Why it matters

In its first action targeting overdraft fees, the Consumer Financial Protection Bureau (CFPB) fined Regions Bank $7.5 million for charging customers overdraft fees when they had not chosen to receive overdraft coverage. Regions will also refund customers at least $49 million, the Bureau said. “We take the issue of overdraft fees very seriously and will be vigilant about making sure that consumers receive the protections they deserve,” CFPB Director Richard Cordray said in a statement about the action. Alabama-based Regions not only failed to obtain the required opt-ins for charging overdraft fees, but also compounded the problem by delaying a fix for almost one year after discovering that it was violating the federal rule, the Bureau alleged. In addition, the bank charged overdraft and nonsufficient funds fees for a deposit advance product called Regions Ready Advance—despite telling customers the product did not have fees. The consent order between the parties requires Regions to pay the fine, correct errors on customers’ credit reports and provide refunds to all affected customers. In a press call about the enforcement action, Director Cordray reiterated the Bureau’s concerns about the “heavy costs” imposed on consumers by overdraft protection, referencing the CFPB’s report issued last July. “That Regions Bank violated the law raises definite concerns worthy of note by all depository institutions,” Cordray cautioned.

Detailed discussion

Headquartered in Birmingham, Alabama, Regions Bank operates roughly 1,700 retail branches and 2,000 ATMs in 16 states. With more than $119 billion in assets, it is “one of the country’s biggest banks,” the Consumer Financial Protection Bureau (CFPB) said.

Regions offers its customers deposit advance products in connection with checking accounts and loans, where the borrower authorizes the bank to withdraw a repayment when the next qualifying electronic deposit is received. The bank also offers overdraft services with its checking accounts.

According to the CFPB, Regions took advantage of its overdraft services and violated Regulation E, which prohibits banks and credit unions from charging overdraft fees on ATM and one-time debit card transactions absent affirmative, opt-in consent from the customer. The opt-in rule was created by an amendment to Regulation E that took effect on July 1, 2010, for new accounts and Aug. 15, 2010, for existing accounts.

Regions allowed customers to link their checking accounts to lines of credit or savings accounts. The linked account would automatically transfer money in the event of a shortage in the customer’s checking account. Based on its determination that the opt-in rule did not apply to linked accounts, Regions (a) did not obtain opt-ins from its customers with linked accounts, and (b) did not reprogram its systems to prevent linked accounts from being assessed overdraft fees (i.e., fees for paying an overdraft due to an ATM or one-time debit card transaction that exhausted the balances of both the customer’s checking and linked secondary account). Instead of declining a transaction that exhausted the balances of both the customer’s checking and linked secondary account and not charging a fee, Regions paid for overage transactions and then charged customers a fee of up to $36.

Regions only made the problem worse when the bank discovered the problem during an internal review 13 months after the mandatory compliance date for the opt-in rule and failed to stop the overdraft charges for almost another year, the Bureau said. In April 2012, senior executives reported the error to the CFPB and the bank reprogrammed its systems to halt the fees.

In addition to the overdraft fees, the Bureau alleged that Regions deceived customers by claiming that one of its deposit advance products—known as Regions Ready Advance—did not charge overdraft or nonsufficient fund fees. However, the bank charged both types of fees for the product. For example, if a payment amount collected from a customer’s checking account dropped the balance below zero, Regions either covered the transaction and charged an overdraft fee or rejected its own transaction and charged a nonsufficient funds fee. According to the CFPB, these fees were charged to more than 36,000 customers during the period of November 2011 through August 2013, and totaled at least $1.9 million.

Alleging violations of the Electronic Fund Transfer Act and that Regions engaged in unfair, deceptive, or abusive acts or practices, the Bureau brought an enforcement action against the bank. Although Regions neither admitted nor denied the allegations, the parties entered into a consent order.

Pursuant to the consent order, Regions promised to reimburse all affected customers. The bank has voluntarily provided almost $35 million to approximately 200,000 customers for the overdraft fees in December 2012, and an additional $12.8 million was paid in December 2013. Regions will also hire an independent consultant to ensure that all affected customers are identified and receive appropriate refunds.

The bank will also identify and fix any negative credit reporting that resulted from the fees and make a $7.5 million payment to the CFPB’s Civil Penalty Fund. The Bureau noted that “Regions’ violations and its delay in escalating them to senior executives and correcting 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.”

To read the consent order in In the Matter of Regions Bank, click here.