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The Consumer Financial Protection Bureau Strikes Again

The Consumer Financial Protection Bureau, CFPB for short, has once again taken action against a company for alleged financial misconduct. This time around, the target of the CFPB is a company called M&T Bank. The charges filed by the CFPB indicate that M&T Bank deceptively offered prospective customers free checking accounts. M&T would lure customers in with promises of bank accounts with “no strings attached” essentially free checking accounts, without first disclosing accounts eligibility requirements. Consumers would then fail to meet those requirements, but M&T automatically converted them to checking accounts that did come with fees to be paid. M&T is now being forced to provide $2.9 million in refunds to the nearly 59,000 customers they deceived into paying fees for checking. The lender will also pay a hefty $200,000 penalty for these violations.

CFPB Director, Richard Cordray had this to say, “Although M&T promised people free checking, tens of thousands of consumers ended up paying for a product they had thought was free. This is an important reminder to all banks and credit unions that they cannot misstate to consumers whether a financial product or service is free. Today we are putting $2.9 million back in the pockets of consumers as a result.”

Interested readers can find the full details on this case at this link: http://files.consumerfinance.gov/f/201410_cfpb_consent-order_m-t.pdf

M&T Bank is a retail bank with headquarters in Buffalo, New York. The bank offers varying deposit account products to customers and has hundreds of branch offices in the northeastern part of the United States. A CFPB supervision exam found that the bank was advertising free checking accounts to customers, only to turn around and lock customers into fee-based “M&T First” checking accounts. It is illegal for banks and other lenders to use deceptive advertising practices. In other words, if a bank advertises an account as being no-cost or free, that account cannot charge customers fees to deposit money, withdraw money, transfer money or include any maintenance/activity based fees.

To better understand how deceptive some of these practices were, advertisements from M&T Bank included such verbiage as, “Untangle yourself from monthly service fees. Get a free checking account at M&T. No strings attached. However, M&T did not put a disclosure on these ads that told prospective customers that they had to maintain a minimum level of activity on the accounts.

These advertisements for free checking accounts ran in various regions via advertising medium such as television, radio and print ads. M&T also advertised free checking account plans to existing customers via their monthly account statements and on their network of ATM screens/receipts. Customers would often sign up for these “free” accounts and then find that they had been converted to accounts with monthly fees, due to having no account activity for 90 days. In addition to all of this, M&T customers who did not maintain a minimum average balance of $1500 were charged monthly account fees that ranged from $5 to $14 per month.

M&T Bank failed to provide any advance notice to customers about these account conversions. The only alert customers received by customers came in the form of account documents, like their monthly account statements.

All of these charges fly in the face of the Dodd-Frank Wall Street Reform and Protection Act, which means that the CFPB has adequate grounds to take action against M&T Bank. The current order requires M&T to refund $2.9 million to the almost 59,000 customers who were deceived by the lender. This is yet another case that should remind every lender, bank and payment processing company to stay on the straight and narrow to avoid serious penalties from the CFPB.

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