On October 26, 2022, the Consumer Financial Protection Bureau (CFPB) issued guidance on deposit account “junk fees” as part of its overall initiative to reduce or eliminate certain fees charged by financial institutions. In this guidance, the CFPB specifically targets what it calls “surprise” overdraft and depositor fees, stating they are “likely unfair and unlawful under existing law.”

  • Surprise Overdraft Fees — The CFPB explains that an overdraft fee can become a surprise fee when the consumer does not reasonably expect their actions to incur an overdraft fee. The CFPB specifically addresses preauthorized debit card transactions, where the consumer is charged an overdraft fee even though there are sufficient available funds to cover the transaction at the time it is authorized. After the transaction is authorized, an intervening transaction may reduce the available balance so that it is no longer sufficient to cover the debit card transaction when it actually posts to the account, thereby resulting in an overdraft fee. These transactions are often referred to as “Authorize Positive, Settle Negative” (APSN) transactions.

The CFPB filed an enforcement action against Regions Bank in September 2022, for assessing overdraft fees on APSN transactions and ordered the bank to pay a total of $191 million as a result of its practices.

  • Surprise Depositor Fees — When a consumer deposits a check that bounces, financial institutions sometimes charge a fee to the depositor. However, the depositor may have no indication or control over whether a check will clear except in certain circumstances, such as when they repeatedly deposit bad checks or deposit unsigned checks. In some cases, the depositor may be the victim of check fraud, or the originator of the check may not have enough money available in their account to cover the check. The CFPB states that charging a fee to the depositor in these situations, regardless of circumstances or patterns of behavior, penalizes the person who could not anticipate the check would bounce.

The CFPB states that these types of overdraft and depositor fees likely violate the Consumer Financial Protection Act prohibition on unfair practices when consumers cannot reasonably avoid them.

Action Steps

Even before the issuance of this CFPB guidance, institutions across the country had already taken steps to eliminate or reduce overdraft fees or establish program parameters to limit circumstances in which overdraft fees are assessed. We now encourage all institutions to:

  • Review the CFPB’s latest guidance in its entirety
  • Engage legal counsel, if applicable, for assistance in assessing the risk that current institution practices pose in light of the CFPB’s guidance.
  • Determine, in consultation with counsel, if any new or additional changes to institution practices and related fee assessments are warranted to mitigate the institution’s risk
  • Contact us if your institution plans to make process or fee changes and determines that updates to the documents are necessary to align with those changes

You can open a Compliance Systems Service Desk ticket or email us at support@compliancesystems.com to ask about updating your documents.