Home > 2015 > Personal Finance

CFPB: Bank Charged $50M in Illegal Overdraft Fees

Advertiser Disclosure Comments 0 Comments

Consumers were charged nearly $50 million in illegal overdraft fees by Alabama-based Regions bank, federal regulators said Tuesday. The bank, which operates in 16 states, failed to get consumers to opt-in to overdraft coverage, failed to stop charging illegal fees for nearly a year after it discovered the activity and also charged illegal fees in connection with its payday-loan-like “deposit advance” product, according to the Consumer Financial Protection Bureau.

Regions Bank operates approximately 1,700 retail branches and 2,000 ATMs, with a footprint that spans across the South and Midwest, from Florida to Texas to Illinois. It is one of the country’s biggest banks with more than $119 billion in assets.

“We take the issue of overdraft fees very seriously and will be vigilant about making sure that consumers receive the protections they deserve,” said CFPB Director Richard Cordray.

The CFPB on Tuesday ordered Regions to refund consumers and pay a $7.5 million fine, the first such fine levied under new overdraft rules set for banks in the Dodd-Frank financial reform bill.

“After discovering that a small subset of customers had been charged fees in error, we reported it to the CFPB and began refunding the fees. We believe the vast majority of the refunds have been completed and we have made changes to our internal systems to resolve these matters,” said Evelyn Mitchell, Regions spokeswoman.

Overdraft fees average about $35, and can be charged when consumers write checks or make electronic payments, purchases or withdrawals that exceed the available balance in their checking accounts. Prior to Dodd-Frank, consumers complained that they were often automatically enrolled in pricey overdraft coverage, which could cause them to incur $35 fees on small debit card purchases that sent their bank balances only a few dollars into the red. Dodd-Frank requires banks to simply reject such transactions unless account holders have affirmatively opted-in to the coverage.

But Regions kept on charging a subset of consumers overdraft fees without their express consent after Dodd-Frank took effect in 2010, the CFPB said. Regions customers who had previously linked their checking accounts to savings accounts or lines of credit were not asked to opt in for overdraft coverage, and kept on incurring fees as high as $36 per transaction.

Thirteen months after the mandatory compliance date, the bank discovered its error in an internal review, but kept charging the illegal fees for an additional year, the CFPB said. Finally, in June 2012, the bank’s computers were re-programmed to stop charging the fees.

It’s been a challenge for the bank to identify all impacted consumers. In December 2012, the bank voluntarily refunded $35 million to consumers who wrongly paid fees. In 2013, the CFPB alerted the bank to more victims, and it refunded an additional $12.8 million. This January, the bank found even more victims. The consent order issued by the CFPB today requires the bank to hire an independent consultant to identify any remaining consumers who are entitled to a refund.

The bank is also accused of making nearly $2 million by charging overdraft fees in connection with its deposit advance product after promising it wouldn’t charge such fees. Consumers who agree to a deposit advance loan receive money in their checking account in anticipation of a future deposit, often a direct deposit. When Regions collected from consumers’ accounts, and the payment was higher than the available balance, the bank sometimes changed overdraft fees, despite saying it would not do so.   Between November 2011 and August 2013, the bank charged non-sufficient funds fees and overdraft charges of about $1.9 million to more than 36,000 customers, the CFPB said.

The bank was ordered to identify and fix any errors on consumers’ credit reports related to the illegal overdraft fees, and to pay a $7.5 million fine. The CFPB warned that the fine could have been higher. (Consumers can check for errors by getting their free annual credit reports from AnnualCreditReport.com, and can watch for issues by getting their free credit report summary, updated every month on Credit.com.)

“Regions’ violations and its delay in escalating them to senior executives and correcting the errors could have justified a larger penalty, but the Bureau credited Regions for making reimbursements to consumers and promptly self-reporting these issues to the Bureau once they were brought to the attention of senior management,” the CFPB said in a statement.

More Money-Saving Reads:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team