Feds suit says TCF tricked customers on overdraft fees

WASHINGTON – The Consumer Finance Protection Bureau sued Wayzata-based TCF Bank Thursday, alleging that the bank tricked customers into paying a $35 service fee to cover each overdraft on their accounts.

The suit accuses TCF of pushing overdraft services even as new federal rules prohibited overdraft charges for certain debit-card and ATM transactions unless customers agreed to them. The 2010 rules required customers to specifically accept overdraft protection fees, a status called "opt in."

TCF said in a statement that it "rejects" the bureau's charges and that it treated customers fairly while "obeying all laws and regulations."

The federal consumer finance watchdog alleged that TCF deceived customers by associating the opt-in overdraft fee with mandatory requirements, causing account holders to accept the optional fees at rates much higher than other financial institutions.

The bureau also said the bank offered bonuses to employees who got high numbers of opt-in overdraft service fees attached to new accounts.

TCF says it will defend itself against the charges. "Although we remain hopeful that we can reach an appropriate resolution to this matter, TCF intends to vigorously defend against the CFPB's allegations, and we believe we have strong, principled defenses to its complaint," TCF communications vice president Amie Hoffner said.

Hoffner added the "overdraft protection program is a valued product for our customers."

In prepared remarks, Richard Cordray, head of the CFPB, said the suit involves a major revenue source that banks lost when a new Federal Reserve rule took effect in 2010.

Under the rule, said Cordray, banks "cannot charge an overdraft fee for ATM withdrawals or most debit card transactions unless the consumer has affirmatively 'opted in' to use these services.

"If the consumer does not opt in, banks may either allow or decline the transaction, but cannot charge a fee if they decide to cover any overage."

The new rule put a $182 million revenue stream at risk for TCF, Cordray said. He said the company used prepared scripts and deception to convince hundreds of thousands of customers to accept the overdraft protection fees. The rate of acceptance was three times higher than at other banks, Cordray said. Employees earned bonuses for signing up customers for the program.

The agency's lawsuit says that William Cooper, TCF's chief executive 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."

The lawsuit points to 2010 "opt-in celebrations" held to memorialize sign-ups by 300,000, then 500,000 customers. Senior executives attended, the suit said.

TCF spokesman Mark Goldman said opt-in "incentives" lasted only nine months in 2010 and that opt-in rates "did not materially decrease" after the bonus program shut down. Goldman also said opt-in rates from customers who set up accounts online were "roughly the same" as those who signed up in branch offices of the bank.

Cordray said TCF relied more heavily on overdraft fees as a revenue source than most banks because TCF did not generate "substantial" revenue from credit cards and home mortgage loans.

The charges against TCF come at a time when the banking industry is vulnerable to allegations of improper behavior. A recent Wells Fargo scandal that involved the creation of sham accounts and fees led to congressional hearings, cost the Wells CEO his job and cut into the company's earnings.

Jim Spencer • 202-662-7432