President Joe Biden on Wednesday announced that the federal consumer watchdog is cracking down on overdraft and depositor fees that often surprise Americans, deeming them unfair and likely violations of consumer protection laws. The move could save consumers more than $1 billion per year, Biden said.
The president called them some of the many “junk fees” that hit low-income Americans and people of color the hardest.
The Consumer Financial Protection Bureau said Wednesday that banks may be breaking the law when they charge overdraft fees to people who had enough money in their account to cover the charge at the time the bank authorized it.
Overdraft fees are charged when a debit account reaches $0 or negative dollars due to a charge, and they often cost about $30, on average.
“You've got the money, so you go ahead and you pay. And it turns out your balance wasn't up to date because your bank was slow in processing other charges,” Biden said, describing a circumstance that usually leads to overdraft fees.
“It's not your fault. The bank screwed up,” he added, calling it “simply wrong.”
The CFPB on Wednesday said financial institutions rely on “complex back-office practices” to justify such overdraft fees.
"Financial companies that violate the law could face serious penalties, as well as individual liability for executives," said Rohit Chopra, the director of CFPB, in an interview with Spectrum News. "The most important thing for us is to pay restitution to the customers that they cheated."
Already, Regions Bank is facing a $191 million penalty, most of it to repay customers, after the CFPB investigated and then took action against the bank in September. Regions is accused of charging overdraft fees after telling consumers they had enough money in their account at the time of purchase.
The watchdog agency on Wednesday also announced stricter guidance on deposited item return fees. Usually costing $12 at most major banks, the fee is imposed on a person when they deposit a check, but the person who wrote the check does not have sufficient funds or their account is otherwise able to be charged.
In a bulletin to banks, the CFPB said the fees impose “monetary harm” and consumers cannot “reasonably avoid” the fee, given they often did not write the check themselves. The memo indicates that the depositor fees are likely unfair under the stipulations of the Consumer Financial Protection Act.
Instead, fees should be tailored to the circumstances or be charged based on behavior patterns.
Americans who think they're being charged unfair fees can contact CFPB for help by emailing email@example.com, Chopra urged.
"We know it adds up to hundreds of dollars per year. And the people it affects most are really middle-class and working-class Americans who don't necessarily have a huge amount of cushion in their monthly budget," he told Spectrum News.
The CFPB launched a broader “junk fee” initiative in January, including a review of credit card fees and other back-end charges that cost Americans billions of dollars per year.
Many banks have recently announced they will eliminate overdraft on non-sufficient fund fees, according to CFPB, adding up to $3 billion in savings so far.
“There are tens of billions of dollars and other junk fees across the economy. I'm directing my administration to reduce or eliminate them,” Biden said Wednesday.