ceo names yacht overdraft

clock This article was published more than  7 years ago

A former bank CEO named his boat ‘Overdraft.’ Now that bank is in hot water over the fees.

Turns out overdraft fees are still big moneymakers for some banks. So much so that a former chief executive of a midsize bank named his boat after the fee.

That’s only one of the ways that bank employees celebrated the money they made from overdraft charges, according to a lawsuit filed Thursday by the Consumer Financial Protection Bureau against TCF National Bank.

The government’s consumer watchdog alleges that lofty sales goals drove the Minnesota-based bank to mislead hundreds of thousands of consumers into signing up for overdraft services. Consumers typically face overdraft charges of about $35 when they use their debit cards to spend more money than they have in their accounts. Federal rules put in place after the financial crisis prohibit banks from charging the fees on debit purchases or ATM withdrawals unless consumers opt in to the program. But the CFPB alleges that TCF violated those rules.

The agency said the bank made it seem as if overdraft services were mandatory for new customers by presenting them at the same time that customers were asked to agree to mandatory terms required to open an account. The move doubled the rate at which consumers were opting in to the service, according to the CFPB.

Federal rules also required banks to ask existing customers if they wanted to opt in to overdraft services. But the agency says TCF used vague language to have existing customers agree to overdraft services. For instance, existing customers were asked if they wanted their check cards to “continue to work as it does today.” If they said “yes,” then   that was taken to mean that the customer had opted into the overdraft program.

At one point in 2014, some 66 percent of TCF customers had opted in to overdraft charges, about three times as much as other banks, according to the CFPB.

Branch employees were given various incentives to encourage customers to sign up for overdraft fees, according to the lawsuit. In 2010, managers at large branches were offered bonuses up to $7,000 for getting a high share of new customers to opt in to overdraft. Those bonuses were phased out, but some employees were told to aim to have 80 percent of new customers opt in to overdraft programs.

Bank executives celebrated the program’s success by throwing parties when they reached certain milestones, such as having 500,000 people opt in to the charges, according to the complaint .

The bank denies the charges, adding that it received only 341 complaints from 2.6 million customers about opting in to overdraft services between 2010 and 2015. “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,” said a  statement  from TCF, which has about 340 branches in Minnesota, Wisconsin, Illinois, Michigan, Colorado, Arizona and South Dakota.

The bank told The Post in an emailed statement that employees who did not reach the quotas set for overdraft fees were not penalized or fired. TCF also said customers were given reminders that they could opt out of overdraft programs and that the scripts used by branch employees “were not misleading in any way.”

The lawsuit is in line with recent efforts from the CFPB to crack down on robust sales goals they say can lead to unnecessary costs and other harm for consumers. In September, the agency fined Wells Fargo for a scheme in which employees opened sham accounts for customers without their permission to meet sales goals and earn bonuses. And in November, the CFPB issued a memo warning financial companies against sales incentives that may lead to fraud.

The TCF case presents a few lessons for anyone with a checking account:

Know what you’re signed up for. Although overdraft programs are optional, many people don’t know they’re signed up for the services until after they’ve overdrawn their accounts. Some 52 percent who said they paid overdraft fees in 2013 were either not aware that their bank charged overdraft fees or only learned of the charge after the fact, according to a 2014  report from Pew Charitable Trusts.  If you’re not sure whether you’re enrolled in an overdraft program, call your bank to find out.

Track your balance.  Sign up for alerts so that you can receive a text message or email any time your account balance falls below a certain amount. Check your balance before a purchase, and note any other checks or bill payments that may be pending.

Link to a savings account. Consider linking your checking account to a savings account so that you can have money deducted from the savings account when you’re short in your checking account. There will still be a charge for this, but the fee is usually less than what you might pay for a traditional overdraft charge.

Read more: 

Wall Street is making big bucks from overdraft fees — again

Three bank fees that can sneak up on you — and how to avoid them

5 mistakes Americans are making with their money

• Manage My Account
• Food & Drink
• Submit an Obituary
• View Obituaries
• Legal Notices
• Real Estate
• Advertising in the Daily Herald
• Advertising in The Herald Business Journal
• Advertising in La Raza del Noroeste
• Social media
• Privacy policy
• Terms of Use
• Newsletters

• Follow us on Instagram
• Follow us on Facebook
• Follow us on X
• Classifieds
• Environment
• Investigative
• Photography
• Street Smarts
• Transportation
• College Sports
• High School Sports
• Prep Football Stats
• Seattle Sidelines
• Hops and Sips
• SnohomDish on Facebook
• Restaurant reviews
• As seen on Instagram
• What's Up With That?
• Family Activities
• Staycation Secrets
• Things To Do
• Aviation & Space
• Paine Field
• Editorial cartoons
• In Our View
• Letters From Readers
• Other Commentary
• Place Obituary
• Local Marketplace
• Marketplace
• Senior Resources
• Digital Subscription
• Digital & Print Subscription
• Heraldnet App
• Email Newsletters
• Newsstand Locations
• Education Project
• Environmental & Climate Change Reporting
• Health Reporting Initiative
• Investigative Journalism Fund
• Stay Informed

Bank CEO named boat ‘Overdraft,’ bank is in hot water over fees

• By Wire Service
• Friday, January 20, 2017 3:44pm

> Give us your news tips .

> Send us a letter to the editor .

> More Herald contact information .

More in Business

Big Lots announces it will shutter Everett and Lynnwood stores

The Marysville store will remain open for now. The retailer reported declining sales in the first quarter of the year.

Despite high mortgage rates, Snohomish County home market still competitive

Snohomish County homes priced from $550K to $850K are pulling in multiple offers and selling quickly.

Mill Creek robotics team — Jack in the Bot — wins big

Henry M. Jackson High School students took first place at the Indiana Robotic Invitational for the second year in a row.

Edmonds College to offer 2 new four-year degree programs

The college is accepting applications for bachelor programs in computer science as well as robotics and artificial intelligence.

‘Magic happens’: Paine Field aerospace center dedicates new hands-on lab

Last month, Edmonds College officials cut the ribbon on a new training lab — a section of a 12-ton Boeing 767 tanker.

Swedish battery maker opens first U.S. facility in Marysville

Echandia’s marine battery systems power everything from tug boats to passenger and car ferries.

State grants Everett-based Helion a fusion energy license

The permit allows Helion to use radioactive materials to operate the company’s fusion generator.

New Japanese-style sweets shop to open in Lynnwood

J. Sweets, offering traditional Japanese and western style treats opens, could open by early August at the Alderwood mall.

Lombardi’s Italian Restaurant in Mill Creek to close

Lombardi’s Restaurant Group sold the Mill Creek property currently occupied by the restaurant. The Everett and Bellingham locations remain open.

Kroger and Albertsons plan to sell these 19 Snohomish County grocers

On Tuesday, the grocery chains released a list of stores included in a deal to avoid anti-competition concerns amid a planned merger.

Inslee energized from visit to Everett fusion firms

Helion Energy and Zap Energy offered state officials a tour of their plants. Both are on a quest to generate carbon-free electricity from fusion.

Awards honor employers who promote workers with disabilities

Nominations are due July 31 for the awards from the Governor’s Committee on Disability Issues and Employment.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.

Business | Bank, whose former CEO named his boat…

Share this:.

• Click to share on Facebook (Opens in new window)
• Click to share on X (Opens in new window)
• Click to print (Opens in new window)
• Click to email a link to a friend (Opens in new window)
• Top Workplaces
• Real Estate
• Transportation

Business | Bank, whose former CEO named his boat ‘Overdraft,’ in hot water over fees

Turns out overdraft fees are still big money makers for some banks. So much so that the former CEO of a mid-sized bank named his boat after the fee.

That’s only one of the ways that bank employees celebrated the money they made from overdraft charges, according to a lawsuit filed Thursday by the Consumer Financial Protection Bureau against TCF National Bank.

