Federal watchdog sues TCF Financial over overdraft fees

Federal consumer finance regulators said Thursday they were suing TCF Financial Corp., alleging the Twin Cities-based bank deceived consumers so it could charge them exorbitant overdraft fees.

Banks' overdraft fee tactics have long been considered predatory by consumer advocates. Such fees, which are charged when customers overspend their bank accounts, largely fall upon lower-income account holders.

Running as much as $35 per overdraft, the fees comprised a $180 million per year income stream for TCF, a bank with $21 billion in assets and with 360 branches in eight states.

By law, customers must actively choose to enroll in overdraft programs before they can be charged overdraft fees. But to maximize its profits, TCF was accused of tricking customers into believing that overdraft features were a mandatory part of their checking account.

"TCF bulldozed its way through protections against automatic overdraft enrollment," Consumer Financial Protection Bureau Director Richard Cordray said in a statement.

A bank spokesman, Mark Goldman, said the bank intended to vigorously defend itself in court. "We believe we have strong, principled defenses to its complaint," Goldman wrote in an email to the AP.

To convince customers to sign up for its overdraft coverage programs, the CFPB alleged, the bank also misled its customers about the costs of overdrafts and incentivized its staff to recruit customers with aggressive sales tactics.

"I don't think (new customers) understood that they, that they were exposing themselves to additional fees," one TCF branch manager testified, according to the CFPB suit.

A 2015 analysis by consulting firm Compass Point found that TCF derived far more overdraft income from its customers than all but one other major bank, Regions Financial. Among TCF executives, the bank's skill at extracting the fees was a point of pride, the lawsuit alleged: TCF chairman and former chief executive William Cooper named his boat "Overdraft."

The bureau's action follows an investigation stretching back more than one year. Last November, TCF warned shareholders that the bureau might target its overdraft policies as "unfair, deceptive and abusive."

A previous wave of class-action suits over other banks' similar practices led to hundreds of millions of dollars in settlements and judgments against banks such as Wells Fargo, which one judge wrote had laid "a snare for the unwary" and subjected its customers to a "bone-crushing multiplication" of fees, according to a 2010 judgment.