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From Banking and Finance Law Daily, August 12, 2015

Depositors ‘short changed’ by banks to be paid back $11M

By John M. Pachkowski, J.D.

In a coordinated enforcement action, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation have penalized a group of banks for failing to credit consumers the full amounts of their deposited funds.

The action taken by the CFPB, OCC, and FDIC claimed that the deposit-taking procedures of Citizens Bank, N.A., Citizens Financial Group, Inc., and Citizens Bank of Pennsylvania violated provisions of the Consumer Financial Protection Act of 2010 and the Federal Trade Commission Act that prohibit a deceptive act or practice.

Deceptive practices. Specifically, the bureau and the banking agencies alleged in their respective consent orders that the banks engaged in unfair and deceptive practices related to the processes by which the banks reconciled deposit discrepancies—specifically, the procedures for reconciling discrepancies between the amount of a deposit as stated on an account holder's deposit slip and the actual amount of the deposit. In some cases, banks’ procedures resulted in consumers and businesses not receiving the full amount of their actual deposits. The alleged misconduct occurred from January 2008 through November 2013. During this time period, the banks would not take action to fix the mistake if it fell below a certain dollar amount. From January 2008 to September 2012, the banks only looked into discrepancies greater than $50. From September 2012 to November 2013, the banks only looked into discrepancies greater than $25. In addition to not correcting all discrepancies, regardless of the $25 or $50 threshold, the banks also falsely claimed that they verified the deposits they had received.

Redress. Each of the consent orders entered into between the banks and the CFPB, OCC, and FDIC addresses various aspects unique to the banks and their respective regulator.

The CFPB’s consent order with Citizens Bank, N.A., Citizens Financial Group, Inc., and Citizens Bank of Pennsylvania requires the banks to pay $11 million to consumers who did not receive all the money that should have been deposited into their accounts. In addition, the banks must include any fees the consumers incurred related to the under-crediting and provide a reasonable estimate of interest on these amounts.

Moreover, the bureau’s consent order prohibits the banks from engaging in unfair, deceptive, and abusive acts or practices in connection with deposit transactions and requires the banks to properly review their compliance management systems to ensure there are no further violations relating to their processing of deposits. In addition, each bank must not misrepresent its processing practices, and it must incorporate corrective actions if the bank fails to process deposits consistent with federal consumer financial law.

The banks were also required to pay a $7.5 million penalty payment to the CFPB’s Civil Penalty Fund.

Under the FDIC’s consent order, Citizens Bank of Pennsylvania is required to pay restitution of approximately $5.8 million to consumers and businesses who held more than 475,000 accounts affected by the violations. The FDIC’s consent order also provides that the restitution provision is not to “be construed as requiring the [Citizens Bank of Pennsylvania] to make duplicate restitution to that Eligible Consumer for deposit discrepancies, fees, and/or interest charges covered by the Consumer Financial Protection Bureau’s order during the same time period.”

The agency’s consent order further requires Citizens Bank of Pennsylvania to pay a civil money penalty of $3 million and to correct the violations of law, ensure future compliance with the Federal Trade Commission Act, and develop and implement a comprehensive restitution plan for all consumers and businesses adversely impacted by the violations.

Finally, the OCC’s consent order requires Citizens Bank, N.A., to fully reimburse customers and to correct its practices and enhance its governance and oversight-related activities. An OCC news release noted that restitution payments made by the bank to these consumers pursuant to the OCC’s order will also satisfy identical obligations to these customers required by the CFPB.

In a separate consent order, Citizens Bank, N.A., is also required to pay a $10 million civil money penalty to the U.S. Treasury. This penalty was based on a number of factors, including the scope and duration of the violations and financial harm to customers from the unfair and deceptive practices.

Chose to ignore discrepancies. Commenting on the bureau’s action, CFPB Director Richard Cordray stated, “Citizens Bank regularly denied customers the full credits of their deposits when there were discrepancies between deposit slips and the actual money transferred into the bank. The bank chose to ignore these discrepancies and harmed many consumers by pocketing the difference.”

Pleased to resolve this matter. Following the announcement of the enforcement actions, Citizens Financial Group, Inc., issued a statement: “As we continue to improve our performance as a company, we are pleased to have resolved this matter from an earlier era. We strive to do our best for our customers every day and to do right by customers when issues like this come to light. We are now working with our regulators to make appropriate redress as quickly as possible. As previously disclosed, we have adequate reserves to cover the redress and fines.”

Companies: Citizens Bank, N.A.; Citizens Bank of Pennsylvania; Citizens Financial Group, Inc.

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