The government’s consumer watchdog alleges that lofty sales goals drove the Minnesota-based bank to mislead hundreds of thousands of consumers into signing up for overdraft services. Consumers typically face overdraft charges of about $35 when they use their debit cards to spend more money than they have in their accounts. Federal rules put in place after the financial crisis prohibit banks from charging the fees on debit purchases or ATM withdrawals unless consumers opt in to the program. But the CFPB alleges that TCF violated those rules.

The agency said the bank made it seem as if overdraft services were mandatory for new customers by presenting them at the same time that customers were asked about mandatory services they had to agree to if they wanted to open an account. The move doubled the rate at which consumers were opting in to the service, according to the CFPB.

Federal rules also required banks to ask existing customers if they wanted to opt in to overdraft services. But the agency says TCF used vague language to have existing customers agree to overdraft services. For instance, existing customers were asked if they wanted their check cards to “continue to work as it does today.” If they said “yes,” then that was taken to mean that the customer had opted into the overdraft program.

At one point in 2014, some 66 percent of TCF customers had opted in to overdraft charges, about three times as much as other banks, according to the CFPB.

Branch employees were given various incentives to encourage customers to sign up for overdraft fees, according to the lawsuit. In 2010, managers at large branches were offered bonuses up to $7,000 for getting a high share of new customers to opt in to overdraft. Those bonuses were phased out, but some employees were told to aim to have 80 percent of new customers opt in to overdraft programs.

Bank executives celebrated the program’s success by throwing parties when they reached certain milestones, such as having 500,000 people opt in to the charges, according to the complaint.

The lawsuit is in line with recent efforts from the CFPB to crack down on robust sales goals they say can lead to unnecessary costs and other harm for consumers. In September, the agency fined Wells Fargo for a scheme in which employees opened sham accounts for customers without their permission in order to meet sales goals and earn bonuses. And in November, the CFPB issued a memo warning financial companies against sales incentives that may lead to fraud.

The TCF case presents a few lessons for anyone with a checking account:

Know what you’re signed up for. Although overdraft programs are optional, many people don’t know they’re signed up for the services until after they’ve overdrawn their accounts. Some 52 percent who said they paid overdraft fees in 2013 were either not aware that their bank charged overdraft fees or only learned of the charge after the fact, according to a 2014 report from Pew Charitable Trusts. If you’re not sure whether you’re enrolled in an overdraft program, call your bank to find out.

Track your balance. Sign up for alerts so that you can receive a text message or email any time your account balance falls below a certain amount. Check your balance before a purchase, and note any other checks or bill payments that may be pending.

Link to a savings account. Consider linking your checking account to a savings account so that you can have money deducted from the savings account when you’re short in your checking account. There will still be a charge for this, but the fee is usually less than what you might pay for a traditional overdraft charge.

More in Business

News | ‘A piece of Mexico in Chicago’: The Little Village arch, now a landmark in Chicago, is restored

Business | Campbell wants to say goodbye to the ‘soup’ in its name. It isn’t the first to make such a change

Real Estate | Retired WMAQ-Ch. 5 anchor Rob Stafford and his wife sell West Loop condo for $1.3M

Business | Michigan manufacturers tap women to support industry’s growth

Trending nationally.

• Hurricane Francine makes landfall as Category 2 storm in Louisiana; new tropical depression forms in Atlantic
• Do this right now if your Social Security number was snared by hackers
• Taylor Swift drives more than 330,000 visitors to U.S. voter information site
• TikTok creator, 33, dies after experiencing cardiac arrest as he finished Disneyland half marathon
• Light streaking across PA skies was Polaris Dawn rocket carrying Lehigh Valley billionaire [Video]

• Risk Management
• Vendor Management
• Compliance Management
• Continuity Management
• Lending Compliance
• 1071 Compliance
• Audit Management
• Findings Management
• Cybersecurity Assessment
• Vendor Contract Assistant
• Employee Information Security
• Board Portal
• Credit Unions
• Mortgage Lenders
• Wealth/Investment Management
• Resources Hub
• Nsight Blog
• Regulatory Pulse
• Ncast Podcast
• Nsider Community
• Partnerships

Lessons from the CFPB: Why It’s a Bad Idea for a Banker to Name His Boat Overdraft

Gary Hart had Monkey Business. Now former TCF National Bank CEO William Cooper has Overdraft .

The newly famous boat, named in honor of the role overdraft fees played in the success of the TCF Bank, is making national headlines as part of a lawsuit filed by the CFPB alleging the $21.1 billion bank was “tricking consumers into costly overdraft services in order to preserve its bottom line.”

TCF Bank, based in Wayzata, Minn., denies the allegations, saying it did not violate the unfair, deceptive, or abusive acts or practices (UDAAP) provisions of the Consumer Financial Protection Act or the Electronic Funds Transfers Act.

The suit, which includes the testimony of former employees, says that the bank was so determined to protect its $180 million overdraft revenue stream after the Federal Reserve’s “Opt In Rule” took effect in 2010 that the bank took a page from the Wells Fargo handbook and incentivized employees to convince customers to opt in. Rewards included bonuses of up to $7,000 for some branch managers.

After the bank discontinued the incentives program in 2011, some branch employees were required to meet an opt-in goal of 80 percent of all new accounts, the suit alleges. Many believed they would lose their jobs if they fell short, the CFPB says, including one former employee who said she was put on probation because only half her customers opted in.

Tricking Customers

But that’s not all. The bank also systematically tested consumer responses to craft a script designed to imply that overdraft opt-in was mandatory for customers opening new accounts, the lawsuit alleges. The CFPB says TCF Bank went after existing customers too, asking them if they wanted their “TCF Check Card to continue to work as it does today” and assuming that saying yes meant they were opting in to the overdraft program.

The bank also used “emotionally charged hypotheticals” suggesting that failure to have the service could leave them stranded on the side of the road or unable to buy food, the CFPB says.

These methods were effective, the CFPB says, helping TCF convince about 66 percent of customers to opt into the overdraft program—a rate that was more than triple than the average bank. It also collected hundreds of thousands of dollars in overdraft fees.

The lesson here is clear: Companies that don’t have a culture of compliance are feeling the wrath of regulators. If regulators find you are deliberately flouting regulations or actively taking steps to avoid complying with the letter and the spirit of the law, you may end up in hot water.

Also, be careful what you name your boat.

Related: What Is A Compliance Management System And Why Your FI Needs One

Subscribe to the nsight blog, you may also like.

OCC Singles Out a Bank Director for Excessive CEO Compensation

Did You Hear the One About the Community Bank and the Russian Oligarch?

The Gramm-Leach-Bliley Act

• Kreyòl Ayisyen

Prepared Remarks of CFPB Director Rohit Chopra on Overdraft Lending Press Call

Overdraft loans – along with the hefty and often surprising fees that come with them – affect families across the country. For many of those charged overdraft fees, the market is not working for them, even if they are happy a bank processed a transaction instead of declining it. Compared to credit cards and other forms of credit, overdraft lending is very expensive.

More than a half-century ago, overdraft began as an occasional convenience with a modest fee. Over the course of several decades, many of the nation’s largest banks morphed this market into a junk fee harvesting machine. That’s why the Consumer Financial Protection Bureau is taking action to close regulatory loopholes that will bring long overdue transparency and competition for overdraft lending.

Abuses by Large Banks

Because overdraft lending is so profitable, we have seen how large banks have egregiously crossed the boundaries of the law. Seven years ago, the CFPB sued TCF Bank – now known as Huntington Bank – for tricking consumers into costly overdraft lending. Over the course of many years, TCF went all in to drive up its junk fee haul, including by cheating to get its customers to sign up for overdraft. Their efforts to churn hefty fees were so successful that the bank’s CEO named his boat “Overdraft.”

