The Consumer Financial Protection Bureau (CFPB) took legal action against Regions Bank for charging overdraft fees to consumers who had not opted-in for overdraft coverage, fining the company $7.5 million for its improper actions.

Regions Bank, headquartered in Birmingham, Alabama, 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, Regions offers overdraft services with its checking accounts.

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.

What is an Overdraft?

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. These systems have contributed to the evolution of overdraft from an occasional courtesy to a significant source of industry revenues.

Bureau Finds Inappropriate Overdraft Charges

The Bureau found that Regions Bank acted improperly by:

• Failing to obtain required opt-ins for certain consumers
• Delaying fixing the errors until almost a year after they became known and after the mandatory compliance date
• Misrepresenting overdraft and non-sufficient funds fees related to its deposit advance product

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.

According to the CFPB order, Regions Bank violated the Electronic Fund Transfer Act and the Consumer Financial Protection Act of 2010. The CFPB’s order requires that Regions Bank:

• Provide refunds to all remaining affected consumers
• Correct errors on customers’ credit reports
• Make a $7.5 million penalty payment to the CFPB’s Civil Penalty Fund

In 2012, Regions Bank voluntarily reimbursed approximately 200,000 consumers a total of nearly $35 million for illegal overdraft fees. After the Bureau alerted the bank to more affected consumers, Regions returned an additional $12.8 million in December 2013.

In January, the bank identified even more affected consumers and is now required to provide them with a full refund.

Under the terms of the consent order, Regions must hire an independent consultant to identify all remaining consumers who were charged the illegal overdraft fees.

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