CFPB to Heavily Regulate Overdraft Fees From Banks

The Consumer Finance Protection Bureau (CFPB) is making it so banks can’t charge fees to customers overdrawing checking accounts, the financial watchdog announced Wednesday (Dec. 1).

In a news release, the CFPB said there would be several “regulatory interventions” on firms that too often use overdraft fees as a source of revenue.

CFPB Director Rohit Chopra said the overdraft charging is a “big money maker” for banks, which has continued during the pandemic. In 2019, banks earned over $15 billion from those charges and the number has risen since then, Chopra said.

The overdrafts occur when the customer doesn’t have enough funds in their account to cover a transaction. The bank might still let a transaction go through, but also may charge the customer for it. The fee is usually around $34, and according to Chopra, they usually impact those who have the most trouble affording them.

“Banks, especially big banks, continue to rely on overdraft and [non-sufficient funds] fees as a major source of revenue,” Chopra said. “Rather than competing on transparent upfront pricing, large financial institutions are still hooked on exploitative junk fees that can quickly drain a family’s bank account.”

The CFPB notes that three banks, J.P. Morgan Chase, Wells Fargo and Bank of America, made up around $5 billion of total overdraft fees in 2019. That also came out to 55% of the fees collected by banks with over $1 billion in assets.

The agency did not specify what constituted “heavy reliance” on overdraft fees, but said it would tell firms how they compared with their peers. The oversight will come in the form of new supervisory and enforcement scrutiny, per a CNBC report.

PYMNTS reported that overdraft fees might be on the rise soon as they always are as the holidays come up on people.

See also: Eliminating Overdraft Fees Isn’t Easy Fix for Banks, Customers

However, several banks have been doing away with the charges, and some FinTechs have been making new kinds of offerings promoting a complete lack of overdraft fees for checking services.

Santander Bank and Ally Bank have been among the companies doing away with the overdraft fees.