[The headline of this story has been edited by changing the word “fined” to the more legally precise “penalized.”] The trade publication American Banker reported today that the federal Office of the Comptroller of the Currency assessed a $33 million penalty against Woodforest National Bank in The Woodlands for unfair and deceptive practices involving fees for overdrafts. This is as far into the story as I could get on the publication’s Web site. (Even Woodforest’s spokesperson did not have a copy of the article.) The assessment is on top of a previous $400,000 penalty million penalty against Woodforest Bank, a thrift institution, earlier in the summer, along with a mandated $12 million repayment to customers. These transactions are described in the excerpt from the article below. Sen. Williams is president of Woodforest Financial Services, which, like Woodforest National Bank, is a subsidiary of Woodforest Financial Group Inc. The following article from US Banker explains what got Woodforest in trouble. For years overdraft fees helped fuel Woodforest Financial Group Inc.’s fat returns and fast growth. Even through the financial crisis, when most banks lost money, the $3.3 billion-asset Woodforest consistently posted a stunning return on equity in the 30 percent range and continued adding scores of branches every year. But regulatory changes could undermine its strategy. As the industry contends with new rules that bar banks from covering overdrafts on debit cards without customers’ permission, Woodforest offers an extreme example of the potential impact. Last year more than half of its revenue—interest and noninterest income combined at its bank and thrift units—came from fees on transaction accounts, according to data from Foresight Analytics. The average was 5.9 percent for all holding companies with assets of $1 billion to $5 billion. Robert E. Marling Jr., Woodforest’s chairman and chief executive, says his company intends to slow its growth as it assesses the shifting regulatory landscape. He expects its net income will shrink by up to 15 percent once the overdraft changes take effect this summer.”I think most banks are expecting a decline in the revenue,” Marling says. “It is just a fact of life that revenue is going to be diminished and companies are going to have to be creative.” But unlike most banks, Woodforest is so dependent on fees that it has attracted regulatory scrutiny lately. An April consent order fined [Woodforest prefers the term “penalized”] its thrift unit $400,000 for unfair and deceptive practices, forced it to repay $12 million of overdraft fees to customers, and demanded it devise a new business model that relies less on fees. Marling says the company expects regulators to sign off any day now on a plan that calls for the thrift to start originating mortgages. He could not say whether the bank unit also faces regulatory action. The accusation of unfair and deceptive practices arose from its “Absolutely Free Checking,” which charged overdraft fees. The account has since been renamed. Sen. Williams’ association with Woodforest Financial Group, Inc. is that he is president of its financial services unit. He is not on the board of directors of either Woodforest National Bank or Woodforest Financial Group.
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