CFPB cracks down on overdraft, bounced check fees

The Consumer Financial Protection Bureau (CFPB) took action against overdraft and other so-called "junk" banking fees last week, which generate billions of dollars for financial institutions.

The guidance targets surprise overdraft fees and bounced check fees, which the agency said "are likely unfair and unlawful" and "violate the Consumer Financial Protection Act prohibition on unfair practices when consumers cannot reasonably avoid them." These fees also weaken market competition and raise costs for consumers and businesses, it said.

In 2019, overdraft, bounced check and non-sufficient funds fees generated roughly $15 billion for banks, according to the CFPB. The regulator's new enforcement push against these junk fees could save Americans roughly $3 billion annually, it said.

"Americans are willing to pay for legitimate services at a competitive price, but are frustrated when they are hit with junk fees for unexpected or unwanted services that have no value to them," CFPB Director Rohit Chopra said. "We are providing guidance on existing law that will help law-abiding businesses seeking to fairly compete and the families they serve."

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Biden administration calls for an end to all hidden consumer fees

In September, President Joe Biden urged agencies to target all hidden fees, charges and add-ons — and not just for banking services. He also included utility bills like cable and internet, as well as airline and concert tickets.

The administration emphasized that they're only targeting fees designed "to confuse or deceive consumers or to take advantage of lock-in or other forms of situational market power."

The White House said the junk fees fall into four different categories:

• Mandatory fees that often hide the full price
• Surprise fees that consumers learn about after purchase
• Exploitative or predatory fees
• Fraudulent fees

"Actions that limit or disallow junk fees have the potential to create more efficient markets by requiring firms to compete on the merits by offering a lower (actual) price or a better product or service," the White House said. "In cases where the junk fee is unjustified, banning the practice outright can reduce firms' incentives to engage in 'exploitative innovation' – developing new junk fees rather than improving the actual quality of the product."

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Federal Trade Commission mobilizes to strike down surprise fees

The Federal Trade Commission (FTC)is also cracking down on surprise fees. Last month, the regulator voted to launch a rulemaking process that would rein in junk fee practices, including for event ticketing, hotels, funeral homes and any other industries that use hidden mandatory fees. 

If the regulation is adopted, it "could impact billions or even trillions of dollars in commerce, as well as millions of consumers and companies," FTC Commissioner Christine S. Wilson said in a dissenting statement.

"The version of the Advanced Notice of Proposed Rulemaking (ANPR) we discuss today is sweeping in its breadth; may duplicate, or contradict, existing laws and rules; is untethered from a solid foundation of FTC enforcement; relies on flawed assumptions and vague definitions; ignores impacts on competition; and diverts scarce agency resources from important law enforcement efforts," Wilson said. 

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