Oct 26, 2022 - Economy

White House targets end of overdraft fees, other "junk" consumer charges

Biden delivers remarks on the consumer fees on Wednesday, with the Consumer Financial Protection Bureau's Rohit Chopra in the background. Photo: Anna Moneymaker/Getty Images

The White House announced new guidance on Wednesday that targets some banking fees charged to consumers — touting it as part of a broader "junk fee" crackdown as Americans remain concerned about rising costs.

Why it matters: The guidance comes from the Consumer Financial Protection Bureau, a regulatory watchdog that for months has warned against overdraft fees. Against that backdrop, some banks have changed their overdraft policies, or nixed the fees altogether. This new guidance, however, is the agency's strongest message yet to banks that haven't gone far enough.

Details: The CFPB identified in a release two types of fees charged by banks to consumers as "likely unfair and unlawful under existing law."

  • The first is the fee incurred by consumers when they deposit checks that bounce, although the consumer might not be aware of the bad check.
  • The second is when a customer had enough money in their account at the time the bank authorized a transaction, but later is charged a fee when the account overdraws as other charges hit the account. Last month, Regions Bank settled with the CFPB over charges the regional bank was charging what the agency calls "surprise fees."

What they're saying: In remarks on Wednesday, President Biden said that other agencies, including the Federal Trade Commission and the Department of Transportation, were looking at "unfair and deceptive fees across all industries."

  • Biden claimed the overdraft fee restrictions would "save consumers more than $1 billion each year."

Catch up quick: Overdraft fees are among the many associated with banking, shouldered most often by consumers who can least afford the charges.

  • In a move that ratcheted up pressure on banks earlier this year, the CFPB published a list of some that had eliminated (or planned to eliminate) overdraft fees on transactions — and ones that hadn't.

The other side: Bank lobbying groups took aim at the CFPB guidance — not necessarily because of what the agency said, but the process by which it said it.

  • "The CFPB has clear authority to define prohibited fee practices through notice-and-comment rulemaking, but instead continues to rely on invective-filled guidance, which is legally non-binding," Greg Baer, the head of the Bank Policy Institute, said in a statement.
  • "Rather than propose changes and give the industry and other stakeholders a chance to offer constructive input as is the norm, the [CFPB] once again has chosen to regulate via press release," the American Bankers Association's Rob Nichols said in a statement.

The backdrop: The guidance comes at a rocky time for the CFPB. Last week, judges on the Fifth Circuit Court ruled that the agency's funding structure is unconstitutional. If the decision is upheld, the CFPB would need to get its funding approved by Congress annually — a dynamic that could blunt the CFPB's reach.

  • Some companies have already looked to the ruling as a reason to ask courts to invalidate the CFPB's ongoing enforcement actions against them.
Go deeper