CFPB Fines Regions Bank $7.5 Million for Unlawful Overdraft Practices

CFPB Fines Regions Bank $7.5 Million for Unlawful Overdraft Practices
May 15, 2015

The Consumer Financial Protection Bureau (CFPB) has taken action against Regions Bank for charging overdraft fees to consumers who had not opted-in for overdraft coverage. The CFPB says that the bank also charged overdraft and non-sufficient funds fees on its deposit advance product despite claims that it would not.

According to the CFPB, Regions has already refunded a total of approximately $49 million in fees to hundreds of thousands of consumers, and the Bureau's consent order requires the bank to fully refund all remaining consumers.

The CFPB also fined Regions $7.5 million for the bank's illegal actions.

"Today the CFPB is taking its first enforcement action under the rules that protect consumers against illegal overdraft fees by their banks," said CFPB Director Richard Cordray. "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. We take the issue of overdraft fees very seriously and will be vigilant about making sure that consumers receive the protections they deserve."

Regions Bank operates approximately 1,700 retail branches and 2,000 ATMs across 16 states. It is one of the country's biggest banks with more than $119 billion in assets. Among its various products and services, it has checking accounts and offers loans known as deposit advance products. With deposit advance products, the borrower authorizes the bank to claim repayment as soon as the next qualifying electronic deposit is received.

Regions offers overdraft services with its checking accounts. An overdraft can occur when consumers spend or withdraw more money from their checking accounts than is available. The financial institution can choose to cover the payment by advancing funds on the consumer's behalf, and generally charges a fixed overdraft fee for doing so. The institution can also choose to return the payment if it is a check, online bill payment, or direct debit, and then charge a non-sufficient funds fee.

In recent years, most banks have adopted automated systems for making these decisions. The CFPB says that these systems have contributed to the evolution of overdraft from an occasional courtesy to a significant source of industry revenues.

In 2010, federal rules took effect that prohibited banks and credit unions from charging overdraft fees on ATM and one-time debit card transactions unless consumers affirmatively opted in. If consumers don't opt-in, banks may decline the transaction, but won't charge a fee.

The "opt-in" rule took effect in July 2010 for new accounts and August 2010 for existing accounts.

Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions violating federal consumer financial laws, including by engaging in unfair, deceptive, or abusive acts or practices.

The Bureau says that Regions Bank violated the Electronic Fund Transfer Act and the Consumer Financial Protection Act of 2010.

Under the terms of the CFPB order, Regions Bank must:

  • Provide refunds to all remaining affected consumers.
  • Correct errors on credit reports: Regions must identify and fix all instances of negative credit reporting resulting from the unlawful fees.
  • Pay a $7.5 million fine.

A copy of CFPB's full consent order against Regions is available at:https://files.consumerfinance.gov/f/201504_cfpb_consent-order_regions-bank.pdf

The CFPB has also issued a consumer advisory on overdraft issues:https://files.consumerfinance.gov/f/201504_cfpb_consumer-advisory_overdraft.pdf