Junk fees became a core part of the TCF’s management philosophy, where employees could even get bonuses and higher scores on their performance reviews when they signed customers up for overdraft. At one point, managers at larger branches could earn up to $7,000 in bonuses for driving overdraft activity. Later, certain regional managers instituted opt-in targets for branch employees. TCF staff had to achieve extremely high opt-in rates of 80 percent or higher for all new accounts. The result was tricks, traps, and bullying that resulted in an overdraft opt-in rate that was triple the rate at other banks.

TCF was part of a broader trend – big banks using a lending rule carveout to build business models that root for customers to run out of money in order to extract more fees from them, with some even resorting to egregiously violate the law.

This was not an isolated incident. In 2015, the CFPB ordered Regions Bank to pay more than $56 million in penalties and redress for similar illegal overdraft conduct, which included charging overdraft fees even if the customers had never agreed to overdraft. Despite being subject to a law enforcement order, Regions didn’t stop. In 2022, the CFPB took action again against the repeat offender, ordering this large regional bank to pay $191 million for charging surprise overdraft fees. The bank charged overdraft fees even after telling consumers they had sufficient funds at the time of the transactions.

In 2022, the CFPB also ordered Wells Fargo to pay $3.7 billion for a slew of illegal conduct. Admittedly, it can be difficult to track Wells Fargo’s list of wrongdoing over the past decade. But, in addition to creating fake accounts for unsuspecting customers, Wells Fargo charged illegal surprise overdraft fees on transactions for which the customers had enough money in their accounts.

In the last several years, misconduct in the market has led the CFPB to take many enforcement and supervisory actions against large banks for illegal overdraft activity.

That’s why the CFPB is proposing a rule that would establish bright lines and ensure consumers know what they are getting when it comes to overdraft loans. Right now, overdraft lending is one of the only types of loans where consumers are not told an APR or given lending disclosures.

If finalized, the rule would close a loophole in the rules implementing the Truth in Lending Act that has allowed banks to lend money to consumers to cover overdrawn accounts without having to worry about the consumer protections that govern other forms of consumer credit. By closing the loophole, we are not shutting banks from profits or consumers from credit. Overdraft loans will simply have to play by the rules.

From Occasional Convenience to Junk Fee

But let’s look even further back at history. After a slew of lending abuses in the middle of the twentieth century, Congress passed the Truth in Lending Act in 1968, which applied to all sorts of consumer loans. The act protects consumers from behavior common at the time: “false or misleading advertising, bait-and-switch sales tactics,” and practices designed to increase the risk of default and repossession. 1

Congress charged the Federal Reserve Board with implementing regulations for the new Truth in Lending Act. The Fed decided to exempt overdrafts from the requirements. Decades ago, a significant amount of payments and billing occurred through hand-written checks sent through the U.S. Postal Service. This created some unpredictability about when people would receive checks. As an occasional and case-by-case convenience, when an overdraft occurred, some banks cleared those checks for a modest fee, rather than letting large payments bounce.

The exemption meant that banks did not have to treat these overdraft loans as a consumer credit product, which would normally involve disclosures to facilitate comparison shopping and other protections.

But a lot has changed. After the exemption was created, automation increased and debit card transactions grew in volume, triggering many more overdrafts. Banks also increased the size of overdraft fees even as it got cheaper to process payments, turning overdraft into a significant profit maker. Large banks now typically charge $35 for an overdraft loan today, even though most consumers’ debit card overdrafts are for less than $26 and are repaid within three days—translating to an APR of roughly 16,000 percent. And today, only a very small portion of overdrafts are caused by checks.

Consumers have paid an estimated $280 billion in overdraft fees over the past two decades, including roughly $9 billion in 2022.

Because these loans are extremely profitable, many financial giants have sought ways to ratchet up revenues from their deposit account customers. This has required regulators to invest substantial resources to prevent illegal activity that inhibited fair competition.

CFPB’s Proposed Overdraft Lending Rule

That is why the CFPB is looking to close this longstanding loophole. Under the proposed rule, large financial institutions would need to treat overdraft loans just like credit cards and other lending products. For example, financial institutions could offer a line of credit linked to a customer’s checking account and debit card. The proposed rule provides clear provisions for banks that offer credit features linked to debit card products, which will even help many of them compete with credit card issuers.

In terms of the exemption, the CFPB proposes to limit the exemption to when a financial institution is simply recovering their costs. The CFPB is seeking comments on whether to give banks the option to charge a prescribed benchmark that doesn’t require them to do their own math. We are proposing a benchmark of $3, $6, $7, or $14. Banks would be able to charge more if they calculate a breakeven fee above the benchmark. We are also seeking comment on whether to get rid of the exemption altogether.

The proposed rule would cover the nation’s very large banks and credit unions that have $10 billion or more in assets. These financial institutions control most of today’s consumer deposit and overdraft lending markets. Regulators consistently identify the largest banks as pushing or crossing the boundaries when it comes to overdraft.

Right now, overdraft fees are often assessed for reasons people do not expect or understand, chip away at needed income, and take a heavy toll on families living paycheck to paycheck. According to some data, these fees can drive people to leave the banking system altogether and limit their ability to get ahead financially.

In the past few years, large banks have made several reforms to their approach to overdraft. I hope our proposed rule can solidify these gains and provide clear rules of the road that will halt further abuses.

Fleming, Anne. The Long History of “Truth in Lending” , Georgetown University Law Center, 2018.

Media Moves

When the name of a boat is not a business news story, february 1, 2017, posted by phillip blanchard.

“Turns out overdraft fees are still big moneymakers for some banks. So much so that a former chief executive of a midsize bank named his boat after the fee.” – Washington Post

“Among the juicy details included in a new consumer advocacy lawsuit filed Thursday was this one: The former CEO of a Midwest bank actually named his boat … “Overdraft.” – Money

“U.S. oversight officials accused Minnesota-based TCF National Bank of tricking thousands of customers into accepting overdraft fees with such aggressiveness that the practice ended up as the name of the former CEO’s pleasure boat.” – USA Today

The Consumer Financial Protection Bureau, in a lawsuit against TCF Financial Corp., claims that the bank overcharged customers who overdrew their accounts.

It’s a good story about how the bank allegedly misled account holders about how much it charged to cover the overdrafts, and pressured them to buy overdraft protection after the Federal Reserve Board amended its regulations to require that customers “opt in” for coverage. Otherwise, banks couldn’t charge overdraft fees.

It’s always interesting to read about banks that might have cheated their customers. It’s especially so in Arizona, Colorado, Indiana, Illinois, Michigan, Minnesota, South Dakota and Wisconsin, where TCF has branches and where many aggrieved bank customers might want to get some of their money back before they switch banks.

The lawsuit says TCF’s overdraft fees totaled $180 million a year. You don’t need gimmicks to make the story interesting.

But a couple of throwaway lines in the lawsuit inspired efforts to dumb down the story. “TCF’s CEO at the time the Opt-In Rule went into effect was particularly attuned to how important overdraft fees are to TCF’s success. He even named his boat the Overdraft . ”

We don’t know why the CEO did that and no one seems to have asked him.  But that didn’t stop the Post, Money, USA Today and many others from putting that boat in their leads. It wasn’t even “clever” – they just parroted the lawsuit, without elaboration. The Post never bothered to come back to the boat later in the story so readers might have a fighting chance to know whether it was relevant.

“Wait,” I hear you cry. “If it’s stoopid, why carry it further?” Exactly. Tossing in the line about the boat isn’t worth the extra effort to explain the circumstances. Editors should have kicked back the stories and told the writers to get serious.

Marketwatch (which did resist leading with the boat) quoted a TCF spokesman: “The name of a boat is simply irrelevant to this matter.” The spokesman was right, which is something of an upset.

And what’s up with the picture of a boat that ran with the Money story? Is it the boat?

