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 (CFPB). When customers withdraw more money than is in their checking account, a bank can advance that money and 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 opt-in, banks can decline a transaction, but the banks can’t charge a fee.
Regions allowed their customers to link their checking accounts to their savings accounts or lines of credit. That means when a customer withdraws more than is in their checking account, that money can automatically be withdrawn from another account.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. Instead, the bank paid transactions that were greater than the balance of all available accounts, charging a $36 fee for doing so. A Regions’ internal review found that the linked accounts policy violated the rule, but the bank didn’t stop the charges until almost a year later in April 2012. When the compliance department told senior executives about the violation, Regions reported the policy to the CFPB and stopped charging those fees in July 2012.
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 from 36,000 customers, according to the CFPB. 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 last month.
Regions also will fix all negative credit reporting that came as a result of illegal fees. CFPB Director Richard Cordray said in a statement:
Today the CFPB is taking its first enforcement action under the rules that protect consumers against illegal overdraft fees by their banks. 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. The bank has had numerous problems and definitely needs to clean up its operations.
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