CFPB consent order litigation
Brewer v. Turner
Date: Sept. 29, 2025
Issue: Whether Regions Bank’s board members violated their fiduciary oversight duties under the Caremark standard by failing to act on clear red flags that should have alerted them to the bank’s unlawful overdraft fee practices.
Case Summary: A Delaware chancellor declined to dismiss a shareholder suit against Regions’ board members arising from a CFPB consent order requiring Regions to pay $191 million over allegations of unlawful overdraft fee practices.
As background, the Caremark standard, established in the 1996 landmark Delaware Chancery Court case In re Caremark International Inc., requires corporate directors and officers to oversee operations and compliance, including implementing and monitoring reporting systems that identify “red flags.” A board that is aware of or should be aware of violations and fails to act can face liability for breaching its oversight duty.
In November 2019, former Deputy General Counsel Jeffrey A. Lee filed a complaint alleging Regions terminated him for reporting its illegal overdraft practices. Lee claimed he had urged Regions to stop the conduct as early as March 2019. In 2022, Regions agreed to pay $191 million to settle CFPB allegations that it unlawfully charged customers about $141 million in overdraft fees on “authorized positive, settle-negative” transactions between August 2018 and July 2021. Furthermore, CFPB alleged Regions assessed a $36 overdraft fee during its nightly settlement process if a transaction had insufficient available funds at the time it settled. Regions neither admitted nor denied the allegations.
In 2023, shareholder Katherine Brewer filed a derivative suit on behalf of Regions Financial Corporation and Regions Bank against 22 current and former directors (defendants). Brewer sought to recover the $191 million paid under the consent order. Brewer claimed defendants breached their fiduciary duties under Caremark and knowingly pursued illegal profit in violation of In re Massey Energy Co., by permitting Regions to continue charging unlawful overdraft fees.
On March 1, 2024, defendants moved to dismiss under demand futility. Demand futility is a legal standard in a shareholder derivative lawsuit that excuses a shareholder from first demanding the board of directors act against wrongdoing. It applies when a demand would be pointless because the board members are unable to exercise independent, impartial business judgment given their own self-interest, lack of independence, or participation in the alleged wrongdoing. Defendants also argued that Brewer failed to state a claim on which relief can be granted.
Chancellor Kathaleen St. J. McCormick of the Court of Chancery of the State of Delaware refused to dismiss shareholder Katherine Brewer’s derivative lawsuit against nine current or former directors of Regions. The court concluded that Brewer adequately demonstrated demand futility and alleged sufficient facts showing that defendants ignored clear red flags about the bank’s illegal overdraft fee practices. The court applied the Zuckerberg demand futility test, which requires courts to examine, director by director, whether each board member received a material personal benefit from the alleged misconduct, faces a substantial likelihood of liability, or lacks independence from someone who did. If at least half of the board meets any of these conditions, a shareholder’s demand is excused as futile.
The court determined that a majority of Regions’ board members faced a substantial likelihood of liability under the Caremark standard for failing to exercise good-faith oversight of the bank’s compliance obligations. The court highlighted the Lee complaint as a critical “red flag” because it explicitly warned directors that Regions’ overdraft fee practices violated federal law. Despite this warning, the board chose to delay corrective action, allowing Regions to continue collecting unlawful fees to protect revenue. The court explained this deliberate delay could reflect bad faith, as directors may have prioritized profit over compliance. The court concluded these facts made it reasonably conceivable that the directors consciously disregarded their oversight duties and allowed Brewer’s claims to proceed.
Next, the court found that Brewer adequately stated a claim against the nine directors, reiterating they face a substantial likelihood of liability under the Caremark “red flags theory.” However, the court dismissed the claims against directors who left the board before the Lee Complaint was filed, or joined after the alleged misconduct had ended, determining they could not have consciously ignored issues outside their tenure. Finally, the court dismissed the claims against a group of officer defendants, concluding Brewer waived those claims by not defending them in her briefing.
Bottom Line: The Delaware Court of Chancery allowed shareholder Katherine Brewer’s Caremark oversight claims to proceed against Regions Bank directors who allegedly ignored red flags about illegal overdraft practices, while dismissing claims against directors outside the misconduct period.
Documents: Opinion
