CFPB Makes an Example Out of Regions on Overdraft

WASHINGTON — The Consumer Financial Protection Bureau gave a strong warning to the banking industry on Tuesday when it fined Regions Financial $7.5 million for allegedly charging illegal overdraft fees.

The order was the first of its kind for the agency, in which the $122 billion-asset Regions was cited for charging overdraft fees on consumers who did not opt in for overdraft coverage. The Birmingham-based bank was also accused of charging overdraft and insufficient funds fees tied to a deposit-advance product, even though the bank claimed it would not do so.

Regions discovered the problems itself and self-reported them to the CFPB, and has already refunded $49 million to roughly 200,000 customers so far, but that did not stop the CFPB from using Regions as an example of what it will do to institutions that violate overdraft rules.

"The 2010 opt-in rule made clear that consumer protection in this area is critical. That Regions Bank violated the law raises definite concerns worthy of note by all depository institutions," said Cara Petersen, the CFPB's deputy enforcement director, during a call with reporters Tuesday. "Their customers should rest assured that the consumer bureau is here to protect them when it comes to the hard-earned money they keep in their checking accounts."

Since 2012, the CFPB has given several warnings to the industry that it would crack down on companies charging overdraft fees on consumers who did not previously sign up for such services, as required by law. But until Tuesday it is has never taken a public enforcement action related to the issue.

"While the CFPB has for years been very focused on overdraft practices, this is the first — and it will not be the last — formal action taken by the bureau in this area," said Alan Kaplinsky, who heads the consumer financial services group at Ballard Spahr. "I'm aware of other ongoing CFPB investigations focused on overdrafts."

It is unclear how many companies the CFPB is targeting but it has conducted two studies on overdraft, held a public inquiry into the issue, and hinted it is working on further rules in this area.

"I can't comment on any other investigations we may have but the opt-in rule and overdraft have certainly been something the consumer bureau has been focused on," Petersen said. "And those issues will continue to be a priority for the bureau."

In the order against Regions, the CFPB said the bank charged up to $36 in overdraft fees to consumers who were not previously given the opportunity to opt into such services when they linked a checking account to a savings account or line of credit.

While the company did eventually identify the issue, the CFPB said Regions did not stop making the charges until almost a year after it had internally recognized the problem.

"It was not until April 2012 that the compliance department brought the violation to the attention of senior executives, who then reported the error to the bureau," the CFPB said. "Regions reprogramed its systems to stop charging the unauthorized fees in June 2012. In early 2015, the bank discovered additional accounts that had been charged unauthorized fees."

The CFPB also said Regions "misrepresented" a deposit-advance product called Regions Ready Advance by charging overdraft and non-sufficient funds fees on the accounts after saying it would not make such charges.

"Specifically, if the bank collected payment from the consumer's checking account and the payment was higher than the amount available in the account, it would cause the consumer's balance to drop below zero," the CFPB said. "When that happened, the bank would either cover the transaction and charge an overdraft fee or reject its own transaction and charge a non-sufficient funds fee."

This activity resulted in Regions charging about $1.9 million to more than 36,000 customers from November 2011 to August 2013, the agency said.

A company spokesperson confirmed that Regions ended the Ready Advance program last year and said a majority of the matters raised in the order have already been addressed.

"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," said the company in an emailed statement. "We believe the vast majority of the refunds have been completed and we have made changes to our internal systems to resolve these matters."

Regions has agreed to finish its refunds to consumers, fix any negative credit reporting that occurred from the activities and pay a $7.5 million penalty. The bank was also ordered to hire a consultant to help identify any additional consumers who were affected.

"Regions Bank failed to ask consumers if they wanted overdraft service before charging them fees. In the end, hundreds of thousands of consumers paid at least $49 million in illegal charges," said CFPB Director Richard Cordray in a press release. "We take the issue of overdraft fees very seriously and will be vigilant about making sure that consumers receive the protections they deserve."