Research and Statistics

CFPB: Minn. bank tricked customers into costly overdraft fees


Federal consumer watchdog charges TCF National Bank obscured fees and gave customers hard-sell to opt in for fees of $35 per overdraft

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CFPB: Minn. bank tricked customers into costly overdraft service

The federal government’s consumer watchdog agency charged Thursday that Minnesota-based TCF National Bank tricked customers into opting for costly overdraft services to protect fee income of $180 million a year.

The papers filed in U.S. District Court in Minnesota charge that since 2010 the bank has misled customers into thinking the opt-in was mandatory, obscured the program’s fees, and used hard-sell tactics when customers tried to opt out.

“TCF bulldozed its way through protections against automatic overdraft enrollment and then celebrated its unusual sign-up success,” CFPB Director Richard Cordray said in an announcement.

TCF’s former chief executive William Cooper even named his boat “Overdraft,” according to the CFPB’s complaint. Cooper retired as CEO in 2015, but he remains chairman of the board of TCF Financial, the bank’s holding company.

Overdrafts, costing $35 per instance, generated more than $180 million a year from more than 200,000 new and existing customers, the agency’s lawsuit says. Two-thirds of customers opted into the program, triple the rate at other banks.

The Wayzata, Minnesota-based bank denied wrongdoing and said it will fight the agency’s lawsuit. It also alluded to the possibility of settling the charges.

“Although we remain hopeful that we can reach an appropriate resolution to this matter, TCF intends to vigorously defend against the CFPB’s allegations, and we believe we have strong, principled defenses to its complaint,” TCF spokesman Mark Goldman said in an emailed statement.

In a public response to the allegations, the bank said customers signed up for overdraft online — with no face-to-face interaction with branch workers — at a high rate of 60 percent, close to the bank’s overall opt-in rate. Few customers complain about the program, and the bank has written off more than $100 in overdraft fees since 2010 for customers in financial hardship, TCF said.

With $21 billion in assets, TCF has about 360 branches in Minnesota, Wisconsin, Illinois, Michigan, Colorado, Arizona and South Dakota.

Christopher D’Angelo, CFPB associate enforcement director, said TCF’s practices bore similarities to the scandal at Wells Fargo, which has admitted opening millions of fake accounts and credit cards that customers did not authorize.

As at Wells Fargo, TCF’s overdraft practices were fueled by lucrative incentives, D’Angelo said. Some branch managers could gain up to $7,000, while line employees were eligible for smaller amounts. On the other hand, some employees were disciplined for not meeting opt-in goals, the lawsuit said. The incentive program started being phased out in 2011, but some regional incentive programs remained operating, according to the CFPB.

While customers may choose to opt in for overdraft coverage and pay the fees so they can overdraw at an ATM, “the real concern here is that the institution went out of its way to obscure the fact that customers had that choice,” D’Angelo said during a call with reporters.

The CFPB has penalized banks for overdraft practices before, notably in 2015 when it fined Regions Bank $7.5 million for charging at least $49 million in unauthorized overdraft fees.

The lawsuit seeks unspecified refunds for TCF customers, penalties, the return of profits and an injunction against the aggressive opt-in practices. It alleges violations of the U.S. Consumer Financial Protection Act and Electronic Funds Transfer Act.

The agency’s regulatory timetable indicates that it expects to issue a regulation on bank overdraft policies early in 2017. However, questions surround the agency’s future under the incoming Donald Trump administration, which has signaled it may replace Cordray as director and supports congressional initiatives to restructure the agency.

See related: CFPB warning: incentives can harm consumers

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