Atlantic Union in settlement talks with CFPB on overdrafts

Net income fell 20% in the first quarter at Atlantic Union. Its $5 million set-aside in a legal reserve and a $13.4 million pretax loss on a $506 million securities sale were major reasons for the earnings decline.

Atlantic Union Bankshares has set aside $5 million in a legal reserve and is “actively engaged in discussions” with the Consumer Financial Protection Bureau aimed at settling that agency’s yearlong inquiry into the company’s overdraft practices, according to CEO John Asbury.

“We believe it is in our best interest to see if this matter can be resolved on terms that are acceptable to us,” Asbury said on a conference call this week with analysts.

A spokesperson for CFPB wrote in an email that the agency “can neither comment on, confirm, nor deny any ongoing investigatory or supervisory work.”

The Richmond, Virginia-based Atlantic Union said in a 10-K report filed with the Securities and Exchange Commission in February 2022 that the CFPB was considering taking overdraft-related action. The notification came a little more than two months after CFPB Director Rohit Chopra announced financial institutions could expect enhanced scrutiny of overdraft and insufficient funds policies.

The CFPB stepped up its campaign last fall. In September, it ordered Birmingham, Alabama-based Regions Financial to pay a $50 million civil money penalty and refund $141 million to customers who were charged overdraft fees on certain ATM and debit-card transactions. The following month, CFPB  issued guidance about so-called junk fees that included a focus on overdraft fees.

Like dozens of other banks over the past two years, the $20.1 billion-asset Atlantic Union has moved to modify its policies on insufficient funds and overdrafts. In June, it eliminated consumer insufficient funds fees altogether, established a no-overdraft checking product and introduced fee-free transfers to limit overdrafts in other accounts. The company estimated the changes could reduce noninterest income by as much as $6.5 million annually.

While the regulatory issues “clouded” Atlantic Union’s first-quarter results, the company “has tried to get ahead of potential financial consequences as much as possible,” Hovde Analyst David Bishop wrote Wednesday in a research note.

Atlantic Union on Tuesday reported net income of $32.7 million, down about 20% from the first quarter of 2022. Results were hurt by the $5 million legal reserve and by a $13.4 million pretax loss connected with the sale of $506 million of available-for-sale securities. Atlantic Union used the securities-sale proceeds to pay down high-cost Federal Home Loan bank borrowings, leaving it with enhanced liquidity and boosting operating earnings. The company expects to earn back the $13.4 million charge in about two years, Chief Financial Officer Robert Gorman said on the conference call.

Atlantic Union saw its net interest margin fall by 20 basis points linked-quarter to 3.50%, as stiffer-than-expected competition for deposits led to higher funding costs. The competition “was more consequential for us than the bank failures and subsequent industry turmoil” that occurred in March, Asbury said.

Atlantic Union has faced two recent class actions related to overdrafts. In March 2022, it agreed to pay $1.6 million to settle a suit alleging so-called authorize-positive overdrafts, where the depositor had sufficient funds when a transaction occurred but not when it settled. These were the same types of overdraft transactions the CFPB cited in its action against Regions.

The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency issued guidance Wednesday citing authorize-positive charges as particularly troublesome. 

A customer in North Carolina filed an overdraft-related suit against Atlantic Union in January, but the plaintiff voluntarily dismissed the litigation in March. 

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