Bank of America

(BAC) - Get Report

will offer refunds to thousands of elderly customers who purchased variable annuities.

The nation's second-largest bank is offering the money as part of a settlement with Massachusetts regulators, who were investigating allegations that the bank used high-pressure sales tactics when peddling annuity products.

The refund will be available to any person 78 years old or over who purchased variable annuities in 2003 and 2004. It's believed that about 5,000 annuities were sold during that time frame.

A variable annuity is a mutual fund-like product packaged in an insurance contract.

Variable annuities are not appropriate for all investors because the payouts often depend on the performance of the underlying portfolio. Historically, there has been a lot of abuse in the variable annuities market by brokers who pitch them to unsophisticated investors who aren't prepared for their volatility.

Earlier this year, the NASD imposed an $18 million penalty on

Waddell & Reed

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to settle allegations that the investment firm employed "aggressive" tactics associated with the sale of variable annuities. In addition, Robert Hechler, the firm's former president, agreed to a six-month suspension from the securities business and to pay a $150,000 fine.

BofA reached a settlement with Massachusetts securities regulators before any formal complaint or charges were filed against the bank. Regulators had been looking at the bank's sales practices for the past several months, after receiving a number of complaints from customers.

"This landmark agreement is a major step toward correcting the abuse of pressuring elderly people into buying these variable annuities without telling them the restrictions that go with them," says Massachusetts Secretary of the Commonwealth William Galvin, whose office regulates the sale of securities.

A BofA spokesman said the bank has no estimate on the total cost of the possible refunds.

A Massachusetts spokesman said regulators are continuing to look at the sales practices of other banks and financial institutions.

In February, state regulators filed civil charges against the brokerage division of

Citizens Bank

, accusing it of employing "dishonest'' sales practices with regard to variable annuities.