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From Banking and Finance Law Daily, April 28, 2015

Overdraft overreaching costs Regions Bank $56.5 million

By Richard A. Roth, J.D.

Regions Bank has agreed to settle Consumer Financial Protection Bureau charges that the large regional bank failed to obtain consumer agreement to overdraft protection programs before charging overdraft fees. The CFPB also says that the bank charged overdraft fees on its deposit advance product after telling consumers it would not do so. The bank already has returned more than $49 million to consumers, and it has agreed to pay a $7.5 million civil penalty in addition to making any other refunds that an independent consultant determines are needed.

According to the CFPB, Birmingham-based Regions Bank has about 1,700 branches and more than 2,000 automated teller machines in 16 states. The bank has more than $119 billion in assets. To put the agreed payment in context, the bank’s holding company, Regions Financial Corporation, reported $1.09 billion in income from continuing operations in its 2014 annual report.

Federal laws and rules. Reg. E—Electronic Fund Transfers (12 CFR Part 1005) requires a bank to obtain a consumer’s affirmative consent—his opt-in—to an overdraft protection program before it can charge the consumer a fee for covering an overdraft. If the consumer has not opted in, the bank may decline to pay the overdraft, but it may not charge a fee for honoring the transaction. The requirement has been in effect for approximately five years.

Violations charged. According to the consent order, the CFPB says that Regions Bank violated federal laws and regulations in three ways:

  • It charged consumers overdraft fees for ATM and debit card transactions without first requiring them to opt in to overdraft protection programs.

  • It misrepresented that it would not charge overdraft fees to consumers who had not opted in.

  • It misrepresented that it would not charge overdraft fees in connection with repayments under its deposit advance products.

More specifically, the bureau says that Regions let consumers link their checking accounts to savings accounts or lines of credit, so that funds from the linked account could be used to cover overdrafts. If a consumer overdrew the funds available in both the checking and linked accounts, the bank charged a $36 overdraft fee; however, the bank never asked consumers to opt in to the overdraft coverage.

Worse for the bank was that an internal review caught the violation 13 months after the opt-in requirement took effect, but the violation was not corrected for nearly a year. The bureau did note that the bank eventually turned itself in.

The deposit advance product violation arose from Regions Bank’s Regions Ready Advance product. According to the CFPB, the bank told consumers it would not charge overdraft fees if a loan payment from a consumer’s checking account caused an overdraft. However, in practice, the bank either would cover the overdraft and charge an overdraft fee or reject the overdraft and charge a non-sufficient funds fee.

The enforcement action is the first the bureau has taken under the overdraft protection rules, CFPB Deputy Enforcement Director Cara Petersen said in a press conference call discussing the settlement. The bank is settling the charges without admitting any wrongdoing.

Consumer advisory. In connection with its announcement of the settlement, the CFPB issued a consumer advisory on overdraft protection programs. The advisory describes overdraft protection opt-ins and opt-outs and also suggests that consumers consider linking checking accounts to savings accounts. Linking accounts means that a consumer will pay a transfer fee that probably will be less than an overdraft fee, the advisory suggests.

Companies: Regions Bank

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