Ending Unauthorized Overdraft Fees: CFPB Protects Consumers

Federal action stops banks from charging unauthorized overdraft fees

A federal regulator is taking action to protect bank customers from so-called "phantom" overdraft charges - charges that occur without a customer's prior consent.

The Consumer Financial Protection Bureau (CFPB) issued clarifying guidance to banks indicating that they must obtain affirmative consent before charging customers overdraft fees.

A CFPB review found that some banks automatically opt customers in to overdraft fees without first obtaining a customer's consent. When a check is presented and the customer has insufficient funds, a bank can decline to cover the check (or debit) - if it does so, no fee is charged. However, if a bank covers the charges, the bank may then charge an ovedraft fee.

The CFPB's guidance is designed to ensure that banks first make it clear to customer's what the charges are for covering overdrafts and obtain an "opt-in" from a customer before assessing overdraft charges.

“The CFPB has found instances where banks have no evidence that they obtained consent for overdraft,” said CFPB Director Rohit Chopra. “No Americans should be hit with bank account fees that they never agreed to.”

In some cases, the CFPB found that banks make it difficult to understand whether or not overdraft fees will be charged. For example, the CFPB took action against Regions Bank for the bank’s unintelligible and manipulative processes that resulted in unexpected overdraft fees.

The guidance issued by CFPB both clarifies that banks have an affirmative responsibility to obtain consent before charging fees and also gives regulators clarity on enforcing existing law.

Photo byEduardo SoaresonUnsplash