MONEY Banks

Bank Charged $50M in Illegal Overdraft Fees Says CFPB

Regions bank
Rosa Betancourt—Alamy

Consumers paid millions in illegal penalties to a bank that operates in 16 states, according to the Consumer Financial Protection Bureau.

Consumers were charged nearly $50 million in illegal overdraft fees by Alabama-based Regions bank, federal regulators said Tuesday. The bank, which operates in 16 states, failed to get consumers to opt-in to overdraft coverage, failed to stop charging illegal fees for nearly a year after it discovered the activity and also charged illegal fees in connection with its payday-loan-like “deposit advance” product, according to the Consumer Financial Protection Bureau.

Regions Bank operates approximately 1,700 retail branches and 2,000 ATMs, with a footprint that spans across the South and Midwest, from Florida to Texas to Illinois. It is one of the country’s biggest banks with more than $119 billion in assets.

“We take the issue of overdraft fees very seriously and will be vigilant about making sure that consumers receive the protections they deserve,” said CFPB Director Richard Cordray.

The CFPB on Tuesday ordered Regions to refund consumers and pay a $7.5 million fine, the first such fine levied under new overdraft rules set for banks in the Dodd-Frank financial reform bill.

“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. We believe the vast majority of the refunds have been completed and we have made changes to our internal systems to resolve these matters,” said Evelyn Mitchell, Regions spokeswoman.

Overdraft fees average about $35, and can be charged when consumers write checks or make electronic payments, purchases or withdrawals that exceed the available balance in their checking accounts. Prior to Dodd-Frank, consumers complained that they were often automatically enrolled in pricey overdraft coverage, which could cause them to incur $35 fees on small debit card purchases that sent their bank balances only a few dollars into the red. Dodd-Frank requires banks to simply reject such transactions unless account holders have affirmatively opted-in to the coverage.

But Regions kept on charging a subset of consumers overdraft fees without their express consent after Dodd-Frank took effect in 2010, the CFPB said. Regions customers who had previously linked their checking accounts to savings accounts or lines of credit were not asked to opt in for overdraft coverage, and kept on incurring fees as high as $36 per transaction.

Thirteen months after the mandatory compliance date, the bank discovered its error in an internal review, but kept charging the illegal fees for an additional year, the CFPB said. Finally, in June 2012, the bank’s computers were re-programmed to stop charging the fees.

It’s been a challenge for the bank to identify all impacted consumers. In December 2012, the bank voluntarily refunded $35 million to consumers who wrongly paid fees. In 2013, the CFPB alerted the bank to more victims, and it refunded an additional $12.8 million. This January, the bank found even more victims. The consent order issued by the CFPB today requires the bank to hire an independent consultant to identify any remaining consumers who are entitled to a refund.

The bank is also accused of making nearly $2 million by charging overdraft fees in connection with its deposit advance product after promising it wouldn’t charge such fees. Consumers who agree to a deposit advance loan receive money in their checking account in anticipation of a future deposit, often a direct deposit. When Regions collected from consumers’ accounts, and the payment was higher than the available balance, the bank sometimes changed overdraft fees, despite saying it would not do so. Between November 2011 and August 2013, the bank charged non-sufficient funds fees and overdraft charges of about $1.9 million to more than 36,000 customers, the CFPB said.

The bank was ordered to identify and fix any errors on consumers’ credit reports related to the illegal overdraft fees, and to pay a $7.5 million fine. The CFPB warned that the fine could have been higher. (Consumers can check for errors by getting their free annual credit reports from AnnualCreditReport.com, and can watch for issues by getting their free credit report summary, updated every month on Credit.com.)

“Regions’ violations and its delay in escalating them to senior executives and correcting the errors could have justified a larger penalty, but the Bureau credited Regions for making reimbursements to consumers and promptly self-reporting these issues to the Bureau once they were brought to the attention of senior management,” the CFPB said in a statement.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Banking

Here’s One Thing You Probably Shouldn’t Get at Walmart

Cracked piggy bank with Walmart logo
MONEY (photo illustration)—Getty Images (photo)

Walmart's new partnership with GoBank may be a decent option for those unable to get a checking account from a traditional bank, but most consumers (even low-income ones) can find a better deal.

When Walmart announced Tuesday that it would soon be offering checking accounts for the masses—so its customers could, ostensibly, conveniently deposit their checks where they purchase all their household goods—we saw an opportunity to compare the new banking option to its competitors.

Thanks to research compiled for MONEY’s annual Best Banks in America story, the latest version of which will be out on newsstands on November 28, we were able to measure up the new account against more than 200 other checking accounts.

But before we jump into our analysis, it’s important to understand what exactly Walmart is doing. First of all, the retailer is not technically its own bank (since its efforts to become an official deposit institution were basically foiled by the banking industry in 2007). The Walmart will simply offer a GoBank account through its partner Green Dot, an FDIC-insured banking platform that currently issues Walmart’s prepaid card.

The GoBank checking account—no savings as of yet—comes with a relatively low $8.95 monthly “membership fee” (essentially a maintenance fee) that can be waived with a $500 monthly direct deposit. But perhaps more interesting is the fact that it has no overdraft fees whatsoever, and virtually anyone—even those with terrible credit or a history of bouncing checks—will be approved for an account.

