The Consumer Financial Protection Bureau warned banks Wednesday that unexpected overdraft fees and fees charged for depositing a check that bounces likely run afoul of the law.
The CFPB announcement came as part of an administration push to reduce and improve transparency of consumer fees across industries, including banking, travel and cable providers.
President Joe Biden, speaking at a White House event on what he called “junk fees,” said it’s unfair to charge consumers a fee when they deposit a check that bounces, or an overdraft fee when their account showed a sufficient balance to cover the cost at the time of the transaction. He spoke at a White House event outlining the efforts on fees.
“It’s wrong. It’s ridiculous. It’s unfair. My administration’s making clear today it’s illegal as well,” Biden said. “Today’s actions are going to save consumers more than $1 billion each year, and that’s a lot of money back in people’s pockets.”
CFPB Director Rohit Chopra said at the event that the agency is “putting companies on notice about their obligations under law.” He added that the CFPB is working on rules and guidance to rein in other bank and credit card fees. “This is real money back in the pockets of American families. It’s good for them and it’s good for businesses that follow the law,” he said.
Surprise overdraft and deposit fees for bounced checks are likely unfair under existing law banning “unfair, deceptive and abusive” practices, the agency said in guidance. The White House said in a statement that the guidance would effectively ban both types of fees.
The guidance targeted overdraft fees levied in instances when a customer had sufficient funds in an account when the payment started, but fell short of the needed amount by the time the transaction settled. The fees likely qualify as unfair under the 2010 financial and consumer protection law that established the agency, the CFPB said.
“Consumers generally cannot reasonably be expected to understand and thereby conduct their transactions to account for the delay between authorization and settlement — a delay that is generally not of the consumers’ own making but is the product of payment systems,” the agency said.
The CFPB also said it plans to bring enforcement actions against fees charged to customers who deposit a check that later bounces.
“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 agency said. “Charging a fee to the depositor penalizes the person who could not anticipate the check would bounce, while doing nothing to deter the originator from writing bad checks.”
Biden said the Transportation Department is working on rules that would require airlines and travel sites to disclose fees up front for items such as sitting next to one’s child, checking baggage or changing a ticket. He also said the Federal Communications Commission is writing a rule to require internet companies to disclose fees.
Republicans and the banking industry criticized the move by the agency, saying the CFPB should have gone through the formal rulemaking process, including seeking public comment, instead of issuing guidance.
“It’s no surprise that an out-of-control and unaccountable agency — which the Fifth Circuit recently ruled is unconstitutional — has chosen to sidestep the congressionally mandated rulemaking process to change the rules of the road,” Sen. Patrick J. Toomey, R-Pa., said in a statement, citing a decision from a panel of the U.S. Court of Appeals for the 5th Circuit that this month found the CFPB funding structure violated the Constitution. Toomey, who is retiring at the end of this year, is the ranking Republican on the Senate Banking Committee.
Greg Baer, Bank Policy Institute CEO, likewise took issue with the agency’s methods.
“The CFPB has clear authority to define prohibited fee practices through notice-and-comment rulemaking, but instead continues to rely on invective-filled guidance, which is legally non-binding but which the CFPB has a history of improperly enforcing through the non-public examination process and threats of enforcement action,” he said in a statement.
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