Regions Financial will pay a $7.5 million fine after the Consumer Financial Protection Bureau said it charged consumers illegal overdraft fees on checking and payday-loan-like accounts.

The CFPB's order, released Tuesday, claims the $122 billion-asset Regions charged overdraft fees to consumers who did not opt in for overdraft coverage.

The Birmingham, Ala., bank also allegedly charged fees on accounts that had insufficient funds tied to deposit-advance products even though the bank claimed it would not do so.

Regions has already refunded $49 million back to affected consumers but the consent order requires the bank to finish the refund and pay a $7.5 million fine, without admitting or denying wrongdoing.

Regions offers overdraft services with its checking accounts. The bank 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 bank also can 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 and the systems have contributed to the evolution of overdraft from an occasional courtesy to a key source of industry revenues."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," CFPB Director Richard Cordray said on Tuesday.

Regions 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. The bank 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. 

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. 

The CFPB found that Regions:

  • Failed to obtain required opt-ins for certain consumers: Regions allowed consumers to link their checking accounts to savings accounts or lines of credit. Once that link was established, funds from the linked account would automatically be transferred to cover a shortage in a consumer’s checking account. Regions never provided customers with linked accounts an opportunity to opt in for overdraft.

    Because those consumers had not opted in, Regions could have simply declined ATM or one-time debit card transactions that exceeded the available balance in both the checking and linked accounts. Instead, the bank paid those transactions then charged its customers a fee of up to $36. Those fees violated the opt-in rule.

  • Delayed fixing the violation until almost a year after discovering it: Thirteen months after the opt-in rule’s mandatory compliance date, an internal review by the bank found that linked-account overdraft fees violated the rule. But Regions failed to stop the charges for almost another year.

    It wasn't until April 2012 that the compliance department brought the violation to the attention of senior executives, who then reported the error to the CFPB. 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.

  • Misrepresented overdraft and non-sufficient funds fees related to its deposit advance product: Regions charged overdraft and non-sufficient funds fees with its deposit advance product, called Regions Ready Advance, despite claiming it would not. 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.

    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. At various times from November 2011 until August 2013, the bank charged non-sufficient funds fees and overdraft charges of about $1.9 million to more than 36,000 customers.

The CFPB found that Regions violated the Electronic Fund Transfer Act and the Consumer Financial Protection Act of 2010. The CFPB’s order requires that the bank:

  • Provide refunds to all remaining affected consumers: Regions voluntarily reimbursed approximately 200,000 consumers a total of nearly $35 million in December 2012 for the illegal overdraft fees.

    After the CFPB alerted the bank to more affected consumers, the bank returned another $12.8 million in December 2013. In January, the bank identified even more affected consumers and now must provide them with a full refund.

    Under the terms of the consent order filed Tuesday, Regions must hire an independent consultant to identify all remaining consumers who were charged the illegal fees. Regions will return these fees to consumers, if not already refunded. If the consumers have a current account with the bank, they will receive a credit to their account. For closed or inactive accounts, Regions will send a check to the 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: Regions will make a $7.5 million penalty payment to the CFPB’s Civil Penalty Fund. Regions’ violations and its delay in escalating them to senior executives and correcting the errors could have justified a larger penalty, but the CFPB credited Regions for making reimbursements to consumers and promptly self-reporting these issues to the CFPB once they were brought to the attention of senior management.

 

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