Regions fined $7.5 million for breaking overdraft rules; refunds $49 million to customers
The federal government has fined Regions Bank $7.5 million for breaking overdraft rules and failing to correct the violations for nearly a year after discovering them.
Regions has refunded $49 million in illegal fees to consumers and will pay a fine of $7.5 million to the Consumer Financial Protection Bureau.
When a customer withdraws more money than is in their checking account, a bank can advance that money but charge an overdraft fee. Federal rules that took effect in 2010 require that customers have to opt-in to be charged these fees - if customers don't, banks can decline a transaction, but can't charge a fee.
Regions allowed their customers to link their checking accounts to their savings accounts or lines of credit, which means that when a customer withdraws more than is in their checking account, that money can automatically be withdrawn from another account. But Regions didn't allow customers who had these accounts link to opt in for overdraft coverage, and instead paid transactions that were greater than the balance of all available accounts, charging a $36 fee for doing so, according to the CFBP.
A Regions' internal review found that the linked accounts policy violated the rule, but didn't stop the charges until almost a year later in April 2012, according to the CFBP. When the compliance department told senior executives about the violation, Regions reported the policy to the CFBP and stopped charging those fees in July 2012.
Regions discovered it had charged unauthorized fees to additional accounts earlier this year.
"After discovering that a small subset of customers had been charged fees in error, we reported it to the CFPB and began refunding
the fees," Regions said in a statement. "We believe the vast majority of the refunds have been completed and we have made changes to our internal systems to resolve these matters."
Regions also claimed it would not charge overdraft and non-sufficient funds fees as part of its Ready Advance product but did anyway, the CFBP said.
Regions no longer offers this product, which offered short-term loans for small amounts to customers who make regular deposits into their accounts. Under this program, Regions would collect payment from an account, but if payment was larger than the available balance, cover the transaction and charge an overdraft fee or reject its own transaction and charge a fee. Despite claiming it did not charge these fees, the bank collected about $1.9 million in fees to 36,000 customers, according to the CFBP.
Regions voluntarily refunded affected customers. Regions will hire an independent consultant to identify any remaining customers who were charged illegal fees, under the terms of a consent order filed Tuesday.
Regions also will fix all negative credit reporting that came as a result of illegal fees.
"Today the CFPB is taking its first enforcement action under the rules that protect consumers against illegal overdraft fees by their banks," CFPB Director Richard Cordray said in a statement. "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 is headquartered in Birmingham and operates in 16 states.Source: www.al.com