Bank of America has agreed to offer refunds to thousands of elderly investors who bought variable annuities. The bank reached an accord with Massachusetts regulators to offer refunds to 800 investors in that state, and it will expand the offer nationwide to people who were 78 or older when they bought variable annuities in 2003 and 2004.

Massachusetts' secretary of state William Galvin, who has been investigating annuity sales by banks, called the agreement "a major step toward correcting the abuse of pressuring elderly people" into buying variable annuities without telling them about related restrictions.

Fixed annuities pay a guaranteed amount at regular intervals, while variable annuities generate payments that fluctuate with an account's value, and investors need to keep their money invested for at least 12 years and preferably for two or three decades. The products have sometimes been sold to people who should not have bought them. This includes those who should invest conservatively, those who cannot safely tie up their money for many years, or those in their 70's and 80's who predictably might die before realizing the benefits of their investment.

The settlement might lead to similar agreements by other banks. In addition to Bank of America, Galvin's office has issued subpoenas seeking records on annuities sales practices from banks including Sovereign, Citizens, Century, BankNorth, Eastern, and Medford Co-Operative Bank. "If a bank like Bank of America is going to make an effort to be fairer, that is going to set a standard for the industry," Galvin said. "I have been in contact with many state regulators, and they are very interested in the subject."

In June, Hartford Financial Services Group Inc. the number one variable annuities seller in the U.S., received a subpoena from New York Attorney General Eliot Spitzer regarding purchases by senior citizens.

Under the agreement with Bank of America, eligible customers will have six months to request a refund, starting in August. In addition, customers aged 75 to 77 when they bought annuities may get an "expedited review" of their purchases.

For more on the Bank of America agreement, click here.

For an ElderLawAnswers article on variable annuities, click here.