Chopra Announces Enhanced Supervisory and Enforcement Scrutiny of Banks Heavily Dependent on Overdraft Fees
In an effort to eradicate what he sees as illegal overdraft fee practices, Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB), recently announced that the agency would be cracking down on large banks that are heavily reliant on overdraft fees, and will pursue individual executives that oversee illegal overdraft practices.
“Many large banks today penalize their own customers based on things outside their control,” Chopra stated in his prepared remarks. “Banks think they can get away with hitting their customers with these kinds of junk fees because such back-end pricing stubbornly resists the normal dynamics of a competitive free market.”
The CFPB found that overdraft and non-sufficient funds (NSF) revenue reached nearly $15.47 billion in 2019, 44 percent of which was brought in by JPMorgan Chase, Wells Fargo, and Bank of America. It also found that even though smaller banks charge lower fees, consumer outcomes were similar to those at bigger banks.
Despite a drop in collected fees in the past year, many fee harvesting practices continued throughout the COVID-19 pandemic. With increased supervision and enforcement scrutiny of overdraft and NSF fees, the CFPB hopes to identify deceptive practices that violate consumer protection law. Additionally, the bureau may issue policy guidance that outlines which overdraft practices are considered unlawful.
The CFPB issued two data points to outline its research on overdraft practices: Overdraft/NSF Fee Reliance Since 2015 ⎯ Evidence from Bank Call Reports and Checking Account Overdraft at Financial Institutions Served by Core Processors.
The bureau’s efforts to address overdraft fees have increased in recent years. In 2020, it ordered TD Bank to pay $122 million in penalties and overdraft fees, and ordered TCF Bank to pay $30 million in penalties and restitution in 2018.