CFPB issues first fine for unauthorized overdraft fees


The federal government's consumer financial watchdog has issued its first fine to a bank for failing to get customers' permission before charging them fees for overdraft coverage.

The U.S. Consumer Financial Protection Bureau fined Regions Bank $7.5 million for charging at least $49 million in unauthorized fees, the agency announced Tuesday.

"Regions amplified the problem by letting it drag on for a year after discovering the violation," CFPB Deputy Enforcement Director Cara Petersen said in a conference call with reporters.

In 2012 and 2013, Regions refunded $49 million to more than 200,000 customers for fees it charged illegally, the CFPB said. The Alabama-based bank must hire a consultant to determine whether more customers are due refunds. Customers whose accounts were closed should get a refund by mail, while existing customers will receive credits.

In addition, Regions must fix negative entries that were made on people's credit reports as a result of the fees under its settlement with the consumer protection bureau.

Bank overdraft programs briefly cover account overages in return for a fee, usually more than $30. In 2010, the Federal Reserve required banks to get affirmative opt-in for overdraft coverage from their new and existing customers.

Regions failed to get the opt-in from customers who had linked their checking account with another account, such as a savings account or line of credit, the consumer bureau said. As a result, customers with linked accounts were charged overdraft fees of up to $36 when the total funds in both the accounts were insufficient. For ATM withdrawals or debit card purchases, the bank could have declined the transactions instead of covering them and charging overdraft fees.

Bank workers discovered the problem in 2011, but the bank didn't report it to the CFPB until May 2012, the agency said, after senior managers learned of it. Regions reprogrammed its system to stop making the overdraft charges in June 2012.

"Regions' conduct would have warranted an even stiffer penalty," if the bank had not admitted the problem to the consumer bureau shortly after senior managers learned about it, Petersen said.

In a statement from spokeswoman Evelyn Mitchell, Regions said the erroneous fees affected "a small subset" of its customers. "We believe the vast majority of the refunds have been completed and we have made changes to our internal systems to resolve these matters," the statement said.

In addition, Regions charged overdraft and non-sufficient funds fees connected with its "Regions Ready Advance" deposit advance service after telling customers that it would not, the consumer protection bureau said. Those fees totaled about $1.9 million and affected more than 36,000 customers. The fees occurred when the bank collected repayment from a depositor's checking account that held insufficient funds to repay the advance. Regions said it has dropped the deposit advance product.

Overdraft coverage programs are a cash cow for banks and a costly service for customers, according to the consumer bureau. In a 2014 study, the CFPB found that people who opted into overdraft coverage paid monthly average bank fees of $29.09, compared to $7.26 on average for people who did not opt in -- including insufficient funds fees. The typical overdraft fee of $34 is greater than the common transactions that trigger the overdraft, which are usually $24 or less, the agency found.  The agency has released a consumer advisory to help manage overdraft expenses.

 See related: New protections from financial 'gotchas' in 2015

Published: April 28, 2015

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