The Consumer Financial Protection Bureau (CFPB) has issued guidance about two junk fee practices that are likely unfair and unlawful under existing law. The first is surprise overdraft fees, including overdraft fees charged when consumers had enough money in their account to cover a debit charge at the time the bank authorizes it. The second is the practice of indiscriminately charging depositor fees to every person who deposits a check that bounces. The penalty is an unexpected shock to depositors who thought they were increasing their funds. The CFPB states that these overdraft and depositor fees likely violate the Consumer Financial Protection Act prohibition on unfair practices when consumers cannot reasonably avoid them. This Consumer Financial Protection Circular on surprise overdraft fees and the CFPB’s compliance bulletin on surprise depositor fees lay out when a financial institution’s back-end penalties likely break the law. Surprise Overdraft Fees An overdraft fee can become a surprise fee, according to the CFPB, when the customer does not reasonably expect their actions to incur an overdraft fee. For instance, even if a person closely monitors their account balances and carefully manages their spending to avoid overdraft fees, they can easily incur penalties when financial institutions employ processes that are unintelligible or manipulative. This latest Consumer Financial Protection Circular explains that when financial institutions charge surprise overdraft fees, sometimes as much as $36, they may be breaking the law. The circular provides some examples of potentially unlawful surprise overdraft fees, including charging penalties on purchases made with a positive balance. These overdraft fees occur when a bank displays that a customer has sufficient available funds to complete a debit card purchase at the time of the transaction, but the consumer is later charged an overdraft fee. Often, the financial institution relies on complex back-office practices to justify charging the fee. For instance, after the bank allows one debit card transaction when there is sufficient money in the account, it nonetheless charges a fee on that transaction later because of intervening transactions that depleted account funds. CFPB ISSUES GUIDANCE ABOUT ILLEGAL JUNK FEES ON DEPOSIT ACCOUNTS By William J. Showalter, Young & Associates, Inc. NEBRASKA INDEPENDENT BANKER 20
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