What is going on? CFPB releases guidance on “junk” fees

On the heels of a late September regulatory enforcement action against Regions Bank, requiring the financial institution to pay $191 million dollars for charging consumers “illegal surprise overdraft fees,” the Consumer Financial Protection Bureau (CFPB or bureau) recently issued guidance highlighting what the CFPB may consider junk fees. The CFPB addresses two types of fees that it may consider as “junk.” The first fee is a surprise overdraft fee, including “overdraft fees charged when consumers [have] enough money in their account to cover a debit charge at the time the [financial institution] authorizes it.” The next fee is a surprise depositor fee. This type of fee occurs when a person cashes a check and the check bounces. The CFPB outlines what practices may likely break the law in a Consumer Financial Protection Circular (circular) for surprise overdraft fees and a compliance bulletin on surprise depositor fees, respectively. The bureau writes a circular as a “general statement of policy” with the hope to provide consistency and transparency.

Surprise Overdraft Fees

The CFPB characterizes an unanticipated overdraft fee as occurring “when financial institutions assess overdraft fees on transactions that a consumer would not reasonably expect” in the circular. The CFPB maintains these fees may still be considered surprise or unanticipated even when required disclosures are followed and the consumer closely monitors account balances. The CFPB provides examples of “potentially unlawful patterns” that may trigger liability. A credit union will likely face scrutiny under this CFPB guidance if the act or practice (1) causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers; and (2) the injury is not outweighed by countervailing benefits to consumers or to competition.

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