Where was it taken? When? If it’s the CEO’s boat, wouldn’t it have been nice to have shown “Overdraft” painted on the stern? Or wasn’t it there? As much of a distraction as it is, readers are owed an explanation.

Phillip Blanchard is a former business editor at the Washington Post. Previously he worked at the Chicago Sun-Times and newspapers in upstate New York. He is founder of Testy Copy Editors .

• Reporting tips , Writing tips

Miller moves to AI beat at MLex

September 11, 2024, bloomberg’s taylor takes over transportation muni coverage, forbes union votes “no confidence” on company leaders, wsj seeks a reporter to cover midsize deals, wsj seeks a corporate coverage chief, subscribe to tbn.

Receive updates about new stories in the industry daily or weekly.

Chris Roush, founder [email protected]

Talking Biz News is a division of Vested LLC 114 E. 25th St. New York, NY 10010 917-765-8720

© Talking Biz News

Receive updates about new stories in the industry.

• Collaborators

• THE neighborhood
• Web Seminars

At Bank Where CEO’s Boat Was Named ‘Overdraft,’ CFPB Files Suit for ‘Tricking’ Customers

WASHINGTON—The CFPB is suing TCF National Bank for allegedly “tricking” consumers into costly overdraft services, and further alleging the bank’s CEO named his boat “Overdraft” and that parties were held when the FI reached overdraft “milestones.”

The Bureau alleges that TCF designed its application process to obscure the fees and make overdraft seem mandatory for new customers to open an account. The CFPB also said it believes 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. The lawsuit seeks redress for consumers, an injunction to prevent future violations, and a civil money penalty. 

“Today we are suing TCF for tricking consumers into costly overdraft services in order to preserve its bottom line,” said CFPB Director Richard Cordray. "‎TCF bulldozed its way through protections against automatic overdraft enrollment and then celebrated its unusual sign-up success. With today’s action, we are standing up for consumers’ right to understand and choose what services they receive.” 

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

As described in the Bureau’s complaint, TCF relied on overdraft fee revenue to a greater degree than most other banks its size and recognized early on that the opt-in rule could negatively impact its business. In late 2009, it estimated that approximately $182 million in annual revenue was “at risk” because of the opt-in rule. It began consumer testing that same year. Through this testing, the bank determined that the less information it gave consumers about opting in, the more likely consumers would opt in, the CFPB explained. 

The Bureau’s complaint alleges that TCF’s strategy also consisted of bonuses to branch staff who got consumers to sign on. For example, in 2010, branch managers at the larger branches could earn up to $7,000 in bonuses for getting a high number of opt-ins on new checking accounts. After the bank phased out the bonuses, certain regional managers instituted opt-in goals for branch employees. Staff had to achieve extremely high opt-in rates of 80% or higher for all new accounts. While the bank’s official policy was that an employee could not be terminated for low opt-in rates, many employees still believed they could lose their job if they did not meet their sales goals, the CFPB said. 

The Bureau alleges that the bank’s strategy worked and that by mid-2014, about 66% of the bank’s customers had opted in, a rate more than triple that of other banks. According to the Bureau’s complaint, the chief executive officer of the bank even named his boat the “Overdraft.” TCF’s senior executives were so pleased with the bank’s effectiveness at convincing consumers to opt in that they had parties to celebrate reaching milestones, such as getting 500,000 consumers to sign up, the CFPB said.

The lawsuit alleges that TCF was in violation of the Electronic Fund Transfer Act and 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: The bank determined through consumer testing that if new customers were asked to opt in at the same time they were being asked to agree to other mandatory terms and conditions of a new account, the opt-in rate more than doubled. So it placed the opt-in decision immediately after a series of mandatory items the consumer had to agree to in order open the account, rather than at the time they received the mandatory notice about their opt-in rights. The bank then provided branch employees with scripts that did not explain that opting in was optional or that it amounted to giving the bank permission to authorize transactions that would result in fees. Most consumers fell into the rhythm of initialing the terms of the agreement and signed on, the CFPB said. 
• Adopted a loose definition of consent to opt in existing customers: TCF also ran a campaign to get customers who already had an account to opt in. TCF branch employees called those existing customers using a script the bank had provided. Instead of asking consumers whether they wanted to have their overdrafts covered for a $35 charge, staff were instructed to ask customers whether they wanted their “TCF Check Card to continue to work as it does today?” Many consumers did not understand that by choosing to have their debit card “continue to work as it does today,” they were granting the bank permission to authorize transactions and charge them overdraft fees that they would otherwise not have to pay, the CFPB explained. 
• Pushed back on consumers who challenged opting in by using emotionally charged hypotheticals: TCF consistently instructed its staff not to “over explain” the terms and conditions of its opt-in program. If new or existing consumers challenged or questioned opting in, the bank instructed its staff to sell the product by suggesting a hypothetical situation, such as an emergency with high stakes where they would desperately need access to money, the CFPB said. 

The suit seeks redress for consumers, injunctive relief, and penalties. A copy of the complaint is available at: http://files.consumerfinance.gov/f/documents/201701_cfpb_TCF-National-Bank-complaint.pdf  

Bank, whose former CEO named his boat…

Share this:.

• Click to share on Facebook (Opens in new window)
• Click to share on X (Opens in new window)

Daily e-Edition

Evening e-Edition

• Hurricane Tracks
• Election 2024
• Restaurants
• Real Estate
• Things To Do

Bank, whose former CEO named his boat ‘Overdraft,’ in hot water over fees

Turns out overdraft fees are still big money makers for some banks. So much so that the former CEO of a mid-sized bank named his boat after the fee.

That’s only one of the ways that bank employees celebrated the money they made from overdraft charges, according to a lawsuit filed Thursday by the Consumer Financial Protection Bureau against TCF National Bank.

The government’s consumer watchdog alleges that lofty sales goals drove the Minnesota-based bank to mislead hundreds of thousands of consumers into signing up for overdraft services. Consumers typically face overdraft charges of about $35 when they use their debit cards to spend more money than they have in their accounts. Federal rules put in place after the financial crisis prohibit banks from charging the fees on debit purchases or ATM withdrawals unless consumers opt in to the program. But the CFPB alleges that TCF violated those rules.

The agency said the bank made it seem as if overdraft services were mandatory for new customers by presenting them at the same time that customers were asked about mandatory services they had to agree to if they wanted to open an account. The move doubled the rate at which consumers were opting in to the service, according to the CFPB.

Federal rules also required banks to ask existing customers if they wanted to opt in to overdraft services. But the agency says TCF used vague language to have existing customers agree to overdraft services. For instance, existing customers were asked if they wanted their check cards to “continue to work as it does today.” If they said “yes,” then that was taken to mean that the customer had opted into the overdraft program.

At one point in 2014, some 66 percent of TCF customers had opted in to overdraft charges, about three times as much as other banks, according to the CFPB.

Branch employees were given various incentives to encourage customers to sign up for overdraft fees, according to the lawsuit. In 2010, managers at large branches were offered bonuses up to $7,000 for getting a high share of new customers to opt in to overdraft. Those bonuses were phased out, but some employees were told to aim to have 80 percent of new customers opt in to overdraft programs.

Bank executives celebrated the program’s success by throwing parties when they reached certain milestones, such as having 500,000 people opt in to the charges, according to the complaint.

The lawsuit is in line with recent efforts from the CFPB to crack down on robust sales goals they say can lead to unnecessary costs and other harm for consumers. In September, the agency fined Wells Fargo for a scheme in which employees opened sham accounts for customers without their permission in order to meet sales goals and earn bonuses. And in November, the CFPB issued a memo warning financial companies against sales incentives that may lead to fraud.

