FOR IMMEDIATE RELEASE: April 28, 2015 [CBPB announcement via Internet]
CONSUMER FINANCIAL PROTECTION BUREAU FINES REGIONS BANK $7.5 MILLION FOR UNLAWFUL OVERDRAFT PRACTICES
Bank Refunds $49 Million in Illegal Fees to Consumers Who Did Not Opt-In to Overdraft
WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) took action against Regions Bank for charging overdraft fees to consumers who had not opted-in for overdraft coverage. The bank also charged overdraft and non-sufficient funds fees on its deposit advance product despite claims that it would not. Regions has already refunded hundreds of thousands of consumers approximately $49 million in fees, and the consent order requires the bank to fully refund all remaining consumers. The Bureau also fined the company $7.5 million for its illegal actions. “Today the CFPB is taking its first enforcement action under the rules that protect consumers against illegal overdraft fees by their banks,” said CFPB Director Richard Cordray. “Regions Bank failed to ask consumers if they wanted overdraft service before charging them fees. In the end, hundreds of thousands of consumers paid at least $49 million in illegal charges. We take the issue of overdraft fees very seriously and will be vigilant about making sure that consumers receive the protections they deserve.”
Regions Bank, headquartered in Birmingham, Alabama, operates approximately 1,700 retail branches and 2,000 ATMs across 16 states. It is one of the country’s biggest banks with more than $119 billion in assets. Among its various products and services, it has checking accounts and offers loans known as deposit advance products. With deposit advance products, the borrower authorizes the bank to claim repayment as soon as the next qualifying electronic deposit is received.
Regions offers overdraft services with its checking accounts. An overdraft can occur when consumers spend or withdraw more money from their checking accounts than is available. The financial institution can choose to cover the payment by advancing funds on the consumer’s behalf, and generally charges a fixed overdraft fee for doing so. The institution can also choose to return the payment if it is a check, online bill payment, or direct debit, and then charge a non-sufficient funds fee. In recent years, most banks have adopted automated systems for making these decisions. These systems have contributed to the evolution of overdraft from an occasional courtesy to a significant source of industry revenues.
In 2010, federal rules took effect that prohibited banks and credit unions from charging overdraft fees on ATM and one-time debit card transactions unless consumers affirmatively opted in. If consumers don’t opt-in, banks may decline the transaction, but won’t charge a fee. The “opt-in” rule took effect in July 2010 for new accounts and August 2010 for existing accounts.
The Bureau found that Regions Bank:
- Failed to obtain required opt-ins for certain consumers: Regions allowed consumers to link their checking accounts to savings accounts or lines of credit. Once that link was established, funds from the linked account would automatically be transferred to cover a shortage in a consumer’s checking account. Regions never provided customers with linked accounts an opportunity to opt in for overdraft. Because those consumers had not opted in, Regions could have simply declined ATM or one-time debit card transactions that exceeded the available balance in both the checking and linked accounts. Instead, the bank paid those transactions then charged its customers a fee of up to $36. Those fees violated the opt-in rule.
- Delayed fixing the violation until almost a year after discovering it: Thirteen months after the opt-in rule’s mandatory compliance date, an internal review by the bank found that linked-account overdraft fees violated the rule. But Regions failed to stop the charges for almost another year. It was not until April 2012 that the compliance department brought the violation to the attention of senior executives, who then reported the error to the Bureau. Regions reprogramed its systems to stop charging the unauthorized fees in June 2012. In early 2015, the bank discovered additional accounts that had been charged unauthorized fees.
- Misrepresented overdraft and non-sufficient funds fees related to its deposit advance product: Regions charged overdraft and non-sufficient fundsfees with its deposit advance product, called Regions Ready Advance, despite claiming it would not. Specifically, if the bank collected payment from the consumer’s checking account and the payment was higher than the amount available in the account, it would cause the consumer’s balance to drop below zero. When that happened, the bank would either cover the transaction and charge an overdraft fee or reject its own transaction and charge a non-sufficient funds fee. At various times from November 2011 until August 2013, the bank charged non-sufficient funds fees and overdraft charges of about $1.9 million to more than 36,000 customers.
Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions violating federal consumer financial laws, including by engaging in unfair, deceptive, or abusive acts or practices. Regions Bank violated the Electronic Fund Transfer Act and the Consumer Financial Protection Act of 2010. The CFPB’s order requires that Regions Bank:
- Provide refunds to all remaining affected consumers: Regions Bank voluntarily reimbursed approximately 200,000 consumers a total of nearly $35 million in December 2012 for the illegal overdraft fees. After the Bureau alerted the bank to more affected consumers, Regions returned an additional $12.8 million in December 2013. In January 2015, the bank identified even more affected consumers and is now required to provide them with a full refund. Under the terms of the consent order filed today, Regions must hire an independent consultant to identify all remaining consumers who were charged the illegal fees. Regions will return these fees to consumers, if not already refunded. If the consumers have a current account with the bank, they will receive a credit to their account. For closed or inactive accounts, Regions will send a check to the affected consumers.
- Correct errors on credit reports: Regions must identify and fix all instances of negative credit reporting resulting from the unlawful fees.
