CFPB Sues Bank for Deceptive, Abusive Overdraft Services

01/25/17 – The Consumer Financial Protection Bureau (CFPB) is suing a national bank for deceptive and abusive practices related to overdraft services.

Under Federal banking law, banks cannot charge overdraft fees on one-time debit purchases and ATM withdrawals without a consumer’s consent. A customer must opt in to overdraft services before a bank may charge the customer for overdrafts on ATM or debit card purchases.

Through a recently filed lawsuit, the CFPB alleges that a national bank designed its application process to obscure the fees and make overdraft seem mandatory for new customers to open an account. The CFPB also complains that the bank adopted a loose definition of consent for existing customers in order to opt them into the service and pushed back on any customer who questioned the process.

The bank, headquartered in Minnesota, operates approximately 360 retail branches across Minnesota, Wisconsin, Illinois, Michigan, Colorado, Arizona, and South Dakota. Among its various products, the bank offers checking accounts and charges about $35 every time a consumer overdrafts by spending or withdrawing more money than is available.

According to the complaint, for new customers, the bank figured out that if the bank asked customers whether they wanted overdraft services right after the bank asked customers whether they agreed to mandatory account terms, the customer was more likely to opt in to overdraft services. Bank employees were instructed not to tell customers that the overdraft services were optional.

The complaint also states that for existing customers, the bank would try to get customers to sign up for overdraft services by asking customers: Would you want your debit card “to continue to work as it does today?” If the customer said “yes,” then the bank would enroll the customer in overdraft services. If the customers balked, however, the bank would then suggest a hypothetical situation, such as an emergency with high stakes where they would desperately need access to money, to get the customer to opt in.

In addition, the CFPB alleges that the opt-in rate for overdraft services at the bank was more than triple than that of other banks. The bank also offered staff incentives or threatened disciplinary action related to the number of customers that staff could get to opt in to overdraft services.

The CFPB’s complaint alleges that the bank was in violation of the Electronic Fund Transfer Act and the bank engaged in deceptive and abusive acts prohibited by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the CFPB alleges that the bank:

• Tricked new customers into believing optional overdraft was mandatory and obscured fees;
• Adopted a loose definition of consent to opt in existing customers; and
• Pushed back on consumers who challenged opting in by using emotionally charged hypotheticals.

The lawsuit seeks redress for consumers, an injunction to prevent future violations, and a civil money penalty.

CFPB Press Release, Complaint, Consumer Advisory.