CFPB Tightens Scrutiny of Bank Overdraft Fees, Fines Santander
July 14 2016 - 9:30PM
Dow Jones News
WASHINGTON—The Consumer Financial Protection Bureau, preparing
to propose a fresh rule to rein in bank overdraft fees, announced
an enforcement action on Thursday against Santander Bank N.A. over
alleged illegal overdraft practices.
The agency entered into a settlement with Santander, in which
the lender was ordered to pay $10 million for allegedly using a
telemarketing vendor that signed up bank customers to its overdraft
program without their consent.
Santander didn't admit or deny the allegations and said it is
terminating its relationship with the vendor. It also said it
regretted not sufficiently supervising the vendor between 2010 and
2014, when the incidents occurred.
Santander, a Wilmington, Del.-based unit of Spain's Santander
Group, is the second bank the CFPB has cited this year for alleged
violations of a 2010 law that prohibits banks from charging
overdraft fees on ATM and one-time debit-card transactions unless
the consumer agrees in advance.
The CFPB is preparing to propose a new rule later this year to
restrict overdraft programs, a significant source of income for
banks. According to an estimate by Moebs Services, a research firm,
banks, thrifts and credit unions collected $32.5 billion in
overdraft revenue last year, up 2.1% from 2014.
For a typical fee of $35 per overdraft, most banks allow
customers to overdraw their accounts when there isn't enough money
to cover a transaction and to repay the amount covered out of the
next deposit. Without such a feature, the customer's check would
bounce and a debit-card purchase would be rejected if the account
lacks sufficient funds. Banks and merchants charge fees for bounced
checks.
Regulators have zeroed in on such fees in recent years because
they disproportionately hit lower-income consumers living from
paycheck to paycheck. A recent survey by Pew Charitable Trust
showed nearly seven in 10 heavy overdrafters—those defined as
paying $100 or more in overdraft fees in the past year, had incomes
under $50,000 a year. More than two in five heavy overdrafters paid
$300 or more in overdraft fees in the past year.
Such fees can be costly compared to the size of the overdrafts.
The CFPB's 2014 research showed the median purchase amount for
transactions that generated overdraft fees was $50 and $24 for
purchases made with debit cards.
In February, CFPB Director Richard Cordray requested banks to
consider offering low-cost no-overdraft bank accounts to
consumers.
In the latest case, the CFPB alleges that in addition to
enrolling customers in its overdraft program without their consent,
call representatives misled some customers into believing that the
service was free or they would be charged overdraft fees regardless
of whether they signed up for the program or not.
Besides the fine, the CFPB ordered Santander to contact all
customers enrolled in its overdraft program and ask if they wished
to opt in.
In addition to terminating the relationship with the vendor,
Santander is "continuing to implement additional controls to ensure
more effective oversight of our vendors and our processes," said
Ann Davis, a Santander spokeswoman.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
(END) Dow Jones Newswires
July 14, 2016 21:15 ET (01:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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