The Consumer Financial Protection Bureau has filed a lawsuit against TCF National Bank of Wayzata, Minn., over practices related to its overdraft protection program. The CFPB claims TCF “tricked” consumers into enrolling in its overdraft protection program. Here is a link to the suit.
The suit alleges TCF designed its checking account application process to obscure fees and make overdraft protection appear mandatory to open an account. The bureau also said that TCF 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.
TCF said it had engaged in discussions with the CFPB over the past several months “in a good faith effort to resolve this matter” and that “it is unfortunate that the CFPB has decided to litigate this matter.”
“Although we remain hopeful that we can reach an appropriate resolution, TCF intends to vigorously defend against the CFPB’s complaint,” the $21 billion TCF said in a statement. “We believe that at all times our overdraft protection program complied with the letter and spirit of all applicable laws and regulations, and that we treated our customers fairly.”
With the 2010 advent of Regulation E’s opt-in requirements from the Federal Reserve, banks were required to get an affirmative opt-in from customers for overdraft protection on ATM withdrawals and one-time debit card purchases. Previously, there was no such requirement, and many banks enrolled customers automatically.
TCF charges about $35 per overdraft, and in late 2009, the bank estimated that approximately $182 million in annual revenue was “at risk” because of the opt-in rule, the bureau said. It began consumer testing that year, according to the suit, and determined that the less information it gave consumers about opting in, the more likely they were to do so.
The CFPB alleges that by mid-2014, about 66 percent of bank customers had opted in, “a rate more than triple that of other banks.” The CFPB painted TCF executives as cavalier about the fees, noting the bank’s former CEO named his boat the “Overdraft.” Furthermore, the bureau said, senior executives threw parties to celebrate enrollment milestones.
The bank altered employee scripts both for opening new accounts – in which the optional nature of the service was obscured – and for enrolling existing customers, the bureau said. Rather than ask whether existing customers wanted to have their overdrafts covered for a $35 charge, staff was allegedly instructed to ask customers whether they wanted their “TCF Check Card to continue to work as it does today?” Many customers didn’t understand that they were being asked to opt-in to the service, the bureau said.
Staff received bonuses for enrolling consumers, and some regional managers instituted opt-in goals for branch employees, in some cases as high as 80 percent of new accounts, and were told “not to ‘over explain’ the terms and conditions of its opt-in program,” the bureau said.
TCF disputed the bureau’s characterization of the customer experience on two grounds. First, TCF noted that customers who opened accounts online between 2010 and 2016, with no face-to-face interaction with TCF employees, opted in at a consistent rate of more than 60 percent. Second, that there were “virtually no complaints” from customers stating that they did not understand they had opted in to overdraft protection. From 2010 to 2015, there were 341 complaints from TCF’s 2.6 million customers related to their decision to opt-in, the bank said.
The lawsuit, filed in U.S. District Court for the District of Minnesota, alleges that TCF was in violation of the Electronic Fund Transfer Act and the Dodd-Frank Act. It seeks redress for consumers, injunctive relief and penalties.