Editor’s note: This is a column, expressing the views of the author.
The Consumer Financial Protection Bureau announced Jan. 19 that it is suing TCF National Bank over its overdraft practices. The CFPB used emotionally-charged language in the press release it published to announce the suit. It said the Wayzata, Minn., bank “tricked consumers into costly overdraft services” and that it “bulldozed its way through protections against automatic overdraft enrollment.” TCF, which operates some 360 branches from Colorado to Illinois, said it will fight the charges. (The organization’s long-time leader, William Cooper, succumbed to cancer on Feb. 7 at the age of 73.)
At issue are the methods TCF used to get customers to enroll in its overdraft protection program. Since 2010, banks have been required by law to obtain positive consent from customers, permitting the bank to cover overdrawn checks and charge a fee. The law required banks to obtain permission even from customers who already were enrolled in the program when the new law was implemented.
The CFPB makes three primary claims the basis of its suit. The CFPB said TCF “pushed back on consumers” who initially declined the bank’s offer to sign them up for overdraft protection. The CFPB said TCF used “emotionally charged hypotheticals” to convince the customer they needed the product. In the suit, the CFPB quotes an unnamed former TCF employee who explained:
The major strategy would be to present an example of how it benefited the customer. It tugs at your heart strings. It usually was related to an emergency situation in which you needed funds. Some of the examples I would use is, “We live in Minnesota, too. It is cold outside. You are on the side of the road. You know your account has $50 in it. You know to get a service call it is going to cost you $80. You have to get it fixed. So you make that call. If you are opted in, we will pay it. You get an overdraft fee. If you don’t opt in, it declines you. You might get stuck on the side of the road, kind of like scare tactics.
To this editor, the example hardly proves compelling. Everyone who sells insurance uses “emotionally charged hypotheticals” to make the case for their product. What life insurance salesman doesn’t paint the gloomiest possible picture of your untimely death to sell their product? They all describe, in the most dire terms, the devastating consequences of your lost income. Or how about the guy trying to sell you disability insurance? He asks how you will get along if mid-career you are paralyzed from the neck down? Or the guy selling you collision insurance on your car? He doesn’t ask you to imagine dealing with a scratch on a fender, he asks what you would do if your car was totaled.
Overdraft protection is a form of insurance. But it is actually better than other kinds of insurance because you only pay for it when you need it. You pay for auto insurance whether you get in an accident or not. And, all things considered, overdraft insurance is fairly priced. While newspapers like to feature stories about $35 fees to cover an overdraft on the purchase of a cup of coffee, far more often overdrafts cover things like mortgages and car payments.
The CFPB also said TCF “tricked customers into believing optional overdraft was mandatory and obscured fees.” The CFPB said the bank asked customers whether they wanted to opt-in after presenting a series of mandatory opt-in decisions. They say this left the impression that the overdraft opt-in was mandatory. I think it will be difficult for the CFPB to prove customers did not understand their options.
And finally, the CFPB said TCF “adopted a loose definition of consent to opt in existing customers.” In a phone campaign, TCF employees called customers and asked whether they wanted their “TCF Check Card to continue to work as it does today?” Given all the disclosure laws applicable to banks, those customers certainly had been informed that the card provides overdraft protection at a given fee. I don’t know why the CFPB would assume customers didn’t know what they were doing.