Federal bank examiners considered levying fines and sanctions when JPMorgan Chase informed them last year that faulty overdraft charges caused by a software glitch had impacted roughly 170,000 customers.
But the bank urged the Office of the Comptroller of the Currency, or OCC, its chief regulator, to take less severe action, according to two people directly involved in the probe and internal documents reviewed by ProPublica and The Capitol Forum.
Rather than openly penalizing Chase, the nation's largest bank, OCC officials decided to issue a quiet reprimand — a supervisory letter — that would go into the bank's file and stay out of public view, according to the people and regulatory paperwork.
The agency's deputy chief counsel, Bao Nguyen, approved the supervisory letter in June and accepted Chase's explanation of the incident and its promise to repay its customers, according to the people and regulatory paperwork.
Since 2017, when President Donald Trump took office, the OCC has found at least six banks wrongly charged overdrafts and related fees, but in each case, the agency quietly rebuked the bank rather than pushing for fines and public penalties, the investigation by ProPublica and The Capitol Forum shows.
In several instances, front-line examiners who wanted the bank to be fined were overruled by OCC officials. The previously unreported cases show how the OCC under Trump quietly held back from punishing banks for abuses, while the administration sought more broadly to loosen banking rules and other consumer financial protections.
Brian Brooks, a former bank executive, has led the OCC on a temporary basis since May; last month, the president nominated Brooks to a full, five-year term.
Brooks and his predecessor at the OCC, Joseph Otting, both helped run OneWest Bank, a lender that Treasury Secretary Steve Mnuchin founded in the aftermath of the 2009 financial crisis.
Banks found to have charged excessive overdraft fees and other faulty charges include Wall Street giants such as JPMorgan Chase, American Express and U.S. Bank and large regional lenders such as Zions Bank, Union Bank and First Horizon.
An OCC spokesman said the agency would not comment on the specific instances cited in this story because such matters are confidential. The OCC has a range of tools to police bank misconduct, the spokesman said.
"It is frequently the case that deficiencies can be corrected much more quickly — including correcting harm to customers — by using supervisory tools," said spokesman Bryan Hubbard, referring to confidential sanctions. "Most importantly, the absence of a public penalty does not indicate a lack of action."
A bank might be cited first with a confidential sanction and later punished openly, Hubbard said. "Our actions may or may not be complete."
Big banks collect over $11 billion in overdraft-related fees each year, according to a report from the Center for Responsible Lending, which found in a study that punitive bank fees often hit vulnerable customers the hardest.
Overdraft policies vary by bank but the typical fee is $35, and a customer can accrue additional penalties multiple times a day, CRL reported. Banks could simply decline a charge if a customer lacked the funds, but instead lenders promote "overdraft protection" as a convenience that comes at a cost. For customers whose accounts often hover near zero, that convenience is just another snare in a financial trap, said Rebecca Borné, a CRL lawyer who worked on the study.
"Imagine you struggled to buy groceries over the weekend and you wake up Monday to $100 in overdraft fees," Borné said. "That happens to people who can least afford to pay."
Chase had promised some online customers that they would get an alert before their accounts went negative, but the bank told the OCC that did not happen as roughly 170,000 accounts dwindled to zero, according to industry and regulatory officials. Chase charges $34 for an overdraft and allows three such charges a day on an account with insufficient funds. A customer could be charged as much as $102 per day.
Chase, which operates nearly 5,000 locations nationwide, reported the faulty auto alerts to the OCC as required, but the problem had stayed out of public view until now.
"We found that some customers were not receiving some account alerts due to a systems issue in 2018," Chase spokesman Michael Fusco said. "We have fixed the issue, proactively notified and reimbursed affected customers."
Chase had roughly 52 million active digital customers at the end of last year, according to securities filings, and that figure has grown by millions each year over the last several years.
In interviews, several bank branch employees working in different parts of the country said Chase could have easily underestimated the number of customers who were impacted, based on the number of complaints they heard.
Chase insists its remediation work was reliable. "We completed a thorough review of all accounts and identified the impacted customers," said Fusco.
Under the agreement between Chase and the OCC, the bank agreed to refund customers that it believes were wrongly charged, but with no outside, independent check on the work, officials said.
The Chase matter shows how faulty overdraft policies can take hold at a bank and weigh on customers.
