Proposed CFPB rule cracking down on overdraft penalties supported by Senator Casey

03 April 2024- U.S. Senator Bob Casey (D-PA) sent a letter to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra in support of the CFPB’s proposed rule to crack down on excessive overdraft banking penalties. As American families struggle to make ends meet, large corporate banks are profiting off of their customers by charging excessive overdraft fees, roughly $35 per overdraft.

“Large corporate banks should be expected to provide their customers with transparent information about the services they offer and to charge fees that are in proportion to the actual costs the fees are covering. I believe that this proposed rule will be a positive step forward, and on behalf of Pennsylvania consumers, I strongly encourage CFPB to finalize the proposal as soon as possible,” Senator Casey wrote.

CFPB estimates that this rule will save consumers $3.5 billion per year or $150 yearly per household that pays overdraft fees.

Read the full letter HERE or below:

April 1, 2024

Dear Director Chopra:

On January 24, 2024, I released a report entitled, “Additional Charges May Apply: How Big Corporations Use Hidden Fees to Nickel, Dime, and Deceive American Families.” My report details how corporations use hidden fees to deceive consumers and increase corporate profits, which leaves families paying more than they expect for everyday purchases. My report tracks the variety of junk fees, including overdraft fees, that families trying to pay their bills face. My findings estimate that an average Pennsylvania family may pay nearly $1,000 in junk fees alone over a single month.

Overdraft fees, loans, or credit can be issued by banks when a customer’s spending exceeds the balance of their account. Overdraft services were first developed as a courtesy service for banking customers who may have accidentally overdrawn on accounts using paper checks. However, as CFPB identified, the practice of charging customer overdraft fees has expanded despite electronic banking and automation—today, large banks charge roughly $35 for an overdraft fee, even though most overdrafts are for a small amount, are repaid quickly, and do not generally cost banks $35 to process. Roughly 23 million households pay overdraft fees each year, and estimates indicate that 26 percent of Americans reside in a household that faced an overdraft fee or non-sufficient fund fee in the last year.

Notably, overdraft fees are often unexpected. Among households that incurred an overdraft fee, 43 percent did not expect the fee. Because the majority of overdraft fees are exempt from the Truth in Lending Act, banks are currently able to establish complicated processes that mislead consumers, leaving them unaware when they will be charged an overdraft fee and for what amount. For some customers, this can be devastating, ultimately resulting in them losing their checking accounts.

Overdraft fees generate substantial profit for corporate banks. According to CFPB’s estimates, consumers have paid roughly $280 billion in overdraft fees over the last 20 years and paid $9 billion in just 2022 alone. Big banks have taken notice, using overdraft fees to generate substantial revenue and deceive vulnerable consumers. For instance, in 2022 Wells Fargo was ordered by CFPB to repay over $200 million to consumers who had been charged surprise overdraft fees that were assessed despite the consumers having available funds in their accounts.

As I discussed in my January 2024 report, junk fees are eating into families’ budgets. In this report, I laid out my priorities when it comes to combatting junk fees: (1) fighting deceptive practices that allow corporations to hide the fees they charge consumers; (2) preventing corporations from deceptively passing along their expenses to working families through bogus fees; and (3) protecting businesses that are honest about their pricing structures. CFPB’s efforts in this proposed rule to require banks to provide their customers with proper loan and credit disclosures and to cap overdraft fees at a realistic level meet these goals—and should be applauded.

Large corporate banks should be expected to provide their customers with transparent information about the services they offer and to charge fees that are in proportion to the actual costs the fees are covering. I believe that this proposed rule will be a positive step forward, and on behalf of Pennsylvania consumers, I strongly encourage CFPB to finalize the proposal as soon as possible.