Greg McBride, chief financial analyst at Bankrate.com, says GoBank’s low eligibility requirements are unique in the industry and could be helpful to people who have frequent trouble with overdrafts. But McBride cautions that the people described make up a small subset of most consumers. Just one in seven bank customers have had more than one overdraft in the last year, meaning an even smaller subset of that group would be in dire need of GoBank’s leniency.

As it stands, the vast majority of people—even those with low incomes or mediocre credit scores—are able to qualify for checking accounts with similar or better terms than what GoBank offers, says McBride. Many competitors offer perks GoBank does not, such as interest payments or free use of out-of-network ATMs.

Below, we’ve set the account against some of the better options for standalone checking:

Account Maintenance Fee Minimum Interest Out-of-network ATM fees Overdraft fees? Credit score check to open?
Walmart’s GoBank Checking Account $8.95 (waived with a $500 monthly direct deposit) 0% $2.50 No No
E*Trade’s Max-Rate Checking Account $15 (waived with a $200 monthly direct deposit) 0.01% $0 (and all third-party ATM fees are reimbursed) Yes No, but they do check on past overdraft history.
Capital One’s 360 Checking Account $0 0.20% $0 Yes, but only $0.03 a day for every $100 of overdraft balance Yes
Ally Bank Interest Checking Account $0 0.10% $0 (and all third-party ATM fees are reimbursed) Yes Yes

For our Best Banks feature, MONEY also looked at mobile apps, and from what’s been announced so far, GoBank’s app does sound state of the art. A built-in budgeting program called Fortune Teller asks users to input their various bills and expenses, along with their salary and pay day. And once all the information is entered, users can ask Fortune Teller’s opinion before they buy something by entering in the price.

In theory, this sounds great—most people could use a virtual slap on the hand when they’re about to overspend. But the devil is in the details. It’s unknown how much of a financial buffer Fortune Teller’s algorithm leaves when it tells a person he or she can afford a purchase. And when the advice is coming, however indirectly, from a store that has plenty of things to sell to you, you’d be smart to be skeptical.

In other words, just because you can afford that $1,000 Gollum Halloween party prop doesn’t mean you should buy it. And just because you can get easily approved for this bank account doesn’t mean you should apply.

Related:

MONEY 101: How do I pick a bank?

MONEY

Should You Opt in for Overdraft Protection?

You can officially say goodbye to that $40 cup of coffee — that is, if your bank doesn’t badger you into paying for it all over again.

Thanks to new Federal Reserve rules, you now can decide what happens when you pull out a debit card to pay for a purchase but don’t have enough money in your checking account to cover it.

Previously, if you didn’t have enough in your account to make a purchase, your bank would generally cover it anyway — at a price.

Swipe for a $3 carton of milk if you only had $2 in the bank, and, without any notice, you’d pay an extra $35 to $40 to compensate for overdrawing your balance. Withdraw $20 from the ATM and the same thing would happen.

Under the changed rules — applicable to new accounts opened after July 1, and effective August 15 for pre-existing ones — attempted debit-card payments with insufficient funds will just be declined, unless users opt into the previously-automatic coverage, which banks liked to call “courtesy overdraft protection.”

The now-optional service — which many banks are spinning as a must-have, you’ll-never-be-able-to-set-foot-into-your-local-deli-if-you-don’t program — isn’t cheap. TD Bank, for example, charges $35 per transaction that overdraws an account more than $5, up to five transactions per day. You pay another $20 if your account balance remains negative for 10 consecutive days.

Interestingly, though the Fed’s new rules are being enacted to protect customers, a Credit.com poll shows that many consumers would rather pay the fees in order to avoid the embarrassment and inconvenience that accompany card rejections. But what are the alternatives if you want to avoid debit-card rejections without paying extra?

Credit.com has a list of suggestions, and we picked our favorite three:

  • Carry around an emergency pre-paid or alternative credit/debit card that you know has money on it.
  • If your bank allows, tie your savings account to your checking account so that any checking-account debit overdrafts are covered by the money in your savings. There may be fees for the transfer, but they’re likely cheaper than the courtesy overdraft charges.
  • Sign up for text message alerts to notify you if your balance falls below a certain threshold (of course, standard messaging fees would apply here).

If you have other payment options readily available — cash or credit cards, for example — don’t opt in for overdraft protection, advises Greg McBride, a senior financial analyst at Bankrate.com. Otherwise, you’re setting yourself up for an expensive fee that can easily be avoided, and which you may not even be aware of (since banks don’t necessarily let you know that a transaction is overdrawing your account). If, however, you don’t usually carry around cash or your credit cards are frequently maxed out, McBride says opting in would be a sensible way to save yourself in an emergency situation when your debit card is your only payment option. But the best solution for avoiding the fee might be the most obvious one: “Everyone needs to monitor their available account balance,” says McBride, “so that they can avoid overdrafts.”

Several MONEY staffers say that in recent weeks they’ve gotten a hard sell from their banks, both online and inside local branches, to opt in for overdraft protection. Confusing marketing gimmicks and persistent sales representatives are aimed at making customers aware of the new option – and signing them up. What about you? Will you opt in? Have you experienced incessant pleas to join? Tell us in the comments.

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