WASHINGTON—Citing “illegal surprise overdraft fees” charged to its customers, the CFPB has ordered Regions Bank to pay $50 million into the CFPB’s victims relief fund and to refund at least $141 million to the customers harmed.
“From August 2018 through July 2021, Regions charged customers surprise overdraft fees on certain ATM withdrawals and debit card purchases,” the CFPB said. “The bank charged overdraft fees even after telling consumers they had sufficient funds at the time of the transactions. Financial regulators have long cautioned banks against charging this type of overdraft fee.”
The CFPB said it also found that Regions’ management knew about and could have discontinued its “surprise overdraft fee practices” years earlier, but “they chose to wait while Regions pursued changes that would generate new fee revenue to make up for ending the illegal fees.”
“Regions Bank raked in tens of millions of dollars in surprise overdraft fees every year, even after its own staff warned that the bank’s practices were illegal,” said CFPB Director Rohit Chopra in a statement. “Too often, large financial firms make a calculation that continuing to break the law is more profitable than following it. We have more work to do to change this mentality.”
Core Part of Profits
For the $160-billion, Birmingham, Ala.-based Regions Bank, overdraft and non-sufficient funds fees are a core part of its profit model, according to the CFPB, which said the fees comprised 17.7% of Regions Bank’s 2019 non-interest income.
“This is not the first time Regions has been caught engaging in illegal overdraft abuses. In 2015, the CFPB ordered Regions to refund $49 million to consumers and pay a $7.5 million penalty for charging overdraft fees to consumers who had not opted into overdraft protection and to consumers who had been told they would not be charged overdraft fees,” the agency said.
“The CFPB has observed that in many circumstances, financial institutions have created serious obstacles to consumers taking steps to anticipate and avoid overdraft fees,” the Bureau continued. “For instance, as in the case of Regions, the bank’s unintelligible and manipulative processes meant that even consumers closely monitoring their account balances and carefully calibrating their spending in accordance with the balances shown could not reasonably avoid surprise overdraft fees. Surprise overdraft fees can be especially harmful because customers may unknowingly rack up multiple overdraft fees on seemingly zero-risk transactions.”
The Bureau said Regions charged a type of “surprise overdraft fee” known as an “authorized-positive fee.”
Issues Since 2015
As early as 2015, the CFPB reported it and other federal regulators, including the Federal Reserve, began cautioning financial institutions against charging certain types of authorized-positive fees, such as the ones Regions charged. In its Winter 2015 Supervisory Highlights, the CFPB described examination findings regarding unfair and deceptive practices in connection with authorized-positive fees.
In July 2018, the Federal Reserve further explained that banks could identify and manage their legal risk by refraining from assessing such fees, the CFPB explained.
The CFPB said it found that from August 2018 through July 2021, Regions charged consumers approximately $141 million in unlawful authorized-positive fees. Specifically, Regions employed complex and counter-intuitive overdraft practices and manipulations such that its customers could not avoid the fees. Even Regions Bank’s own employees could not explain to customers why they incurred the overdraft fees, the CFPB said.
The Requirements
The CFPB’s order:
- Requires Regions to provide at least $141 million in redress to affected consumers: Regions must refund at least $141 million in illegally assessed authorized-positive overdraft fees.
- Bans Regions from charging authorized-positive fees: Regions is prohibited from charging authorized-positive overdraft fees.
- Assesses a $50 million fine: Regions must pay a $50 million penalty to the CFPB, which will be deposited into the CFPB’s victims relief fund.