CFPB Says Surprise Overdraft Fees Are Likely Illegal

Getting hit with an unexpected overdraft fee might be annoying, but according to America’s top consumer advocate, it’s probably also illegal.

As part of its ongoing campaign against “junk fees,” the Consumer Financial Protection Bureau (CFPB) published guidance Wednesday (Oct. 26) about two such practices it says are “likely unfair and unlawful under existing law.”

Surprise overdraft fees include fees levied against consumers who had sufficient funds in their account to cover a debit charge at the time the bank approves it.

“Often, the financial institution relies on complex back-office practices to justify charging the fee,” the CFPB said. “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.”

The second junk fee is the surprise depositor fee, or the “practice of indiscriminately charging depositor fees to every person who deposits a check that bounces,” which the CFPB calls “an unexpected shock to depositors who thought they were increasing their funds.”

The bureau notes that someone depositing a check has no way of knowing if the check will clear and could even be a victim of fraud. In most cases, a check bounces because the person who wrote it simply “does not have enough money available in their account,” the report said.

The agency says these fees are likely in violation of the Consumer Financial Protection Act’s ban on unfair practices when consumers “cannot reasonably avoid them.”

Read more: Banks Cut Neobanks’ First Mover Advantage on Fees and Tech

PYMNTS noted last week that a number of banks — Citi, Ally, Capital One — have begun eliminating overdraft fees, spurred by both competition from neobanks, as well as a desire to keep out of regulators’ crosshairs.

The CFPB warned earlier this year that as banks collected billions of dollars’ worth of overdraft fees, they’d essentially priced some consumers out of traditional banking services.

More recently, the CFPB fined Regions Bank $191 million in customer redress as well as a civil monetary penalty tied to overdraft fees.