PhotoThe Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against TCF National Bank, accusing it of tricking consumers into agreeing to pay for costly overdraft services.

Under recent changes in the law, a bank cannot charge overdraft fees on debit purchases or ATM withdrawals unless the consumer specifically agrees.

Before that change to the law, consumers might get hit with four or five overdraft fees after a shopping spree because they didn't have enough money in their account to cover the purchase.

Instead of declining the purchase at the point of sale, so the consumer would know he or she was overdrawn, the banks would cover the purchase but assess an overdraft fee for each transaction.

Short term loan

Banks justified this as a service they were providing their customers -- a short-term loan, if you will. But many consumers objected, saying they would rather their purchase be declined and not have to pay a fee.

So the law allows banks to provide this "service" to their customers, but requires customers to "opt-in," specifically telling the bank they want it.

In the case of TCF National Bank, the CFPB charged the bank designed its application process to make it appear that customers had to agree to accept "overdraft protection" when they opened accounts.

“Today we are suing TCF for tricking consumers into costly overdraft services in order to preserve its bottom line,” said CFPB Director Richard Cordray."TCF bulldozed its way through protections against automatic overdraft enrollment and then celebrated its unusual sign-up success. With today’s action, we are standing up for consumers’ right to understand and choose what services they receive.”

The suit asks for compensation for affected consumers, an injunction to prevent future violations, and a civil money penalty.

Consumers' rights

Meanwhile, CFPB has published an extensive document on its website, explaining consumers' rights when it comes to bank overdraft fees.

The normal course of action when consumers make a debit card purchase for which there is not enough money in their account is for the sale to be declined. That alerts the consumer to the account deficiency and avoids expensive fees.

Most banks are perfectly willing to cover these purchases but charge hefty fees for this service. The law makes clear that consumers must make an informed choice to have this service and a bank cannot unilaterally enroll them in it.

It should be noted the law on overdraft fees applies only to debit cards. It does not include checks. If you write a check and have insufficient funds to cover it, your bank will assess a fee and make up the deficiency out of your next deposit.

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