- Pay a $7.5 million fine: Regions will make a $7.5 million penalty payment to the CFPB’s Civil Penalty Fund. Regions’ violations and its delay in escalating them to senior executives and correcting the errors could have justified a larger penalty, but the Bureau credited Regions for making reimbursements to consumers and promptly self-reporting these issues to the Bureau once they were brought to the attention of senior management.
A copy of the consent order is available at:http://files.consumerfinance.gov/f/201504_cfpb_consent-order_regions-bank.pdf
The CFPB’s July 2014 Overdraft Data Point is available at:http://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf
The CFPB’s Responsible Conduct Bulletin is available at:http://files.consumerfinance.gov/f/201306_cfpb_bulletin_responsible-conduct.pdf
FOR IMMEDIATE RELEASE:April 28, 2015
Prepared Remarks of Cara Petersen Deputy Enforcement Director of the Consumer Financial Protection Bureau
Regions Bank Enforcement Action Press Call
Washington, D.C. April 28, 2015
Today the Consumer Financial Protection Bureau is taking its first enforcement action under the federal rules that protect consumers against illegal overdraft fees by their banks. We are taking action against Alabama-based Regions Bank for failing to ask consumers if they wanted overdraft service before charging them fees for this service. Regions amplified this harm by letting it drag on for almost an additional year after the bank first discovered the violation. The bank also charged overdraft and non-sufficient funds fees on its deposit advance product despite claims that it would not do so. In the end, hundreds of thousands of consumers paid at least $49 million in illegal charges.
The 2010 Federal Reserve overdraft “opt-in” rule is critically important. It prohibits depository institutions from charging an overdraft fee for ATM withdrawals and one-time debit card transactions unless the consumer has affirmatively “opted in.” The opt-in permission means that if consumers overspend their balance while using their debit card to make a purchase or withdraw cash from an ATM, the bank will cover the shortage with a temporary advance, in exchange for a fee. If consumers do not opt in, transactions are generally declined, with no fee.
When the rule was first implemented, Regions Bank did not apply it to situations when consumers had one Regions account linked to a second Regions account, such as a savings account or a line of credit. If a consumer exhausted their funds in their checking account, the bank would automatically dip into the second account or line of credit. But in circumstances where the combined balance in both the checking account and linked account was not enough to cover the transaction, Regions would sometimes pay the transaction through its overdraft service and charge an overdraft fee of up to $36. Yet Regions failed to obtain consumer consent from many of these customers for this overdraft service. This failure to get the required consumer permissions resulted in customers paying tens of millions of dollars in illegal overdraft fees.
To compound the problem, Regions Bank identified the violation but failed to channel that information to senior decision makers. The result was that the bank continued to charge consumers incorrectly for almost a year after it discovered the problem.
Regions also had a deposit advance product, called Regions Ready Advance, which led to a second violation. Deposit advance products are like payday loans; they typically are sold as a way to bridge a cash-flow shortage between paychecks or other income. Generally these loans are for small-dollar amounts and borrowers must repay them quickly by giving lenders access to their deposit accounts.
Regions said it would not charge overdraft or non-sufficient funds fees when its customers made repayments on its Ready Advance loans. But the bank did, in fact, assess such fees in instances where it collected payment from the consumer’s checking account and caused the balance to drop below zero. Charging such fees in addition to collecting its payments was contrary to its description of how these loans worked. At various times from November 2011 until August 2013, the company charged non-sufficient funds fees and overdraft charges of nearly $2 million to tens of thousands of its deposit advance customers.
Regions has already refunded $49 million to consumers. Today’s order requires Regions Bank to ensure that all remaining customers get their money back if they were wrongfully charged fees. The bank also must pay a fine of $7.5 million for the violations. And, it is worth noting, Regions’ conduct would have warranted an even stiffer penalty if it had not voluntarily refunded consumers and promptly self-reported this problem to the Bureau once it was brought to the attention of senior management. Any consumers who had their credit harmed as a result of the violations will also get their credit records straightened out.
At the Consumer Bureau, we take the issue of overdraft fees very seriously. In its original form, overdraft began as an occasional courtesy service for checks that would otherwise have been returned, but it has evolved over the years. By the time the opt-in rule was adopted in 2010, if a consumer overdrew his account, banks and credit unions often would cover the difference and generally charge a fee for that service. With the advent of debit cards, consumers started to use them instead of cash for more of their small or impulse purchases. And as banks and credit unions came to cover more of these transactions, they started assessing higher fees for doing so. Accordingly, overdraft started to become a significant source of the revenue generated from checking accounts. Today, even with the opt-in rule in place, more than half of consumer checking account income comes from overdraft and similar fees.
Opting consumers into overdraft without their permission can be very expensive. In July 2014, the CFPB released its second report on overdraft that raised concerns about how consumers are being affected by overdraft practices. It confirmed that overdraft fees can pile up quickly on smaller debit card purchases, often for less than $24, such as buying a quick meal or perhaps an impulse purchase at the mall. The study also found that, on average, opted-in accounts pay almost $260 per year in overdraft and non-sufficient funds fees, compared to just over $35 for non-opted-in accounts.
The 2010 opt-in rule made clear that consumer protection in this area is critical. That Regions Bank violated the law raises definite concerns worthy of note by all depository institutions. And their customers should rest assured that the Consumer Bureau is here to protect them when it comes to the hard-earned money they keep in their checking accounts. Thank you.