The TCF case presents a few lessons for anyone with a checking account:

Know what you’re signed up for. Although overdraft programs are optional, many people don’t know they’re signed up for the services until after they’ve overdrawn their accounts. Some 52 percent who said they paid overdraft fees in 2013 were either not aware that their bank charged overdraft fees or only learned of the charge after the fact, according to a 2014 report from Pew Charitable Trusts. If you’re not sure whether you’re enrolled in an overdraft program, call your bank to find out.

Track your balance. Sign up for alerts so that you can receive a text message or email any time your account balance falls below a certain amount. Check your balance before a purchase, and note any other checks or bill payments that may be pending.

Link to a savings account. Consider linking your checking account to a savings account so that you can have money deducted from the savings account when you’re short in your checking account. There will still be a charge for this, but the fee is usually less than what you might pay for a traditional overdraft charge.

More in News

Alberto Fujimori, a former president of Peru who was convicted for human rights abuses, dies at 86

Education | Union feud escalates to a Broward schools investigation

Crime and Public Safety | Nine Broward students arrested for online threats since August, deputies say

Crime and Public Safety | Florida Supreme Court rejects discipline proposal for Broward judge

Getting over overdraft

Subscribe to the economic studies bulletin, aaron klein aaron klein miriam k. carliner chair - economic studies , senior fellow - center on regulation and markets.

November 7, 2022

This report is based on an article originally published by the Milken Institute Review on October 31, 2022.

Bank account overdraft fees have not always been with us. Overdraft privileges as a paid service became common in the 1990s, when it was introduced by banks as a convenience for account holders who ran out of funds with checks outstanding and would rather have them honored than returned. What began as a modest add-on service to select customers quickly morphed into a profit center for banks (and credit unions), with estimates of total fees paid ranging up to $30 billion a year .

Now, $30 billion is real money even for a banking system as large as America’s: The biggest banks were making over $1 billion a year on overdraft fees, while overdraft income grew to an astonishing 20% or more of earnings for smaller ones. Overdraft fees, effectively interest on loans, are extremely high cost given the small amount of money loaned via an overdraft, the short term of the loan, and the minimal chance of default. As a result, overdraft fees result in nearly pure profit for the bank (or credit union). No wonder one bank CEO named his yacht “Overdraft.”

Every overdraft by definition turns money from someone who has run out of it to revenue for a bank (or credit union). The good news is this reverse Robin Hood is slowing down. After decades of racking up major profits off overdrafts, many banks, including most of the largest banks, have announced sweeping changes that will sharply reduce costs for their customers—by my calculations, the combined savings already announced add up to about $5 billion a year, 1 changes so large that even President Biden noticed and tried to take some credit . But in reality, this turnabout came without new legislation or regulation.

Why? Congress and regulators did put pressure on banks to change their ways. Sen. Chris Van Hollen (D-MD) prodded the Comptroller of the Currency, the agency that regulates national banks about overdrafts. Sen. Elizabeth Warren (D-MA) confronted JP Morgan Chase CEO Jamie Dimon, pointedly asking why his institution earns seven times as much in overdraft revenue as comparably sized Citibank. Rep. Caroline Maloney (D-NY) repeatedly introduced legislation that would force sweeping changes to overdraft policy, although it never came close to enactment. Meanwhile, the Consumer Financial Protection Bureau published research highlighting the overdraft bonanza’s magnitude and who’s paying for it. New financial technology (fintech) firms began offering and marketing products providing consumers banking accounts without overdraft and sometimes with different forms of less expensive small dollar credit. But these entrants are tiny compared to the U.S. banking system.

It’s hard to say whether banks feared new regulation, new legislation, bad publicity, competition, or had bigger fish to fry with their overseers. Whatever the reason, the dam burst. The largest banks are planning to cut overdrafts by about half from 2019 levels. This is not the end of the story, though: some banks’ changes are more meaningful than others. Here, I offer a closer look at what’s happening, in particular how it affects lower-income households, and suggest ways Congress and financial regulators could and still should intervene.

Understanding Overdrafts

One key take-home is that 80% of overdraft fees come from just 9% of account holders . Heavy overdrafters are highly profitable customers, often producing more income for banks than more affluent customers who may use other paid bank services but always maintain positive balances. Oliver Wyman consultants estimated that heavy overdrafters on average generated $720 a year in profit for their basic bank accounts while non-overdrafters yielded a measly $57.

To compare banks of widely disparate size, I analyzed overdraft revenue per consumer account excluding retirement accounts. The numbers are striking. Some banks generate overdraft income at a rate more than seven times those of others, which seems unlikely to reflect differences in the care taken by account holders to remain liquid. The explanation is typically buried in the fine print that hardly anyone reads or back-office practices by banks that only regulators know about (if they bother to look). For example, some banks post debits before credits, triggering overdraft fees, while some allow overdrafts at ATMs rather than simply denying withdrawals exceeding account balances.

Bankers Healing Themselves

The good news, of course, is that all the giant banks and many smaller ones have pulled back on overdraft fees. Consumers’ savings from this subset of 14 banks—which includes the eleven large banks included in the above graph plus three others that have announced changes (USAA, Ally Bank, and Frost Bank)—should be about $5 billion a year (see endnote 1 for information on calculations in this section). This estimate, incidentally, is more inclusive than the Consumer Finance Protection Board’s estimate of the savings from banks eliminating non-sufficient funds fees, which the agency estimated will save consumers $1 billion annually. It also includes institutions that have made announcements since an earlier estimate by the Pew Charitable Trusts, which found potential savings of $2 billion a year based on changes from only the five largest banks.

A breakdown by individual bank explains the large differences in the impact of the changes. Note that Citibank, Capital One, and Ally collected relatively little in overdraft fees before the announced changes. So it isn’t all that surprising that they chose to finish the job, flat-out eliminating overdraft fees. Bank of America similarly stands out in that even though it was making over $1 billion a year in overdraft fees prior to changes, they have so many accounts that on a per account basis they were on the smaller end. Their decision to decrease the fee per transgression from $35 to $10 coupled with other changes will eliminate around 90% of their overdraft revenue.

At the other end of the spectrum Regions Bank and USAA appear to have done the least among big banks, with projected revenue declines on the order of 20 to 25%. This is even more concerning given that Regions had among the highest overdraft revenue per account in 2019 and was just fined $191 million by regulators for illegal, surprise overdrafts.

The details of how banks are reducing overdrafts sheds light on the factors that drove the overdraft bonanza in the first place. Here, I break it down into four “buckets.”

Reducing fees per incident

Overdrafts had generally been priced at about $35 each, with institutions setting a maximum number of daily overdrafts (often between four and eight) as they covered cascading shortfalls for a stiff price. Charging penalty fees for overdrafts may have been designed at one point to reduce their frequency but given the illiquidity of many of their customers at the moment they temporarily run out of money, it became an easy way for banks to turn small fish (small-balance accounts) into big bucks (small balance accounts that generate big profits). Given the high cost and lack of time to cover account shortfalls by other means, the relative standard practices across the industry, a lack of alternative products, and consumers’ frequent lack of awareness that they were even overdrafting, overdraft fees didn’t seem to move customers to leave their bank to find a better deal.

Many banks also charged a non-sufficient funds fee (NSF) for some accounts, refusing payment when an account was overdrawn rather than covering the gap with an expensive automatic overdraft loan. NSF fees tended to be around the same size as overdraft fees. Most of the largest financial institutions have now eliminated NSF fees entirely , while others have chopped them. Some banks have also reduced the maximum number of overdraft fees charged per day, limiting a consumer’s total exposure in cases in which a cascade of small checks bounce because the account holder miscalculated. These changes are straightforward and reduce costs borne by consumers.

Changing timing

Overdrafting is more about running out of time than out of money—people are often minutes or hours away from having the money necessary to cover the overage. Some customers have positive balances when they make a purchase, but because of the time delay in clearing a deposit, the balance turns negative when the purchase clears. This results in a “positive when made, negative when settled” scenario that—no surprise—enrages consumers.

