CFPB Says Surprise Overdraft Fees Are Likely Unlawful

The CFPB reviewed unanticipated overdraft fee assessment practices and concluded that surprise overdraft fees and surprise depositor fees are "likely unfair and unlawful under existing law."

In a Consumer Financial Protection Circular, the CFPB stated that overdraft practices must remain in compliance with applicable consumer protection laws and the CFPB's prohibition against unfair, deceptive and abusive acts or practices in Consumer Financial Protection Act Section 1036 ("Prohibited acts").

The CFPB said that surprise overdraft and depositor fees may be imposed on unsuspecting customers for events beyond the customer's control. For example, the CFPB said that a bank charging a fee to the depositor when a check bounces is unfair, as the depositor did not expect the check to bounce; the bounce was the fault of the person who wrote the check. Additionally, the CFPB said that some banks have engaged in predatory practices and charged excessive overdraft fees to unsuspecting customers.

The protection circular was issued following a CFPB enforcement action against a banking institution for engaging in abusive overdraft practices (see previous coverage). The protection circular is also part of a greater CFPB initiative to crack down on back-end junk fees, which was initiated earlier this year.

Senator Pat J. Toomey (R-PA) criticized the publication, accusing the CFPB of sidestepping the traditional rulemaking process to issue guidance before engaging in a rulemaking process to define "unfair, deceptive or abusive acts or practices authority."