TCF tricked customers about overdraft opt-ins, CFPB suit alleges

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The Consumer Financial Protection Bureau on Thursday sued TCF National Bank in Wayzata, Minn., for what the bureau said were deceptive and abusive practices in selling overdraft services.

The lawsuit, which is the bureau's second against a financial institution in the final days of the Obama administration, alleges that the $21 billion-asset TCF devised a strategy to aggressively sell overdraft services when consumers opened new checking accounts.

The bank allegedly directed employees to withhold information from customers about their ability to opt out of overdraft protection. The service imposes a $35 charge each time a consumer overdraws an account for insufficient funds. Employees were allegedly paid bonuses based on how many consumers signed up for overdraft.

Chris D'Angelo, the CFPB's associate director for supervision, enforcement and fair lending, told reporters that "hundreds of thousands of consumers" were affected. D'Angelo noted comparisons between the TCF suit and the recent scandal at Wells Fargo, where sales incentives drove employees to open phony consumer accounts.

"The employees at TCF pushed consumers into costly overdraft products," D'Angelo said. "We absolutely see the parallel here, much in the way of Wells Fargo, there were incentives."

In a long statement, TCF disputed the allegations, and said the bank had engaged in discussions with the CFPB for several months "in a good faith effort to resolve this matter."

"It is unfortunate that the CFPB has decided to litigate this matter," the bank said in a press release. "Although we remain hopeful that we can reach an appropriate resolution, TCF intends to vigorously defend itself against the CFPB's complaint. We believe that at all times our overdraft protection program complied with the letter and spirit of all applicable laws and regulations, and that we treated our customers fairly."

D'Angelo declined to comment on whether the two sides had had discussions before the lawsuit was filed. The lawsuit against TCF was filed in U.S. District Court for the District of Minnesota.

The lawsuit was the second in as many days filed by the CFPB in the final week before the transition of power in Washington D.C. The agency along with two states announced a lawsuit Wednesday against the student loan servicing giant Navient. The enforcement activity comes as the consumer bureau faces political uncertainty with the inauguration of President-elect Trump, as speculation builds that Trump wants to replace current CFPB Director Richard Cordray.

The CFPB's investigation into TCF had been ongoing. The bank had alerted investors in 2015 that the CFPB was examining whether it engaged in "unfair, deceptive or abusive acts or practices."

One of the telling details of the CFPB's investigation came from Cordray, who said in prepared remarks that TCF's former CEO William Cooper had named "his own pleasure boat the 'Overdraft.'"

TCF's senior executives were so pleased with the bank's effectiveness at convincing consumers to opt in to overdraft that they had parties celebrating certain milestones, such as getting 500,000 consumers to sign up, the CFPB said.

TCF relied more heavily on overdraft revenue than other banks, according to the agency. The bank estimated that $182 million in annual revenue in 2009 was "at risk" because of the Federal Reserve's "opt in" rules on overdraft that went into effect in 2010 under Regulation E, the CFPB said.

Since 2010, banks have been required to give their customers the option of enrolling in an overdraft program, rather than enrolling them automatically, as many banks had previously done.

TCF's strategy worked so well that 66% of the bank's customers had opted in to overdraft by mid-2014, the lawsuit said. Opt-in rates at large banks ranged from single-digit percentages to over 40%, the CFPB reported in 2013. The same report concluded that a consumer's choice regarding whether to opt in could be influenced by the bank's approach to marketing overdraft coverage, among other factors.

"Today we are suing TCF for tricking consumers into costly overdraft services in order to preserve its bottom line," Cordray said in a press release. "‎TCF bulldozed its way through protections against automatic overdraft enrollment and then celebrated its unusual sign-up success. With today's action, we are standing up for consumers' right to understand and choose what services they receive."

But TCF countered that it has received virtually no complaints from customers saying they did not understand overdraft protection and that customers who opened accounts online between 2010 and 2016, with no face-to-face interaction with TCF employees, opted in to overdraft at "a consistent rate of over 60%."

Yet the CFPB alleged that TCF called existing customers to opt in to overdraft in a pernicious manner, by asking if they wanted their "TCF Check Card to continue to work as it does today." Many consumers did not understand that they were in fact giving the bank permission to charge them overdraft fees, the CFPB said.

The lawsuit alleges TCF violated the Electronic Fund Transfer Act and the Dodd-Frank Act. The CFPB is seeking redress for consumers, injunctive relief and penalties.

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