Regions Bank fined $7.5M for overdraft fees

Kevin McCoy | USA TODAY

Regions Bank (RF) will pay a $7.5 million fine for improperly charging overdraft fees to hundreds of thousands of customers, a federal regulator said Tuesday.

The Alabama-based bank, which has branches and ATMs in 16 states, charged the fees to customers who had not opted-in for overdraft coverage. Such charges are not allowed, the Consumer Financial Protection Bureau said in its first enforcement action over the charges.

Additionally, the bank charged overdraft and non-sufficient funds fees on its Regions Ready Advance short-term loan product, despite statements it would not impose those charges, the CFPB said.

The overdraft fees, up to $36 per transaction, piled up on customer accounts for months after bank executives learned the charges were improper and started corrective actions, the regulator said.

"Regions amplified this harm by letting it drag on for almost an additional year after the bank discovered the violations," said Cara Petersen, the CFPB's deputy enforcement director. "In the end, hundreds of thousands of consumers paid at least $49 million in illegal charges."

Regions Bank has already refunded many of he improper fees. A CFPB consent order requires the bank to make full refunds to all remaining customers affected by the improper overdrafts, and pay the $7.5 million fine.

The bank also must identify and correct any instances of customers' negative credit reports resulting from the improper overdraft fees.

"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 said. "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 Financial (RF) shares were up fractionally at $9.61 in afternoon trading.

The bank's actions violated 2010 federal regulations that bar banks and credit unions from charging overdraft fees on ATM and one-time debit card transactions unless consumers affirmatively opt in. If consumers don't assent, and don't have enough money in their accounts to pay for a new expense, banks are authorized to decline the transaction without charging a fee.

According to the CFPB, Regions Bank instead:

Allowed customers to link their checking accounts to savings accounts or lines of credit, but didn't give them the opportunity to opt in for overdraft protection if an expense exceeded the total available balance in the linked accounts. The bank processed the new transaction, and charged an overdraft fee.

Failed to take action on the improper charges until April 2012, nearly a year after an internal bank review showed that the linked-account fees violated the federal rule.

Misrepresented overdraft and non-sufficient fund fees related to the bank's short-term loan program.

The bank voluntarily reimbursed nearly $35 million in all to approximately 200,000 customers in Dec. 2012. It returned an additional $12.8 million a year later when the CFPB determined that additional customers had been affected.

In Jan. 2015, the bank identified even more customers who'd been charged the improper fees, the CFPB said. Those customers will also receive refunds.

A 2013 CFPB report raised questions about whether consumers are able to anticipate and avoid bank overdraft charges on checking accounts. A similar 2014 report raised questions about the financial impact of opting in for overdraft protection on debit card and ATM transactions.