CFPB Fines M&T $3.1M for Deceptively Promoting Free Checking

The Consumer Financial Protection Bureau said Thursday that M&T Bancorp would pay $3.1 million in fines and reimbursement for deceptively marketing its checking accounts as free.

The Buffalo company will be required to refund $2.9 million to account holders and pay a $200,000 fine to the agency. The $90 billion-asset company also agreed in a consent order to stop its deceptive advertising of the accounts and to revise the credit reports of any customer whose accounts were closed.

According to the consent order, from 2009 through 2012, M&T advertised "no-strings-attached" free checking accounts that required accountholders to maintain a minimum account activity — a requirement the bank didn't note in the advertisements. If customers didn't meet these requirements, they were automatically switched to accounts that cost up to $14 a month. The bank also failed to properly notify customers when their accounts were switched, the agency said.

"Although M&T promised people free checking, tens of thousands of consumers ended up paying for a product they had thought was free," CFPB Director Richard Cordray said in a news release. "This is an important reminder to all banks and credit unions that they cannot misstate to consumers whether a financial product or service is free."

In a statement, M&T noted that the bank did disclose the minimum-activity requirement at the time a customer opened the account, even if it did not include the provision in the advertisements themselves. The bank neither admitted nor denied the CFPB's claims.

The CFPB initially raised concerns about the advertisements more than two years ago, and M&T "immediately changed our policies and procedures in response," said Darren King, M&T's executive vice president for retail and business banking, in a statement.

The action comes just as M&T is attempting to free itself from another far more serious enforcement action with the Federal Reserve. It is in the process of overhauling its Bank Secrecy Act and anti-money laundering systems to comply with a 2013 Fed action mandating a list of improvements M&T's internal controls.

M&T's efforts to fix its BSA/AML weaknesses have postponed the closing of its acquisition of Hudson City Bancorp in New Jersey, a $3.7 billion transaction originally agreed to more than two years ago.

It is not clear if this latest enforcement action will have any effect on the bank's efforts to close that transaction. Besides relating to an alleged infraction that's more than two years old, it was assessed by a different regulator.

Furthermore, the penalty is relatively small for M&T. The bank collected more than $107 million in service charges on its deposit accounts in the second quarter, according to its latest earnings report.

Despite the relatively small penalty, the enforcement action does show the CFPB continued focus on banks' checking-account policies. On Wednesday, the agency said it was scrutinizing how banks use credit reports to divert customers into accounts that carry different levels of fees. This summer, it said it was considering new rules on overdraft fees to address concerns that customers were paying far more than they expect.

M&T allegedly violated a 2012 CFPB rule prohibiting misleading, abusive or deceptive advertising. The agency prohibits banks from advertising an account as free if any maintenance or activity fee may be imposed on the account.

During a routine exam, the regulator discovered that the bank's policy was to convert "Free Checking" accounts to "M&T First" accounts after 90 days of inactivity, but provided no notification of the changes apart from the "M&T First" logo on account documents, the CFPB said.

M&T First accounts charged fees if a customer's balance dipped below $1,500. About 80,000 customers had their accounts converted from free checking to the fee-based accounts, and of these about 59,000 were charged a total of $2.9 million in fees, the CFPB says.