This timing problem is exacerbated by America’s antiquated payments clearing system, which runs on decades-old technology. For one, payments are often credited and debited in batches rather than individually when they occur.

A batch system is analogous to a washing machine in which all the clothes go in together regardless of when they were soiled and come out clean at the same time. The person doing the laundry then decides when to fold and return the clean clothes, much the way a bank has some discretion on which order to post the various debits and credits that come through the payment cycle. And the debits have a habit of being folded and shelved before the credits.

Some banks have now created grace periods in which consumers who cover an overdraft within a day or two are not charged a fee ( PNC , Wells Fargo ). In addition, many banks have put electronic deposits of wages on the fast track, crediting direct deposits up to two days earlier ( Capital One , Regions ).

Direct deposits do not clear instantly. Typically, a direct deposit paycheck written on an employer’s account on Tuesday does not become available to the worker until Friday. But banks with direct deposit relationships often know the amount of money their customer will receive and, if they choose, are able to safely provide access to those funds earlier. And some banks have eliminated overdraft fees incurred if a charge was made when the account still had funds but settled negative ( JPMC ).

PNC, which was among the first banks to change overdraft fees, has been able to collect some data from their changes which they term Low Cash Mode . Some 63% of PNC customers who end the day with a negative balance are able to fix the problem and avoid an overdraft. The average time to “cure” is only 13 hours, evidence that the majority of their customers’ problems are very short-term mismatches between payments and deposits. From PNC’s experience, 75% of their reduction fee income was the result of extra time and the change on the limit on total overdrafts. The remaining 25% came from the elimination of NSF fees. 2

This helps explain the popularity of early wage access and other faster payment options spreading through the banking and fintech systems. It also makes clear the incredibly high cost of our nation’s slow payment system that weighs heavily on families living paycheck to paycheck. The failure of the Federal Reserve to speed up transaction clearing has taken billions out of the pockets of working families and stuffed it in the bottom line of banks, credit unions, check cashers, and payday lenders.

Small dollar liquidity credits

In economic terms, an overdraft is a form of small-dollar credit. Charging a fixed price (a fee) instead of interest does not change that basic fact. But the courts and the regulators have deemed overdrafts to be fees instead of loans, thereby short-circuiting legal requirements like Truth in Lending that requires disclosures, including the annual percentage interest rate (APR). APRs for overdrafts may or may not be a useful concept. But they would appear astronomical in cases of small overdrafts: One story in the Dallas Morning News reported a $100 fee for covering an overdraft of two cents.

Most banks that have become more consumer-friendly have increased the amount a consumer can go negative without incurring a fee. Many have raised their limits from $5 to $50 ( US Bank , Huntington , TD , and JPMC ) while some have gone as high as $100 ( Truist and Frost Bank ).

Another common remediation has been to automatically convert negative balances into installment loans rather than charging a penalty fee. These loans typically still have a fixed charge for the amount borrowed. U.S. Bank offered a similar product ( Simple Loan ) some time ago for which the banks now charge $6 per $100 borrowed. The loans typically last a few months and are paid back in even, amortizing (i.e., self-liquidating) payments. Institutions typically make repayment automatic but say they will not take such payment from the account if it triggers yet another overdraft.

Changing from a fee-per-transaction when a customer’s balance is negative into a loan where costs are based on amount borrowed rather than the number of transactions is a win for consumers. It is a more honest and transparent product for the lender as well, as the costs/risks of default are related to the total amount borrowed, not the number of transactions.

Consider, too, that separating the cost of automatic installment credit from the time horizon of the loan is simpler for consumers to understand than an interest schedule. Fees on the order of 5% of amount borrowed are substantially lower than most alternatives available to heavy overdrafters for small-dollar credit.

Forgiving temporary negative balances is different than converting the negative balance to a loan. And it’s worth noting that savings to consumers from changes to overdraft fees will be somewhat offset by the costs of small dollar lending. So a full accounting of total savings from overdraft fee changes should include the corresponding costs associated with small dollar credit products that are being rolled out as alternatives to overdraft fees.

Consumer empowerment

Giving consumers advance knowledge of low balances as well as flexibility to stop or delay an automatic payment that puts them in the red would empower consumers to decide whether paying an overdraft was the better alternative. And to their credit, many banks have developed sophisticated systems to alert consumers of low balances in time to stop payments ( PNC , TD ). Some of these systems, for example, alert to customers when their balances reach a threshold (as in “$50 left in your account”), while others indicate an automatic payment is coming that would force an overdraft.

Consumers can then use this information to decide how to manage their finances and potentially avoid an overdraft. Note, however, that the decision may be more complicated than it first appears. Cancelling an automatic payment may itself result in fees from, say, a credit card company or a car lender. Banks making changes to their policies cannot be responsible for how a third party will respond to overdue payments.

While consumer empowerment sounds good, it may not have much impact. PNC estimates that only about 1% of payments were cancelled or delayed by customers receiving low-balance warnings (see endnote 2). This may be evidence that customers want these payments to move forward regardless of overdraft consequences. Or that they know they will have enough money to cover the payment, given that PNC now allows extra time to cure an overdraft.

Consider, too, that information without the ability to fix a problem is of limited use. The problem people living on the financial edge face with overdrafts is more a combination of temporal mismatches of money and the high cost of small dollar credit than it is about knowing that they are near the edge. Data from the Financial Diaries Project indicates that people living paycheck to paycheck may be more likely to budget and be aware of their finances than those who are comfortably upper middle class. The lack of a real-time payment system further complicates the value of information: when you do not know the precise moment your paycheck will be credited to your bank account or when a payment will be debited, it is impossible to budget or plan in a way to avoid fees.

What’s Government’s Job Here?

The banks who have tempered the “gotcha” aspect of low-balance banking without orders from lawmakers or regulators should be commended. It is not easy for a company to change in a way that reduces its immediate profits but improves the lives of its customers.

Doing the right thing is wonderful, but the reality is that not every bank will or even can. The more a bank depends on overdraft revenue the less likely it is to give it up without a push. Even today, a handful of banks and credit unions operate on business models that require a lot of overdraft revenue for their viability.

First National Bank of Texas, to take one example, has made more than 100%of its profits from overdraft fees in each of the last seven years—and that’s as long as overdraft data have been separately reported. For two other banks, Woodforest and Gate City, that has been true for six of the last seven years. Armed Forces Bank, a private bank exclusively serving current and past military, has made more than 75% of its profit on overdraft fees for each of the last seven years (and over 100%for three of the seven). Academy Bank made more than 100% of its profit in overdraft fees for four straight years from 2017-2020. 3

I group Armed Forces and Academy Bank together because they are owned by the same holding company, Dickenson Financial Company . The Federal Reserve regulates the holding company, while the Office of the Comptroller of the Currency (OCC) regulates their banks, which are nationally chartered.

Regulators have been asleep at the switch in allowing these banks to operate with what are clearly unsound business models, as they have been losing money every year on all aspects of banking other than overdrafts. And there may well be more overdraft addicts, as banks under $1 billion in assets and all credit unions are exempt from publicly disclosing their overdraft revenue.

The explosive growth and popularity of overdrafts as a profit center reveals deeper structural problems with America’s basic banking system. Slow payments, limited options for small dollar liquidity and fees designed to be punitive rather than linked to actual costs are core reasons why overdrafts became so widely used. The biggest losers are the working poor who can least afford to lose. Consider, too, that low-balance woes also drive people out of the banking system entirely, greatly adding to how expensive it is to be poor.

The solutions are relatively straightforward. I think any financial institution that relies on overdraft fees for the bulk of it profits for multiple consecutive years should be given failing regulatory grades—a position the Washington Post has echoed . Credit unions should publicly disclose overdraft revenue, just as banks do.

