CFPB May Examine Banks With High Overdraft Fees

The Consumer Financial Protection Bureau (CFPB) announced on Friday (June 17) that it is measuring the impact that account overdraft fees have on consumers, and it is planning to use this information to identify institutions for further examination and review.  

In December 2021, the CFPB released two reports on checking account overdraft fees, detailing how banks continue to rely on these fees as a major source of revenue and how, in the agency’s view, they do not compete on transparent, upfront pricing. 

At the time, CFPB Director Rohit Chopra announced that financial institutions with a higher share of frequent overdrafters or a higher average fee burden for overdrafts should expect the Bureau to be paying them close supervisory attention. And this is what the bureau is trying to achieve with a pilot program where it is collecting key metrics from some institutions regarding the consumer impact of the overdraft and non-sufficient fund (NSF) practices.  

The CFPB has asked, since the beginning of the year, over 20 institutions for data on five consumer-impact metrics: 

1. Total annual dollar amount consumers receive in overdraft coverage compared to the amount of fees charged.
2. Annual dollar amount of overdraft fees charged per active checking account.
3. Annual dollar amount of NSF fees charged per active checking account.
4. Prevalence of frequent overdrafters: the share of active checking accounts with more than six and more than 12 overdraft and/or NSF fees per year.
5. Share of active checking accounts that are opted into overdraft programs for ATM and one-time debit transactions

The agency has sent a 7-page questionnaire with questions about entities’ overdraft practices, including how they assess their fees, their grace periods, the dollar thresholds above which fees are assessed, and caps on the number of fees charged per day, or per statement period. The financial institutions are requested to provide information for the relevant period that is from April 1, 2021, to March 31, 2022. 

It is unclear if the companies are legally obliged to provide the information, as the agency does not specify if it is using its monitoring powers for the collection of this information. The agency is not planning to make the information public and will only share it with other regulators. “This supervisory information will not be made public but is intended to support our ongoing work,” the CFPB said. 

The Bureau has encouraged banks and credit unions to remove their overdraft and NSF fees. The CFPB published two blog posts, one in February and one in April, announcing that some banks have scrapped their NSF fees, or they are planning to do so. While the CFPB takes credit for helping in reducing or scrapping NSF and overdraft fees, the data also suggested that these reduced (or eliminated) fees may be the result of a competitive market. New products are coming on the market as a result of this competitive environment with low or no fees, including, for instance, buy now, pay later (BNPL) or Bank On accounts. These are new deposit accounts at low or no fees, but with basic functions. 

The CFPB also mentioned on Friday that it is planning to evaluate how these banks announced by the banks are implemented as “many banks have yet to improve their practices.”

Read more: The CFPB and the ‘Junk Fee’ Investigation: 3 Challenges Ahead