Consumer Reports recently released its 2014 "Naughty & Nice" list, and one bank is likely to get some coal in its stocking. Can you guess which bank?

While it's easy to think Bank of America (NYSE:BAC) -- which The Motley Fool, Mother Jones, and others have dubbed America's most hated bank -- it turns out a bank just 5% the size of B of A engaged in acts that the Consumer Financial Protection Bureau, or CFPB, deemed as "unfair, deceptive, or abusive" and had to refund nearly 60,000 customers a total of $3 million.

And what was that bank? None other than one of Warren Buffett's favorites: Buffalo, N.Y.-based M&T Bank (NYSE:MTB).

Source: Pixabay.

What it did
In the four years from January 2009 to January 2013, M&T Bank marketed what it described as a "no strings attached," free checking account. This was some of the wording in the ads:

  • "Have you raised the green flag for free checking from M&T Bank? There's no minimum balance requirement and no monthly service charge."
  • "Free yourself from monthly service fees. Get free checking from M&T Bank."
  • "M&T Totally Free Checking. No minimum balance. No monthly service charge."

What the company failed to disclose in those advertisements was that if there was no customer activity for 90 days, the account would automatically be converted to another type of checking account, which charged a monthly maintenance fee ranging from $5 to $14.

While the fee was waived for accounts that carried a balance above $1,500, during those four years, a total of 81,000 free checking accounts were converted, and nearly three-quarters of those customers were charged a total of $2.94 million in fees.

Source: Flickr / Mr.TinDC.

Although the company disclosed the activity requirements in a one-page document at the opening of an account, once the account was converted to one that charged a fee, customers got no formal notice. The only thing they saw was a logo on online account pages, ATM screens, and other receipts and documents whose wording was changed from "Free Checking" to "M&T First," the name of the type of account customers were converted to.

CFPB director Richard Cordray said of the actions: "Although M&T promised people free checking, tens of thousands of consumers ended up paying for a product they had thought was free. This is an important reminder to all banks and credit unions that they cannot misstate to consumers whether a financial product or service is free."

As a result, M&T Bank was ordered to refund the fees charged to customers and also paid a fine of $200,000 to the CFPB.

Following the settlement, Darren King, the executive vice president of retail and business banking at M&T, said: "We immediately changed our policies and procedures in response, and we have cooperated fully with their inquiry. The regulatory environment has evolved, and our policies and procedures have evolved as well, not just to meet the regulators' new expectations, but also to meet the highest expectations of our customers."

And while it may have changed its policies and procedures, a four-year campaign of duping customers landed the bank squarely on Consumer Reports' 2014 Naughty List.

Coal for its customers and its investors?
So while we know what this means for customers, the natural next question is, what does it mean for investors? After all, since 1980, M&T Bank has delivered an annual return of 19.4%, ranking it twentieth among all publicly traded stocks in the U.S. 

And the answer is really twofold. First, from a sheer financial standpoint, a $3 million fine will mean next to nothing to its bottom line. The net income of M&T Bank stood at $275 million in the third quarter alone. In addition the 60,000 affected accounts are a small fraction of the 5.4 million total accounts at the bank.

So when considering that, the financial impact of its naughtiness will be minimal. But it's also important to consider the non-financial impact as well.

In the latest survey of Bank Reputations by American Banker released in June, M&T Bank ranked 18 of 25 banks on how it is perceived by customers and non-customers alike. 

In the article it was noted:

Anthony Johndrow, a managing partner at Reputation Institute, says that 2014 "might be the turning point for perceptions" of the banking industry, with customers finally giving banks permission to recalibrate the conversation around brand promise and trust.

Yet a case like this could be a real setback for M&T Bank, and customers may be less willing to either open new accounts or maintain existing ones as a result. And this would be an undeniably bad thing.

Only time will tell what this will mean for M&T Bank and its investors, but one thing is for certain: this is not what it wanted for Christmas.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.