Regions Bank has been fined $7.5 million for what federal regulators say were illegal overdraft protection fees it charged customers without first asking whether they wanted the potentially pricey service.
Hundreds of thousands of customers paid more than $49 million in what the federal Consumer Finance Protection Bureau called illegal fees to Regions, which is one of the nation’s biggest banks with more than 1,700 branch locations.
“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 Tuesday in a written statement.
Regions also charged overdraft and insufficient funds fees on its deposit-advance product, despite saying that it would not do so, according to the bureau.
According to the bureau, Regions Bank charged overdraft fees of up to $36. Patrons who had both checking and savings accounts would have those accounts linked and, without prior approval, the bank would transfer fees from savings to checking to cover overdrafts, charging a fee for doing so.
Once considered an occasional helper, overdraft protection has become a big money-maker for banks in recent years with the rise of frequent debit card usage. Instead of attempting to use a card once on an overdrawn account and being denied — paying a single insufficient funds fee — card users now can rack up one overdraft fee after another by continuing to use a card for an account they don’t realize is overdrawn.
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 had opted-in for that service. If consumers don’t opt-in, banks may decline the transaction, but not charge a fee.
Regions Bank already has begun refunding the roughly $49 million, according to the bureau. The company also says it no longer offers Ready Advance, its deposit advance product.
“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 Bank spokeswoman Evelyn Mitchell said in an email 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.”
The bureau said the bank could have faced a stiffer fine than the $7.5 million, but that it was given credit for reimbursing customers and self-reporting the issues once they were brought to the attention of senior management.
Tuesday’s announcement marked the first time the Consumer Finance Protection Bureau has taken action against a bank since a new law in 2010 gave the bureau the legal authority to sanction banks that engage in unfair, deceptive or abusive practices.
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