Santander Enforcement Could Preview CFPB’s Overdraft Intentions
The CFPB’s recent enforcement action against Santander Bank over the bank’s overdraft practices underscores federal regulators’ focus on holding regulated institutions responsible for the actions of third-party vendors, and could provide a preview of the CFPB’s upcoming rulemaking on overdraft.
In a CFPB consent order issued last week, Santander is accused of using a telemarketing vendor that used deceptive marketing tactics to promote overdraft services to the bank’s checking account customers and signed customers up for the service without their consent. The CFPB ordered Santander to pay a $10 million fine and banned the bank from using any third-party to telemarket its overdraft services. The bank also must increase oversight of the vendors it uses to telemarket other financial products and services.
Santander from 2010 to 2014 marketed its “Account Protector” overdraft feature, which charged consumers $35 per overdraft, according to the CFPB’s investigation. That service provided financial incentives to its telemarketing vendor for signing customers up for the service. The vendor, in turn, signed customers up for the service without asking if they wanted to opt in—a violation of a 2010 federal law requiring affirmative confirmative consent to enrolled customers in overdraft services. The vendor also misled customers into believing the service was free and falsely claimed they would be charged fees whether they enrolled in Account Protector or not, according the consent order. Under terms of the order, Santander neither admitted nor denied any wrongdoing.
Oversight of third-party service providers has emerged as a theme of enforcement actions by regulators at the federal and state level over the past few years. In 2014, the Illinois Department of Financial and Professional Regulation and the Federal Reserve fined Cole Taylor Bank $4.1 million for failing to properly monitor the activities of its third-party agent, Higher One Inc., which promoted and managed the bank’s student financial aid refund disbursement products. In 2013, the FDIC fined First California Bank over fee disclosure violations by its third-party vendor, Achieve Financial Services.
Meanwhile, the CFPB has set its sights on checking account overdraft services, which the agency says can become costly for consumers who often incur overdraft fees. The agency is currently “engaged in pre-rulemaking activities to consider potential regulation of overdraft services on checking accounts,” according to its latest rulemaking agenda.
The CFPB’s upcoming final rule on prepaid accounts also is expected to include regulation on overdraft connected to prepaid cards—a move that has drawn criticism from the prepaid industry and some lawmakers, who fear it would cut off access to discretionary low-dollar, short-term advances for consumers who may have few other options.