OCC, FDIC Enforcement Action Hits RBS for Overdraft Programs

WASHINGTON — Royal Bank of Scotland Group's two U.S. bank subsidiaries must pay nearly $14 million to settle charges they improperly marketed certain checking account programs under orders issued Tuesday by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

The orders, which will require RBS Citizens N.A. and its affiliated Citizens Bank of Pennsylvania to pay nearly $4 million in restitution, represent continued scrutiny by federal regulators of industry overdraft programs. They also are another example of the OCC and FDIC flexing their muscles on consumer-related practices — normally the bailiwick of the Consumer Financial Protection Bureau.

The OCC said RBS Citizens N.A., the group's $79 billion-asset national bank in Rhode Island, must pay $2.5 million in restitution to "make whole" 265,000 "customers harmed as a result of inaccurate or misleading disclosures" tied to the bank's overdraft practices, a checking account rewards program and how customers can stop payments. The OCC also required a $5 million fine paid to the government. This was on top of a separate $5 million fine and $1.4 million in restitution to over 75,000 customers required of the $27 billion-asset Citizens Bank of Pennsylvania in an order from the FDIC.

"The FDIC determined that" Citizens "engaged in deceptive practices in violation" of the Federal Trade Commission Act "in the marketing and implementation of its overdraft payment program, checking rewards programs and stop-payment process for preauthorized recurring electronic funds transfer," the agency said.

While the fines come as regulators continue to closely examine bank overdraft programs, Tuesday's orders were also somewhat noteworthy for who issued them. Since the Dodd-Frank Act created the CFPB to write industry-wide consumer protection rules and enforce them at banks with more than $10 billion of assets, the other prudential regulators have generally seemed to defer to or work in tandem with the CFPB in actions brought against larger institutions.

But the RBS actions showed that that is not always the case, observers said. Although the orders contained no explanation for the CFPB's lack of participation, the other regulators do have avenues for pursuing enforcement under the FTC Act, which prohibits unfair and deceptive acts or practices, particularly for practices that predate Dodd-Frank's passage in July 2010. For example, the FDIC's order cited a June 2010 compliance examination for part of its action against Citizens Bank of Pennsylvania.

"The practices that are the focus of these orders primarily date from a time that precedes the jurisdiction of the CFPB," said Oliver Ireland, a partner at Morrison & Foerster, who added the prudential regulators could also cite FTC Act authority for practices that followed the CFPB's creation.

"There are multiple routes to the same place," he said. "In this case we see the OCC and the FDIC citing Section 5 of the Federal Trade Commission Act, even if the actions are brought after the passage of Dodd-Frank and at least in one example include activities that came after the passage of Dodd-Frank."

Still, the CFPB applauded the orders and signaled interest in focusing on banks' overdraft practices in the future. A spokesperson reiterated the agency's plans to publish a study this spring address bank and credit union overdraft practices.

"The CFPB shares concerns about companies using misleading marketing tactics to deceive consumers," the spokesperson said. "We look forward to continuing to work on rooting out these practices in the consumer financial marketplace and to collaborating with our partner regulators on these important issues."

The OCC said RBS Citizens' restitution is for violations between September 2007 and September 2011. (Both banks neither admitted nor denied wrongdoing.)

Among the OCC's findings were that RBS Citizens employees had, prior to August 15, 2010, indicated customers could opt out of the bank's standard overdraft program but did not make clear to them that there were certain technical obstacles to the opt-out preventing fees in all cases. As a result, some customers who had opted out were still charged for certain transactions.

RBS Citizens, the OCC added, had also warned customers they could be charged fees when the bank — able to identify a low checking account balance — chose to pay off items or return checks to the customer so the account would not be overdrawn. But such fees were not charged in certain cases.

Other offenses included overdraft fees charged on transactions even when a customer could cover a portion of the overdraft from a savings account, fees charged for electronic funds transactions after a customer had requested that such transactions cease and misleading disclosures associated with rebates the bank promised through a checking rewards program.

"Between October 2008 and September 2011, the bank's checking reward program disclosures stated that its customers who have at least ten eligible checking account transactions in a calendar month would receive rebates based on those transactions, without disclosing posting date requirements for those transactions," the OCC order said. "As a result, some consumers did not receive anticipated rewards."

A spokesman for RBS Citizens said "we take the results" found by examiners "very seriously."

"We have changed the practices identified in these exam results and are working with our regulators to address any customer impacts that they have identified," he said.

The OCC order also called for efforts by RBS Citizens to address internal controls ensuring that its overdraft protection programs comply with applicable laws. Within 30 days of the order, the bank is required to develop and submit a plan for how it will distribute the restitution funds.

The FDIC ordered similar steps from Citizens Bank of Pennsylvania. Both agencies also called on the banks to conduct audits of their plans to comply with the restitution requirements. The FDIC said Citizens Bank of Pennsylvania must, within 30 days of the order, hire an independent auditor to verify that the bank has accurately identified consumers eligible for payment and calculated the correct amount to be paid to each recipient.