Wait, there’s more. America’s payment system needs to move in real time. The Federal Reserve, for example, has the legal authority to require the first $5,000 of every check deposited be available immediately. If the Fed won’t (and trust me it won’t), Congress must. As we’ve seen, a series of tricks allow some banks and credit unions to increase overdraft revenue in part by taking advantage of the slow payment system. Two of these can be ended through joint regulation: posting debits before credits and reordering payment flows from largest to smallest.

Finally, all financial institutions should be required to offer a no-overdraft, low-cost, basic bank account. These accounts have proven popular when properly marketed—Citibank reports that one in five new customers is opening one 4 —and it can be done in a way that is profitable for the financial institution. Interestingly, the bank lobby also likes these types of accounts: The American Bankers Association calls it a best practice for all banks to offer this type of account.

Overdraft fees may be on a downward arc, but they remain a serious drain on millions of Americans living on the financial edge. We know that the financial system works well for the affluent. But we need to redesign the system to discourage practices that have turned the poor and near-poor into a profit center.

The Brookings Institution is a nonprofit organization devoted to independent research and policy solutions. Its mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations for policymakers and the public. The conclusions and recommendations of any Brookings publication are solely those of its author(s), and do not reflect the views of the Institution, its management, or its other scholars.

JP Morgan Chase & Co., Wells Fargo & Co., Bank of America, Citi, TD Bank, and Capital One Financial Corporation provide support to The Brookings Institution. The findings, interpretations, and conclusions in this report are not influenced by any donation. Brookings recognizes that the value it provides is in its absolute commitment to quality, independence, and impact. Activities supported by its donors reflect this commitment.

Related Content

Aaron Klein

June 25, 2021

March 1, 2021

• The estimates of decline in overdraft revenue collected are based on the authors calculations using a number of data sources, including data from American Banker, bank announcements, and personal correspondence. For more information on the data and methodology, contact the author at [email protected] .
• Data provided to author, available upon request.
• Data on banks’ overdraft revenues, profits, and number of accounts is based on call report data generated on December 31 of a given year from the Federal Financial Institutions Examination Council Central Data Repository’s Public Data Distribution. https://cdr.ffiec.gov/public/ManageFacsimiles.aspx
• Data from author’s coorespondence with Citibank.

Economic Studies

Center on Regulation and Markets

Martin Fleming, Wensu Li, Neil C. Thompson

August 29, 2024

The Brookings Institution, Washington D.C.

1:00 pm - 3:30 pm EDT

9:00 am - 5:00 pm EDT

• Ask the Register
• National News
• Athletes of the Month
• Letters to the Editor
• Announcements
• Around Town
• Powers That Be
• Marketplace
• Special Sections
• Registered Podcast
• Place a Public Notice
• Search Public Notices

When a banker names his boat ‘Overdraft,’ you know things are amiss

Banks and credit unions made $15.5 billion in overdraft fees in 2019..

By THE WASHINGTON POST

December 13, 2021 - 9:11 AM

It’s welcome news that Consumer Financial Protection Bureau Director Rohit Chopra plans to enhance scrutiny on overdraft and non-sufficient-fund fees. Already, his threat of action appears to be driving change.

Banks and credit unions made $15.5 billion off of overdraft fees in 2019, according to the CFPB. The three biggest banks accounted for more than $5 billion of that total.

Username or Email Address

Remember Me

Allen County's latest news, now in your inbox

Most popular, take the register with you.

The latest in local news, right to your feed

Recent Videos

Ad-free. Influence-free. Powered by consumers.

The payment for your account couldn't be processed or you've canceled your account with us.

We don’t recognize that sign in. Your username maybe be your email address. Passwords are 6-20 characters with at least one number and letter.

We still don’t recognize that sign in. Retrieve your username. Reset your password.

Forgot your username or password ?

Don’t have an account?

• Account Settings
• My Benefits
• My Products
• Donate Donate

Save products you love, products you own and much more!

Other Membership Benefits:

Suggested Searches

• Become a Member

Car Ratings & Reviews

2024 Top Picks

Car Buying & Pricing

Which Car Brands Make the Best Vehicles?

Tires, Maintenance & Repair

Car Reliability Guide

Key Topics & News

Listen to the Talking Cars Podcast

Home & Garden

Bed & Bath

Top Picks From CR

Best Mattresses

Lawn & Garden

TOP PICKS FROM CR

Best Leaf Blowers

Home Improvement

Home Improvement Essential

Best Wood Stains

Home Safety & Security

HOME SAFETY

Best DIY Home Security Systems

SURVEY RESULTS

Most and Least Reliable Refrigerators

Small Appliances

Best Small Kitchen Appliances

Laundry & Cleaning

Best Washing Machines

Heating, Cooling & Air

Best Air Purifiers

Electronics

Home Entertainment

FIND YOUR NEW TV

Home Office

Cheapest Printers for Ink Costs

Smartphones & Wearables

BEST SMARTPHONES

Find the Right Phone for You

Digital Security & Privacy

MEMBER BENEFIT

CR Security Planner

Take Action

Think Twice Before Signing Up for Overdraft Protection

Here's why, and what you can do to avoid overdraft fees, sharing is nice.

We respect your privacy . All email addresses you provide will be used just for sending this story.

Overdraft protection on your bank account can be useful. When the bill comes at a restaurant, you won't be embarrassed if you don't have enough cash in your bank account. Or if you make an important payment at a merchant, it'll be sure to go through.

But the protection also can come with a fee when you overdraw your account using your ATM card or debit card. And a few banks have been accused by the Consumer Financial Protection Bureau of deceiving consumers into signing up for the service and not informing them of the costs. The Consumer Financial Protection Bureau recently sued TCF National Bank, a Minnesota-based regional institution with approximately 360 branches in seven states, for allegedly tricking hundreds of thousands of customers into signing up for "overdraft service." For those customers, every time they overdrew their account, they were hit with a fee of $35. Part of the problem facing many consumers is that they are confused by what overdraft protection means. The term "protection" is actually a misnomer, because when you opt in for the service, you are actually authorizing the bank to let you overdraw your account by using an ATM or debit card and then charge you penalties that can amount to $30 or more each time you overdraw your account. Keep in mind that banks don't need your opt-in permission to charge you overdraft penalties when paper checks and automatic electronic bill payments bounce.   Consumers who sign up for overdraft protection often find themselves caught in a cycle of spending more money than they have in their account. As the fees add up, it becomes even harder to recover, leading them to overdraw their accounts further, which, of course, leads to more fees. The problem hasn't always been so onerous. There was a time when you could overdraw your account as an occasional courtesy. Today, though, overdraft fees have become a regular source of income for  banks and credit unions  generating nearly $33 billion in revenue annually, according to Moeb Services, a Chicago-based research firm that tracks bank and credit union pricing.

About 15 percent of consumers overdraw at least once a year, according to a Pew research study conducted in 2013, the latest data available. Among overdrafters, about one-third paid three to nine penalties in the previous year, and 16 percent paid at least 10 to 20 penalties.

"Many consumers don't understand that if they don't opt in for overdraft protection, [their transactions] will be declined and the bank can't charge them a fee," says Thaddeus King, an officer with the Pew Charitable Trust's consumer banking project.  

Have you been surprised by overdraft protection fees?

Tell us about it in the comments section below.

Making matters worse is that the CFPB says some banks are getting their customers to sign up for overdraft protection through deceptive means. In the case of TCF National, the complaint alleges that TCF placed the overdraft protection opt-in agreement after a series of other mandatory agreements customers had to accept when they opened a new account in a bank branch or online. It also said that branch employees called existing customers to get them to opt in using bank-provided scripts. Those scripts did not explain that the overdraft program was optional, or that it would result in overdraft fees. The complaint also said bank employees were offered cash incentives to hit high opt-in targets, that senior bank executives partied after 300,000 customers signed opt-in agreements and then again when 500,000 opt-ins were signed. The bank's CEO at the time even named his boat "Overdraft."  The result was that 66 percent of TCF customers opted in, three times the average rate at other banks, according to the CFPB.  

