009 who own the bank’s common stock. Unfortunately, the former Merrill Lynch shareholders who got Bank of America stocks in the merger will not be eligible for settlement compensation.

Bank of America’s share prices have been shaky in recent times, just as many other portions of the financial sector remain fragile. Industry observers point out that certain hedge funds have started exchanging their Bank of America shares for Citigroup shares.

SEC Settlement Finalizes Bank Of America (NYSE: BAC) Shareholder Fund was created by and is property of American Consumer News.

At one time in the recent past, it was possible to see your score drop by 100 points for paying off a delinquent account.  New FICO score calculation formulas prevents “new payments on old debts” being the ultimate cause for a scoring decrease, however, it’s still not safe to assume that paying off the older debt will result in a score improvement. 

Other issues that might arise and hurt your credit when you pay an older debt might include:

- Settling accounts for less than the total amount owed

- Setting up a payment plan

- Inquiring about an old debt may re-set the statute of limitations in certain states

- Inquiring about an old debt may rekindle interest from the creditor in attempting to collect the money

- Some unethical collection agencies may promise “fixing” your credit score if you pay on the debt, which may not happen.

It’s not secret that having an account in charge-off, collections or marked as “delinquent” on your credit score will impact your credit score negatively.  But did you know that it matters more to your score how the original lender shows your account than how the account appears on the report from collections?  In other words, if your original lender is showing the account as a ‘charge-off’ with the balance still owed, sometimes paying off the bill in it’s entirety can result in having that lender mark the account as “paid” and the balance as zero.  This should boost your credit score.

If the original lender shows the account as charged off with a zero balance- your chances of improving the situation are slim- and your score is not going to improve simply by paying the old debt.

Settling

Many people choose to pay a “structured settlement” on old debt through a structured settlement broker.  This typically means that the lender or structured settlement company agrees to accept a lower amount than the total amount due for the account.  While you may feel good that you’ve paid it off, the account is considered closed, and you saved some money the reality of the situation is it will appear on your credit report as a settlement; and that can hurt your score.

In addition, when you settle on an account and pay less than the original amount owed, you have to claim the difference as income on your tax returns that year.  So if you are able to pay half of what you borrowed to settle the account, the other half has to be claimed as income on your tax return that year.

Why Paying Off Debts Might Damage Your Credit Score was created by and is property of American Consumer News.