The CFPB announced yesterday that it had reached a settlement with Regions Bank regarding claims that the bank unlawfully charged overdraft fees to customers who had not opted-in for overdraft coverage. The matter is the CFPB’s first enforcement action under the Regulation E rule that prohibits depository institutions from charging overdraft fees on ATM and one-time debit card transactions unless a consumer has affirmatively opted in. The rule became effective on July 1, 2010 for new accounts and on August 15, 2010 for existing accounts. The consent order requires Regions to pay a $7.5 million civil money penalty in addition to refunding unlawfully charged fees to all customers who have not previously received refunds.
According to the findings and conclusions of law in the consent order (which Regions does not admit or deny), Regions engaged in the following unlawful conduct:
- As to customers who linked their checking accounts to savings accounts or lines of credit, charging overdraft fees without an opt-in when funds from the linked account were transferred to cover a shortage in the customer’s checking account. The consent order states that although the bank had discovered the alleged violation in August 2011 through an internal review, the issue was not brought to the attention of the bank’s legal department or senior executives until April 2012. In May 2012, the bank reported the issue to the CFPB and indicated its intention to refund fees. After making systems changes in June 2012 to stop the fees and making refunds totaling approximately $47.8 million in December 2012 and December 2013, the bank discovered additional consumers in 2015 who were continuing to be charged overdraft fees without an opt-in.
- As to customers for the bank’s deposit advance product, if the bank’s collection of a payment from the customer’s checking account caused the checking account balance to become negative, the bank would charge an overdraft fee or reject the transaction and charge an NSF fee. The consent order states that charging the overdraft fees constituted a deceptive act or practice because the bank had represented in the materials for its deposit advance product that it would not charge an overdraft fee under such circumstances. The consent order also indicates that the NSF fees were the result of a programming error. In December 2013, the bank made refunds totaling approximately $1.9 million to such customers.
In addition to the $7.5 million penalty, the consent order requires the bank to make refunds to all remaining affected consumers identified by an independent consultant who the bank must hire. If a consumer entitled to a refund has a current account with the bank, the refund can be credited to the customer’s account. Otherwise, the bank must send a check to the consumer. The bank must also identify and correct any instances of negative credit reporting resulting from the unlawful fees.
In her prepared remarks about the settlement, CFPB Deputy Enforcement Director Cara Petersen stated that “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.”
Since we understand there are other ongoing CFPB investigations focused on overdrafts, we expect to see further formal action by the CFPB involving overdrafts. In June 2013 and July 2014, the CFPB issued reports on overdraft programs that included findings about overdraft fees and consumer usage of such programs. In March 2015, the CFPB issued its Winter 2015 Supervisory Highlights, which covers supervision work generally completed between July and December 2014, and highlighted legal violations involving overdraft practices resolved using non-public supervisory actions.