Consumer Bureau Guidance Takes on Junk Fees Charged by Banks

CFPB takes steps to help banks avoid charging illegal fees, harming consumers

The Consumer Financial Protection Bureau (CFPB) has taken steps to help protect consumers from "junk fees" charged by banks and financial institutions. The guidance will also help prevent banks from running afoul of current law on illegal fees.

The guidance takes aim at two specific practices that harm consumers: the first, 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.

“Americans are willing to pay for legitimate services at a competitive price but are frustrated when they are hit with junk fees for unexpected or unwanted services that have no value to them,” said CFPB Director Rohit Chopra. “We are providing guidance on existing law that will help law-abiding businesses seeking to fairly compete and the families they serve.”

The CFPB explains that both of these fees are often a surprise to the consumer, and are, in fact, illegal under existing consumer protection laws.

When a consumer deposits a check that bounces, banks sometimes charge a fee to the depositor, usually in the range of $10 to $19. However, a person trying to deposit a check has no idea or control over whether the check will clear, and sometimes, that person is the victim of check fraud.

The CFPB also outlined surprise overdraft fees as an illegal practice. 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.

As a result of the guidance issued by CFPB, banks are now on notice that these practices are unlawful and may result in CFPB enforcement action.

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