CFPB Announces Crackdown on NSF, Overdraft Fees

The Consumer Financial Protection Bureau yesterday put overdraft fees in its crosshairs yesterday, and already banks are responding by announcing they will no longer assess NSF fees when consumers spend more than they have in their bank accounts.

Rohit Chopra, the Director of the CFPB, announced that the regulator is seeking to “restore meaningful competition” to the market through both enforcement actions against banks that “violate the law” and through guidance or other “regulatory interventions” that limit or prohibit the practice.

Already, Capital One has announced it will no longer assess overdraft or insufficient fund charges for consumers, and other banks are expected to follow suit. Advocates praised the announcements from the CFPB and Capital One.

“Capital One’s complete elimination of all overdraft and NSF fees is a game changer that should set the standard for the entire banking industry and encourage the CFPB to stop overdraft fees from being used as a high-cost form of credit that can reach or exceed the cost of triple-digit payday loans,” said Lauren Saunders, associate director of the National Consumer Law Center, in a statement. “Capital One is the first top-10 bank, the first with a real branch network, and the first with significant overdraft revenue to make the hard choice to eliminate overdraft and NSF fees that harm the most vulnerable consumers and push them out of the banking system.”

Banks charged consumers more than $15 billion in overdraft fees in 2019 — the year for which data is most recently available. Three banks — JPMorgan Chase, Wells Fargo, and Bank of America accounted for 44% of the overdraft fees reported by institutions with at least $1 billion of assets. Eighty percent of the NSF fees were paid by less than 9% of account holders, who had, on average, 10 NSF charges in a year.

“Despite the findings in our research that banks are still dependent on overdraft, we know that banks understand they need to kick this addiction,” Chopra said.

To substantiate its claim, the CFPB released a pair of reports: one that analyzes NSF data filed by banks in their call reports and one that details the overdraft policies at smaller financial institutions.

“Our expectation is that more banks will try to avoid CFPB enforcement actions by following the lead of Capital One and announcing they are ending the practice of charging for overdrafts and non-sufficient funds,” said Jaret Seiberg, a financial services analyst for Cowen Washington Research Group, in a published report.

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