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Consumer regulator sues TCF National Bank, says bank brazenly pushed overdraft

Drawing parallels to the fake-accounts scandal at Wells Fargo & Co., the Consumer Financial Protection Bureau on Jan. 19 filed a lawsuit against TCF National Bank over its sale of overdraft services. The regulator cited a brazen sales culture that rewarded managers for selling overdraft protection and said the bank's CEO even named his boat the "Overdraft." The bank rejected the claims, saying its overdraft protection complied with the "letter and spirit" of the law.

The CFPB said the bank, a subsidiary of TCF Financial Corp., misled its customers into signing up for overdraft protection, which charges the customer a $35 fee for each instance of overdraft. A federal law from 2010 forces banks to have consumers opt in to overdraft protection. The CFPB noted that 66% of TCF's customers had opted into overdraft protection, a rate that was more than triple the average at similarly sized banks. The regulator said branch managers could earn bonuses up to $7,000 for meeting overdraft opt-in goals. During a call with the press, CFPB Director Richard Cordray said managers would throw parties to celebrate hitting milestones.

"We absolutely see the parallel here, and much in the way that in Wells Fargo the significant incentives there encouraged employees to do some things that were both not legal and not in the interest of consumers. What we have here is that the incentives for employees at TCF pushed them to bulldoze consumers into costly overdraft products that they didn't understand," said Chris D'Angelo, associate director for supervision, enforcement and fair lending at the CFPB.

Cordray said TCF National adopted a "loose definition of consent" when pushing consumers into overdraft products. He said employees would ask consumers if they wanted their debit card to work as it did today instead of explaining the mechanics of overdraft protection. The CFPB's complaint said regional managers would call out individual branch managers who had failed to meet opt-in goals.

The company said in a press release that it would "vigorously defend" itself against the lawsuit. "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,” it stated.

TCF noted that it had received 341 complaints from among its 2.6 million customers between 2010 and 2015 regarding their decision to opt in to the program. "We receive very few complaints from our customers about the overdraft program, which we believe provides a valuable service," the release stated.

The company also pointed out that accounts opened online with no face-to-face interaction opted in to overdraft protection at 60%, similar to the overall rate. The company also stated that it had waived or written off more than $100 million in fees since 2010 in cases where customers experienced financial hardship.

In the third quarter of 2016, TCF National collected $26.8 million of overdraft-related service charges and fees. With service charges constituting 9.94% of the bank's operating revenue, TCF National was one of the large banks most reliant on such fees. The CFPB's jurisdiction on overdraft issues is limited to banks with at least $10 billion in assets, D'Angelo said. TD Bank NA and Arvest Bank were the only two banks with more than $10 billion in assets to make the top 20 list of banks by portion of operating revenue derived from service charges.

The CFPB had issued TCF Financial a notice and opportunity to respond and advise letter in October 2015 regarding the bank's overdraft practices, and TCF Financial responded in February 2016 that it believed no enforcement action should be taken. D'Angelo declined to comment on the amount of fine the CFPB would seek in court. The CFPB's complaint, filed in Minnesota's district court, asked for civil money penalties, consumer relief, an injunction and compensation for the regulator's legal costs.