Jamie Dimon, the CEO of JPMorgan Chase & Co., has in recent years pushed the bank's online presence and a corporate mantra "Mobile first, digital everything." Chase encourages consumers to find a screen and open their own Total Checking accounts.
With a few clicks, a new Chase customer can choose to receive an account alert for everything from low balances to suspicious transactions. Customers who rely on online banking might rarely have cause to visit a Chase branch.
But customers did come knocking when their auto alerts failed and they were hit with surprise overdrafts and other penalties, said current and former employees interviewed by ProPublica and The Capitol Forum.
Chase customers had complained about faulty auto alerts for more than 12 months when the bank brought the issue to the OCC late last year, according to regulatory officials and agency paperwork.
Chase insisted that the error was just a coding hiccup and that the fix was manageable, but some OCC officials believed the bank still deserved punishment since so many customers were hurt.
To some front-line examiners, the faulty alert program amounted to an "unfair and deceptive" practice that could draw a public penalty under the law.
The question of what to do next fell to Nguyen.
Nguyen joined the OCC in June 2018 as a deputy to Otting, then Trump's OCC chief, and Nguyen had a large role in managing one of Otting's top priorities: rewriting the Community Reinvestment Act, which requires banks to lend in poor neighborhoods.
Otting presented the new CRA in May and stepped down a day later. The CRA rewrite will make it easier for banks to pull back from serving poor neighborhoods, according to several consumer-advocacy groups that are challenging the move in court.
When the Chase matter reached Nguyen's desk, he agreed that the bank had been deceptive, but he ruled that no penalty was warranted, according to regulatory paperwork.
For one thing, Chase had stepped forward to admit the problem. Regulators can give banks credit for policing themselves, and Nguyen decided that would hold true in the Chase matter, regulatory officials said.
Nguyen did agree to record the incident in the supervisory letter added to the bank's confidential file. Nguyen declined to comment and referred questions to the OCC.
Supervisory letters are one of the mildest rebukes that the OCC can issue, and critics say the letters have negligible impact.
After Wells Fargo admitted in 2016 that its employees created fake accounts to hit skyhigh sales goals, the OCC found that it had been issuing supervisory letters for seven years warning the bank about its sales practices.
Lawyers from the OCC and Chase worked together to write the final language of the supervisory letter in which the bank insisted that it did nothing wrong, according to regulatory officials.
Notably, said the officials, the OCC handled the matter itself and without help from the Consumer Financial Protection Bureau — an agency created to ensure that financial firms do not mistreat ordinary customers.
"It would not have gone down well if the OCC did not involve us in a consumer matter," said Richard Cordray, the first CFPB director who served President Barack Obama.
Cordray said that he would not second-guess any regulator's decision about sanctions without knowing the facts, but that the Trump administration had clearly shown it was not eager to sanction bank wrongdoing.
"These are different times and different leaders," he said, "but the OCC and CFPB used to take aggressive action together when we saw consumers being hurt."
The CFPB did not respond to a request for comment.
Dubious disclosures and lax enforcement are part of many overdraft abuses, said Borné of the CRL, and they were a problem in the incidents handled by the OCC. American Express, the credit card giant, also offers short-term loans that are supposed to be repaid in regular monthly installments. Customers pay interest on the loan, of course, but American Express never explained that customers who missed a payment could also be charged interest on late fees and bounced checks, the OCC concluded. That was unfair and deceptive, OCC examiners determined in recent months, but the agency's chiefs decided to hand the bank a quiet reprimand rather than a public sanction.
"Due to a technical error, some personal loan customers were incorrectly charged," American Express said in a statement. The firm said it will now notify customers and issue credits for undue fees. American Express declined to say how many customers were affected but said the charges were generally less than $1 each.
Seven years ago, U.S. Bank unveiled a novel credit card program that the bank said could reduce costs for many customers. FlexControl Essentials promised to let customers first pay off everyday purchases — like gasoline and groceries — which the bank said could lower the monthly bill.
But customers of U.S. Bank, the nation's fifth-largest lender, were baffled by the Byzantine system used to determine what was an "everyday" purchase and how much money they actually owed, according to several current and former bank employees.
U.S. Bank knew FlexControl Essentials was balky, and the bank spent five years trying to improve it before retiring the offer in 2018, the year the OCC took notice, according to bank and regulatory officials.
