Questionable overdraft fees persist, lawsuit alleges

Former bank CEO named his boat 'Overdraft'

A federal regulator sued TCF National Bank, alleging that it tricked customers into paying big overdraft fees.

The Consumer Financial Protection Bureau filed suit against the bank in U.S. District Court in Minnesota on Thursday. The CFPB seeks undisclosed civil penalties and redress for consumers. TCF is based in Wayzata, Minnesota, and has 341 branches in Arizona, Colorado, Michigan, Minnesota, South Dakota and Wisconsin.

Overdraft fees are charges banks assess when a purchase with your debit card, ATM or check puts your account balance in the red.

Over the first three quarters of 2016, 626 large banks took in $8.4 billion from overdraft and "non-sufficient funds" fees, according to the U.S. Public Interest Research Group, a federation of consumer advocacy groups.

Consumer Financial Protection Bureau Director Richard Cordray.
Bill Clark | CQ Roll Call | Getty Images
Consumer Financial Protection Bureau Director Richard Cordray.

In TCF's case, customers who went over their balance incurred a $35 fee, according to the complaint.

"Among the telling details alleged in the bureau's complaint is the fact that the bank's [former] CEO even named his own pleasure boat the 'Overdraft,'" said Richard Cordray, director of the CFPB.

Seeing red

In 2010 the Federal Reserve issued a rule to bar banks from charging these fees unless customers have opted in to an overdraft protection program.

TCF had more than $180 million in revenue at stake due to this "opt-in" rule, so it "executed a strategy to persuade its customers to opt in," the CFPB alleges.

Elements of that strategy included asking new customers to accept the overdraft program at the same time they were signing off on other mandatory terms and conditions related to opening an account, the complaint said.

In order to get existing customers to participate, bank staffers purportedly asked them whether they wanted their "TCF Check Card to continue to work as it does today?"

Customers who said "yes" were considered to have given their consent to the service, the CFPB claimed.

"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," wrote Mark A. Goldman, TCF's director of corporate communications, in an email.

Be proactive

The median overdraft fee nationally is $34, according to the CFPB.

In order to avoid these fees, customers should look at their bank statements and determine whether they're enrolled in an overdraft program.

Sometimes it's better to pay cash for small purchases or to have those transactions denied altogether, as opposed to racking up hundreds of dollars in fees.

The main message for consumers is that if you're bouncing checks and paying fees that constitute a $38 cup of coffee, then you've opted in to a service that's serving the bank and not you," said Ed Mierzwinski, consumer program director at U.S. PIRG.

Another suggestion is to go back to the basics: Balance your checkbook and be vigilant for transactions that could put you in negative territory when they clear.

Finally, keep a buffer if you live paycheck-to-paycheck. "When your account says you have $100 in it, pretend it has zero," Mierzwinski said. "Don't use it until you put another $100 in it."