Santander Bank fined $10m for deceptive marketing techniques

A branch of Santander bank, in New York.Mark Lennihan/Associated Press/Associated Press

Santander Bank, the state’s third-largest lender, will pay a $10 million fine for deceptively marketing overdraft protection on debit cards, a service that potentially cost customers hundreds of dollars in fees each year.

The bank violated new consumer protection rules adopted after the financial crisis by hiring a telemarketer that used misleading tactics to sell overdraft services, a lucrative source of revenue, the federal Consumer Financial Protection Bureau said Thursday. But from 2010 to 2014, the telemarketer enrolled customers in the program without their consent and provided them with false information about fees, the regulator said in a complaint.

Santander Bank, headquartered in Boston, is a subsidiary of the Spanish financial giant Banco Santander S.A.

“Santander tricked consumers into signing up for an overdraft service,” Richard Cordray, director of the agency, said in a statement. “We will put a stop to any such unlawful practices that harm consumers.”

Since 2010, banks and credit unions have been prohibited from charging overdraft fees unless consumers agree to opt-in to the service. With overdraft protection, banks will pay a bill if a consumer’s account is short, but also charge fees for the service. If consumers don’t opt-in, the bank can decline the transactions due to insufficient funds.

The new rules were put into place over concerns that banks were harming consumers by trying to maximize overdraft fee revenue.

Santander decided to hire the telemarketer to persuade consumers to opt-in to the overdraft program and “protect its fee revenue,” according to the federal consumer agency.

In a statement, Santander said that it is terminating its relationship with the telemarketer.

“We regret that the vendor we hired to promote this service may not have followed our instructions and we did not supervise them as closely as we should have,” the bank said. “These actions, which occurred several years ago, do not reflect our values and fell short of the high expectations we have for ourselves and our vendors.”

The fine is the latest problem that Santander has encountered with federal banking regulators in recent weeks. In late June, Santander became the first bank to fail the Federal Reserve bank stress test for three years in a row. The exams are designed to ensure that banks can withstand severe economic upheavals. While Santander had enough capital on hand, regulators said its risk management and financial planning fell short. Fed officials did note that the bank has made improvement over the years.

Santander said on Thursday that it is trying to improve its overdraft practices.

Like many banks, Santander charged consumers $35 for each overdraft and another $35 if the account was still overdrawn by the sixth business day. In the first quarter of 2016, Santander made more than $12 million from overdraft fees.

According to the complaint, Santander’s telemarketer enrolled consumers in the overdraft service even when they were just requesting information. Representatives also incorrectly implied to some consumers that the overdraft service, called Account Protector, was free and told others that they would be charged the same amount whether they enrolled or not.

The bank failed to stop the telemarketer’s practices, the federal regulator said.

Under the terms of the consent order, Santander will have to call all consumers enrolled by the telemarketer in the overdraft program and ask them if they want to sign up, and can’t charge those who decline the service. The bank is also prohibited from using a telemarketer to sell its overdraft services to consumers and has to increase oversight of all its third-party telemarketers, according to the agreement.

The agreement did not identify the telemarketing company, but criticized its tactics in the documents. Representatives who didn’t meet their hourly sales goals were sent home early and not paid for the rest of the day or were fired, according to the federal agency.

When Santander first piloted the telemarketing campaign in 2010 the bank found problems, including aggressive tactics and salespeople who were going off script. The bank briefly stopped the program and conducted training. But according to regulators, Santander failed to regularly monitor the telemarketing service after that.