In what might prove to be one of Richard Cordray’s final acts as Director of the Consumer Financial Protection Bureau, the Bureau announced on Thursday that it was suing TCF National Bank, a $21 billion depository institution, in federal court for practices involving TCF’s overdraft program.  This enforcement action marks the first time the Bureau has elected to litigate with a depository institution.

Banks have long provided overdraft protection to depositors, covering transactions that exceed the funds in a consumer’s deposit account in return for a fee.  Since 2010, Reg E has prohibited banks from charging overdraft fees for debit card and ATM transactions unless a consumer receives a notice describing the program and affirmatively opts into such protection.  This rule has resulted in banks altering their practices to encourage consumers to make an affirmative choice in selecting an overdraft protection program.

In its complaint against TCF, the Bureau alleges that TCF’s business model was particularly dependent on overdraft fees and that the bank engaged in abusive and deceptive strategies to convince consumers to opt in.  Specifically, the Bureau alleges that TCF’s sales and management practices materially interfered with consumers’ ability to understand the terms and conditions of the TCF opt-in program, and left consumers with the impression that there were no risks to opting in to the program and that program participation was mandatory.    In bringing these claims, Bureau points to an array of alleged sales practices:

• According to the Complaint, TCF solicited new account opt-ins primarily through its branch employees. In certain regions, “unreasonably aggressive sales targets” were linked to achieving high opt-in rates, and many employees believed that they could lose their jobs if they did not meet the goals.  Further, branch managers were publically and privately questioned when they struggled to get consumers to opt in.

• The Bureau alleges TCF tested and refined both the language and timing of its sales pitch to new customers specifically to obtain the maximum number of opt-ins. For instance, after the company discovered that consumers opted in at a higher rate when being asked to agree to the opt-in alongside other terms and conditions — rather than being asked to opt in when the notice was provided — TCF began delaying the opt-in consent selection until it could be requested at the same time as provisions that were mandatory to open an account.    Further, when presenting this election to the consumer, TCF employees were instructed to use scripted language that provided a very brief description of what the opt-in election covered, emphasizing its benefits while avoiding any reference to fees.  The cumulative impact, according to the Complaint, was to discourage a consumer’s focus on the notice and the election, encourage the  impression that the opt-in was mandatory, and effectively replace the disclosures contained in required notices with one-sided summaries.  Staff were also encouraged to avoid ‘over-explaining’ the overdraft program.

• The Complaint also states that TCF implemented a process to overcome consumer objections whereby it would use hypothetical situations tailored for “maximum emotional resonance,” such as positing certain emergency situations where a consumer may not be able to pay for a necessary good or service without overdraft protection. These discussions emphasized benefits of the overdraft program while ignoring any associated fees or risks.

• Finally, according to the Bureau, TCF would seek to obtain opt-ins from existing deposit account customers by asking them if they wanted their debit cards to continue working as they currently did, while avoiding references to account ‘changes’ that could give consumers pause. When those consumers gave an affirmative reply, TCF considered that sufficient to meet the opt-in requirement.   TCF would then read a disclosure (that included transactions not subject to the opt-in rule) and would ask for confirmation of the customer’s agreement to opt-in.  According to the Bureau, this turned the overdraft protection into the “default” position and had the effect of changing the opt-in requirement to an opt-out in violation of Reg E.

According the Bureau, as a result of these sales and management practices, consumers signed up for the overdraft program without a full understanding of their options or the program costs and risks.  It is worth noting that this matter is only the second time the Bureau has alleged that a depository institution has engaged in “abusive” behavior and the first time it has done so in a contested enforcement action.  The Bureau has in fact used abusiveness relatively rarely throughout its history, though this action reflects the second time in two days it has used this authority in filed litigation, as the Bureau also alleged that Navient engaged in abusive behavior relating to student loan serving, and may signal that the Bureau is attempting to develop a more comprehensive jurisprudence around the abusiveness standard in advance of likely attempts to remove it from the Bureau’s jurisdiction