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#1453720 - 10/08/10 07:49 PM Woodforest gets an overdraft CMP
John Burnett Offline
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John Burnett
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Back in April, the OTS imposed a $400,000 CMP and a $12 million restitution order on Woodforest Bank, Refugio, TX, a federally chartered savings association. Today, the OCC announced that it has imposed a $1 million CMP on an affiliate, Woodforest National Bank, Houston, TX. Both banks are subsidiaries of Woodforest Financial Group, and many of their hundreds of branches are in Walmart stores.

The OCC also announced that it has reached a settlement with Woodforest National Bank requiring the bank to pay out about $32 million in restitution.

Both cases focus on the banks' Privilege Pay overdraft program.

Quoting from today's OCC news release --
Quote:
The settlement is based on the OCC’s conclusion that the bank engaged in unfair or deceptive practices that violated the Federal Trade Commission Act. Specifically, the bank assessed excessive amounts of overdraft fees and improperly assessed recurring fees, or “continuous overdraft fees” against certain consumers. In addition, in its marketing brochures the bank emphasized the free or low cost features of certain accounts while omitting information about costly features such as overdraft protection. The bank’s marketing also suggested that certain accounts were well-suited for consumers who had previous difficulty in managing their bank accounts, while omitting information about the high-cost features of its overdraft protection.
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#1453748 - 10/08/10 08:07 PM Re: Woodforest gets an overdraft CMP John Burnett
BrendaC Offline
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I have contacted a local branch of that bank several times trying to help them with obvious compliance problems. From my observations, they are either very sloppy or have some renegade branch managers that are doing there own thing.
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#1453753 - 10/08/10 08:18 PM Re: Woodforest gets an overdraft CMP BrendaC
Kathleen O. Blanchard Offline

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My thought when I saw this was "Ah ha, the other shoe dropped".
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#1453766 - 10/08/10 08:35 PM Re: Woodforest gets an overdraft CMP Kathleen O. Blanchard
ktac MITCH Offline
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ktac MITCH
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Giant side of TX
Evidently the OCC is much nicer than the OTS. ?? smirk ??
OTS forced restitution of $12 million was 100% of the Capital of Woodforest / Refugio.

The $33 million restitution and CMP for Woodforest National is only 11.8% of their Capital, but will evidently drop it below 8%.
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#1454639 - 10/13/10 04:54 PM Re: Woodforest gets an overdraft CMP ktac MITCH
John Burnett Offline
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There's more to the story than you can read in the OTS and OCC documents, I am sure. For one thing, there is the bank's view of things, which certainly isn't represented in the official documents.

However, I do think that anyone reading the OTS and OCC documents in these cases should get one message loud and clear -- overdraft payment programs are now being criticized under UDAP standards. That means that you should go back and re-read those 2005 Guidance documents and the best practices and make a risk-based decision on what you're going to do. The list of faults allegedly found by the OTS and OCC in the Woodforest cases are instructive, too. That includes advertising or marketing deposit accounts as "free" when overdraft costs can be substantial (it's not enough to omit any discussion of the overdraft payment service if you have one). Also watch out for targeting your ads for deposit accounts specifically at folks who have had credit or account problems in the past, unless you discuss the substantial fees your OD payment program (if you offer one) involves.
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#1479604 - 12/13/10 03:51 PM Re: Woodforest gets an overdraft CMP John Burnett
ImGoinNuts Offline
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John - I appreciate this information as we are now reviewing OD practices in regard to UDAP. One concern I have is recurring overdraft charges. For example, consumer has check presented and bank returns check due to insufficient funds and charges a $25 returned check fee. This $25 fee then causes the account to be overdrawn $22. Then 2 days later, the recurring overdraft charge starts accruing on a daily basis. I'm questioning this as it seems unfair that the recurring overdraft charge is assessed due to the account being overdrawn due to a returned check charge. It just doesn't feel right. I am meeting some resistance in getting this changed "this is the way we have always done it" and am preparing documentation showing overdraft protection has changed, so we can't do things the way we used to. If anyone has some ideas out there, I'd appreciate the input.
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#1479709 - 12/13/10 05:20 PM Re: Woodforest gets an overdraft CMP ImGoinNuts
John Burnett Offline
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One thing to watch out for is imposing recurring overdraft fees without giving your customers an "out." Usually that's a way to set up some sort of repayment program for the current overdraft. In many cases, it's financed with a short term installment loan with manageable payments, and the checking account is either closed out or brought back to a zero or positive balance by the loan. If the account is left open, overdraft service is often suspended or revoked at least until the loan balance is paid off.

Of course, that assumes the customer has any ability to qualify for the credit. If he doesn't, perhaps the decision to extend overdraft services to him was a poor one in the first place.

One of the major complaints about the daily continuing OD fee is that for some people it means never being able to pull themselves out of the spiral. Hence the "out" described above.
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