TCF Bank faces federal lawsuit over alleged overdraft fee deception

Feds say the official U Card bank tricked customers into costly overdraft services.

Economics sophomore Alex Carlson uses the ATM outside TCF Bank in Coffman Union to deposit a check Tuesday, Sept. 10, 2013.

Daily File Photo

Economics sophomore Alex Carlson uses the ATM outside TCF Bank in Coffman Union to deposit a check Tuesday, Sept. 10, 2013.

Andrew Heiser

A federal finance protection agency is suing TCF Bank, a bank with close ties to the University of Minnesota, alleging that it tricked customers into accepting overdraft service fees so that the bank could generate more revenue.

The Consumer Financial Protection Bureau last month said TCF Bank intentionally misled customers during the application process so they would accept an account option that charged $35 for each overdraft.

TCF Bank has an exclusive partnership with the University of Minnesota that allows students to connect their U Cards to a checking account.

The CFPB said the bank adopted a “loose definition of consent” and pushed customers to accept the service.

The bureau said the bank tricked customers into thinking overdraft services were mandatory, and used “emotionally charged hypotheticals” to persuade customers.

Under a 2010 federal rule, banks must allow customers to affirmatively “opt-in” to overdraft protection for most debit card and ATM transactions. If someone does not opt-in, a transaction that exceeds available funds would be declined.

The bank notified the University about the lawsuit, but Senior Vice President of Finance and Operations Brian Burnett said the school doesn’t anticipate any changes in its affiliation with TCF.

“We’re very appreciative of the relationship the bank has with the U,” Burnett said. “We’ll just have to see how it plays out.”

For each U Card set up with TCF, the bank pays the University $37.

University-bank partnerships have come under scrutiny in recent years.

An analysis of CFPB data by NerdWallet found that college-aged people are among the most chronic overdrafters.

Lutheran Social Service Financial Counseling Program Director Darryl Dahlheimer, whose organization provides University students with budget and debt counseling, said college-sponsored banking arrangements can include costly fees for students who participate.

“I’m certain that TCF knows that there is a huge incentive for students to bank there,” Dahlheimer said.

Dami Oyenekan, a University sophomore from Nigeria, is one such student.

Oyenekan said she enjoyed the convenience of the account until she was hit with an unexpected fee while out of the country. She said she had opted- out of the overdraft service, but the bank charged her a nonsufficient funds fee when she tried to withdraw money using her account number.

Eventually, Oyenekan received a refund, but she said TCF never told her that she could be charged for overdrafting when not using her card.

A CFPB study released in December found that around 10 perecent of students with college-sponsored bank accounts incurred 10 or more overdrafts a year, paying an average of $196 in overdraft fees.

TCF spokesman Mark Goldman said the bank deals with customers fairly, and the lawsuit wouldn’t impact students.

“We provide full and complete disclosure to all customers,” Goldman said. “Everyone is presented with a contract that provides all the information.”

He added that customers who opened accounts online opted-in to overdraft protection at a rate of over 60 percent.

“It is just like any other transaction you undertake,” Goldman said. “You have an obligation to understand how it operates.”

Before the federal opt-in rule took effect, TCF bank estimated that it relied on overdraft fees for about $182 million in revenue every year.

The lawsuit said that William Cooper, the bank’s chief executive when the opt-in rule began, was “particularly attuned to how important overdraft fees are to TCF’s success. He even named his boat the ‘Overdraft’.”