US targets banks’ billions of dollars in overdraft fees
A top US consumer watchdog is preparing to make it much harder for banks to charge clients overdraft fees — setting up a clash with financial firms over billions of dollars in annual revenue.
Consumer Financial Protection Bureau officials have privately told industry executives that the regulator will likely unveil its long-awaited plan to crack down in December, according to people familiar with the discussions. The CFPB has been crafting the regulations for months, and most of the details remain secret.
Washington has been clamping down on overdraft charges, which the Biden administration has dubbed “junk fees.” The CFPB, which declined to comment on the timing of its plans, has said banks got nearly $8.5 billion in 2021 from insufficient fund and certain low-balance fees.
Wells Fargo & Co. reached a $3.7 billion settlement with federal regulators in December to settle allegations it illegally charged “surprise” overdraft fees, among other claims. Regions Financial Corp. agreed to pay $191 million to settle a similar case in September 2022, and the CFPB called the bank a “repeat offender.” Neither bank admitted or denied the regulator’s allegations.
Some large banks, including Capital One Financial Corp. and Citigroup Inc., have stopped overdraft fees that can be as high as $35 per charge. Yet many smaller banks and credit unions remain reliant on them for revenue, and ahead of the plan’s release some industry advocates are bracing for a fight.
“The CFPB is likely to roll out an overdraft fee proposal very soon, and anything the CFPB does around fees is BAD, REALLY REALLY BAD. NO GOOD, ROTTEN, TERRIBLE BAD,” Greg Mesack, senior vice president of government affairs at the National Association of Federally-Insured Credit Unions, said in an email to Bloomberg Law.
The agency’s plans are still in flux, said the people, who asked not to be identified discussing the regulator’s internal deliberations. One possibility under consideration would be to include asset thresholds in the rule to let some small banks and credit unions avoid the effects.
CFPB Director Rohit Chopra will face questions on the status of the effort when he testifies before the House Financial Services Committee on Wednesday and Senate Banking Committee on Thursday. Big bank chief executives will testify before the Senate panel next week.
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