TCF said in a statement that it "rejects the claims" and "will vigorously defend against the CFPB's complaint."

The CFPB has gone after other banks as well. Last July, it slapped a $10 million fine on Santander Bank, which is based in Delaware and the nation's 29th largest bank, for allegedly deceiving consumers into signing up for an overdraft service they didn't want and charging them fees.  At the time, Santander Bank said in a prepared statement, "We regret that the vendor we hired to promote our overdraft service may not have followed our instructions and we did not supervise them as closely as we should have." The bank said it ended its relationship with that vendor and took steps to improve oversight. In April 2015, a CFPB enforcement action led Alabama-based Regions Bank, the nation's 18th largest bank, to refund $49 million to customers who were allegedly charged overdraft fees but hadn't opted in for overdraft coverage. Regions also paid a $7.5 million fine.

Regions did not admit or deny the CFPB's findings. The CFPB, however, credited Regions for reporting the erroneous overdraft fees to the agency and for promptly reimbursing consumers.

How to Avoid Overdraft Fees

Consumers need to be aware that overdraft protection is not mandatory and that banks aren't always upfront about the costs involved. You can protect yourself by:

Saying no to overdraft protection. If you choose not to agree to sign up for overdraft protection, the bank will simply deny your debit or ATM transaction, sparing you the big fee. If you do sign up, there are other steps you can take to avoid being hit with an overdraft fee, such as linking your checking and savings accounts to help cover payments and signing up for online and mobile banking account alerts so you always know your balance. 

Opening a bank account that doesn't allow for overdrafts. The nation's biggest banks—Bank of America, Chase, Citi, U.S. Bank, and Wells Fargo—offer so-called lower-risk accounts , which offer just about all the same services a regular checking account but won't put through a payment if you don't have the funds in your account. These accounts aren't always promoted, so ask your bank about them.

Checking to see if your bank offers "friendly overdrafts." About 34 percent of banks and 13 percent of credit unions won't charge a penalty if you overdraw your account by small amounts, generally $10 or less, according to Moebs Services. Ask your bank if it has this policy.

Jeff Blyskal

I learned how corporations operate as a reporter at Forbes and now use my business savvy to uncover the tricks and find better deals for consumers like you. My passion for investigative reporting about money earned two National Magazine Awards and a Loeb Award. I love sharing wine with my wife and pitching batting practice to my MLB-focused son. Follow me on  Twitter (@JeffBlyskal).

Be the first to comment

Ken Sweet, Associated Press Ken Sweet, Associated Press

Cora Lewis, Associated Press Cora Lewis, Associated Press

Leave your feedback

• Copy URL https://www.pbs.org/newshour/economy/new-regulation-proposed-by-biden-adminstration-would-limit-overdraft-fees-at-big-banks-to-as-low-as-3

New regulation proposed by Biden administration would limit overdraft fees at big banks to as low as $3

NEW YORK (AP) — The cost to overdraw a bank account could drop to as little as $3 under a proposal announced by the White House, the latest effort by the Biden administration to combat fees it says pose an unnecessary burden on American consumers, particularly those living paycheck to paycheck.

The proposed change by the Consumer Financial Protection Bureau would potentially eliminate billions of dollars in fee revenue for the nation’s biggest banks, which were gearing up for a battle even before Wednesday’s announcement. Exactly how much revenue depends on which version of the new regulation is adopted.

WATCH: Biden delivers remarks on protecting retirement security by ending junk fees

Banks charge a customer an overdraft fee if their bank account balance falls below zero. Overdraft started as a courtesy offered to some customers when paper checks used to take days to clear, but proliferated thanks to the growing popularity of debit cards. So, for instance, a $10 debit card transaction could cost a bank customer $40 if their balance goes below zero.

“For too long, some banks have charged exorbitant overdraft fees — sometimes $30 or more — that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” President Joe Biden said in a statement . “Banks call it a service — I call it exploitation.”

Under the proposed rule, banks could only charge customers what it would cost them to break even on providing overdraft services. This would require banks to show the CFPB the costs of running their overdraft services, a task few banks would want to handle.

Alternatively, banks could use a benchmark fee that would apply across all affected financial institutions. Regulators proposed several fees — $3, $6, $7 and $14 — and will gather industry and public input on the most appropriate amount. The CFPB says it arrived at these figures by looking at how much it cost banks to recoup losses from accounts that went negative and were never paid back.

Banks could also provide small lines of credit to allow customers to overdraft, a service that would operate like a credit card. Some banks like Truist Bank currently offer that type of service.

According to research conducted by Bankrate last August, the average overdraft fee was $26.61. Some banks charge as much as $39. The nation’s biggest banks still take in roughly $8 billion in overdraft fees every year, according to data from the CFPB and banks’ public records. The bureau’s research also shows overdraft fees overwhelmingly impact the poor and households of color, who often overdraft multiple times a year.

Biden has made the elimination of “junk fees” one of the cornerstones of his administration’s economic agenda heading into the 2024 election. Overdraft fees have been at the center of that campaign, and the White House directed government regulators last year to do whatever is in their power to further curtail the practice.

The rules would apply only to banks with more than $10 billion in assets, which is roughly 175 banks that make up most of the financial institutions Americans do business with. The rules spare small banks and credit unions, some of which rely disproportionately on overdraft fees. CFPB officials told reporters that it chose to focus on the largest banks since most Americans bank at these large institutions and that is where the widespread abuses have historically happened. Roughly two-thirds of all overdraft fees are charged by these 175 banks.

WATCH: Wall Street bank CEOs oppose proposed Biden regulations in Senate hearing

Decades ago, banks created a service that allowed certain customers with checking accounts to go negative in their accounts to avoid bouncing paper checks. What started as a niche service became a massive profit center for the banks after the proliferation of debit cards that caused customers to debit their bank accounts for small and large amounts of money multiple times a day.

Overdraft fees have been a financial bonanza for the banking industry, with the CFPB estimating that banks collected $280 billion in overdraft fees in the last 20 years. These fees became so popular that one bank CEO named his boat the ” Overdraft.”

But banks have changed their overdraft practices in response to political and popular pressure on in the last few years, and question the need for the government regulators to step in now. Most of the biggest banks have added safeguards to customers’ accounts to allow them to bring the balance back into positive territory before they incur a fee. Bank of America, once considered by industry critics to be the biggest abuser of overdraft fees, cut its fee from $35 to $10 two years ago and says revenue from overdraft fees is now less than 10% of what it had been.

JPMorgan, the nation’s largest bank, now gives customers a $50 cushion when they go negative in their account. CEO Jamie Dimon told lawmakers in 2022 that with changes the bank has made, roughly 70% of all transactions that cause a negative balance do not incur overdraft fees.

The banking industry is expected to fight the new regulations vigorously to protect the fee revenue. The regulations are likely to end up in a protracted legal battle that could reach the Supreme Court. If the rule is adopted and survives political and legal challenges, the new regulations would go into effect in the autumn of 2025.

Banks have long argued that government regulations on overdraft could cause banks to eliminate the service altogether. While some banks have eliminated overdraft fees and created bank accounts that cannot go negative, Bankrate estimates that roughly nine out of 10 banks still offer the service.

“If enacted, this proposal could deprive millions of Americans of a deeply valued emergency safety net while simultaneously pushing more consumers out of the banking system,” said Lindsey Johnson, president and CEO of the Consumer Bankers Association, the trade and lobby organization for the larger consumer banks.

The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

Support Provided By: Learn more

Educate your inbox

Subscribe to Here’s the Deal, our politics newsletter for analysis you won’t find anywhere else.

Thank you. Please check your inbox to confirm.