Within the OCC, some officials thought FlexControl Essentials was more than just a credit card program gone awry — it was a consumer abuse. For several weeks in early 2018, OCC lawyers debated next steps and whether they should dig deeper into how many customers might have been hurt, according to enforcement paperwork and two officials involved.
By the summer of 2018, though, the OCC decided to let the bank quietly scrap the program without paying a fine or facing a public sanction, according to regulatory sources.
In a statement, U.S. Bank declined to comment on the FlexControl Essentials program except to say it was retired in 2018. "Customers continue to have great flexibility with our products and we appreciate their continued support," the bank said.
Three years before Chase grappled with errors in the auto alert program, the bank had to face a separate problem that was costing customers.
Banks are expected to clear checks within a "reasonable period of time," which in many instances means two days. But under the rules, the wait can stretch for a week or more. Ultimately, banks not only decide when to clear a check but whether to clear it at all and how much a check is even worth.
That was the issue in 2017 when bank examiners found flaws in Chase's handling of checks that had stray markings, sloppy handwriting or were otherwise deemed illegible. Banks can take extra time to examine those checks and ultimately even decide what the checks are worth.
OCC examiners found that Chase customers were sometimes shortchanged and some agency officials wanted to openly sanction the bank, according to regulatory officials. In the end, Chase was allowed to push the issue aside with no penalty by the end of 2017.
In a statement, Chase said that the bank identified the problem itself in 2017 and then "worked quickly to resolve it and have since credited all impacted customers."
Taken together with the faulty auto alerts program from this year, Chase was twice found to have wrongly charged customers but faced no public penalty.
Banks ultimately control the sequence of deposits and withdrawals in a way that can boost corporate profits. A bank customer who exceeds their balance in the morning and replenishes the account by sundown might still incur an overdrawn account fee.
Another customer who overdraws an account with one costly purchase — a sofa — might be charged a fee for that item plus all the other miscellaneous purchases they made that day from a gas fill-up to a cup of coffee.
Bank regulators allow some maneuvers as long as they are disclosed to the customer, but at least three banks in recent years were deemed to have wrongly snared customers in how they added and subtracted money from an account, according to regulatory and industry officials.
One offender was Zions Bank, the largest lender in Utah, which tucked three separate, fee-generating schemes into murky disclosures, according to OCC officials who tracked the matter for more than a year.
Zions Bank customers who pushed their accounts into negative territory with a single purchase were charged a $32 penalty for that one buy and then the same fee for every other purchase made that day, examiners found.
Zions Bank customers also could get charged many overdraft fees for being just a few bucks short, examiners agreed. The third abuse was that Zions Bank charged a daily overdraft penalty on top of individual purchase penalties, regulatory officials said.
At the heart of every Zions Bank infraction was faulty disclosures and that customers did not know they had a right to opt out of any overdraft program — a step that might mean more rejected charges for the customer but also fewer surprise fees, according to the enforcement officials.
The OCC determined that Zions Bank ran afoul of a 2010 banking rule that explicitly required banks to get customer consent before enrolling them in overdraft protection, according to two regulatory officials with firsthand knowledge of the matter.
In a statement, Zions Bank said it always abides by the law requiring a customer "opt in" for overdraft protection.
"Zions Bank is committed to maintaining the highest standards of fair and transparent customer services," the bank said in a statement.
The Zions Bank abuses matched tactics at Union Bank, a leading lender in the west, according to industry and regulatory officials familiar with the matter. Union Bank was charging customers overdraft fees despite the customer having a positive balance at the end of the day, according to the officials. The problem had been going on for years when it came to the attention of bank examiners in 2017, but rather than sanction the bank publicly, the OCC filed a supervisory letter, according to regulatory sources.
A spokesman for Union Bank declined to comment for this story.
First Horizon, a leading lender in the south, came to the OCC last year to report problems with its own overdraft program, according to industry and regulatory officials.
The bank had wrongly charged customers overdraft fees when they went into the red for a few hours but ended the day with a positive balance, according to enforcement officials, and that practice ran contrary to the bank's marketing and disclosure documents.
By the time the problem was detected, it had gone on for at least two years, although the bank promised to make customers whole, according to regulatory and industry officials.
The OCC opted not to punish the bank publicly and instead issued a private reprimand, regulatory officials said.
In a statement, First Horizon acknowledged the issue and said it tapped an outside consultant to manage customer refunds.
"The issue was corrected and our impacted customers were notified and refunded," the bank said in a statement.