Capital Corner: CFPB takes aim at overdraft programs

Study alleges excessive fees; new rules possible in 2022

In a move that will undoubtedly have major implications for credit unions and other financial institutions, the Consumer Financial Protection Bureau (CFPB) announced plans to crack down on use of overdraft protection programs and fees after finding the charges generated almost $16 billion in revenues for financial institutions in 2019.

The information was contained in a CFPB “Overdraft Fee Reliance” report released in early December that found “heavy reliance on overdraft and non-sufficient funds (NSF) revenue.” The Bureau also said that while overdraft and NSF fees were 13% to 19% lower at smaller banks and credit unions than at large banks, credit unions and small banks that offered an overdraft program earned $42.33 and $40.37 in annual overdraft revenue per account, respectively, which was just 6% and 11% less than large banks. Also noted in the study was that three mega-banks JPMorgan Chase, Wells Fargo, and Bank of America, accounted for 44% of the total.

“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model. We will be taking action to restore meaningful competition to this market. The CFPB will take action against large financial institutions whose overdraft practices violate the law,” Chopra stated, adding that the Bureau “is also considering additional policy guidance outlining unlawful practices.”


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