The CFPB Study Shines Spotlight on Banking Fees as a Presage to Greater Regulatory Scrutiny of Consumer Banking Fees
The Consumer Financial Protection Bureau (“CFPB”) has enhanced its regulatory scrutiny of the fees financial institutions assess on consumer depositors. To better understand the gamut of such fees and financial institutions’ practices with respect to the same, the CFPB has required financial institutions to submit detailed quarterly statements identifying and breaking out the various types of fees assessed on consumer accounts. In particular, the CFPB has required them to provide aggregate amounts charged as (i) overdraft and non-sufficient funds (“NSF”) fees; (ii) periodic account maintenance fees; and (iii) ATM fees (in particular, the fees charged in connection with consumer transactions at out-of-network ATMs). The CFPB has now analyzed the consumer fee data going back to 2015 and published two reports: (i) Data Point: Overdraft/NSF Fee Reliance Since 2015—Evidence from Bank Call Reports; and (ii) Data Point: Checking Account Overdraft at Financial Institutions Served by Core Processors. In general, the reports reveal that overdraft and NSF fees constitute one of the primary sources of financial institution revenues generated from consumer banking operations. Indeed, overdraft fees alone generated more than $15 billion in revenues for banks and credit unions in 2019.
The CFPB criticized financial institutions’ significant and persistent “reliance” on overdraft and NSF fee revenues during the relevant timeframe. In particular, the CFPB “will be enhancing its scrutiny of banks that are heavily dependent on overdraft fees.” The CFPB has also indicated a willingness to “take action against large financial institutions whose overdraft practices violate the law” and will focus primarily on scrutinizing those financial institutions that are particularly reliant on overdraft and NSF fees. The CFPB was particularly concerned about allegedly inscrutable NSF and overdraft policies that may leave consumers in the dark regarding precisely when fees may be incurred.
The CFPB’s focus on overdraft and NSF fees goes hand-in-hand with an active and creative plaintiff’s bar that has been carefully reviewing consumer banking practices and account disclosures for purposes of prosecuting lucrative class action lawsuits. Financial institutions have been hit with a wave of class action complaints alleging, for example, that they fail to sufficiently disclose that consumers may be hit with NSF or overdraft fees when items are re-presented for payment, after having been initially rejected, and the consumer has an insufficient available balance to cover the debit at the time of re-presentment. The plaintiff’s bar has also criticized purportedly insufficient disclosures in connection with so-called “authorize positive, settle negative” overdraft fees that can when a consumer “authorizes” a debit-card transaction into a sufficient available balance, but due to intervening debits, the transaction “settles” (i.e. the merchant is paid) when there is an insufficient balance.
The CFPB reports should provide the necessary impetus for any financial institution that charges NSF or overdraft fees to review its practices to ensure compliance with law. In addition, financial institutions should review their consumer account disclosures to verify that such disclosures fully, fairly, and accurately disclose when and under what circumstances a customer may incur overdraft and/or NSF fees in connection with consumer banking transactions.