New CFPB Guidance on Overdraft Fees

Late last fall, the Consumer Financial Protection Bureau (CFPB) issued guidance on bank overdraft fees it labels as “unfair” or “unlawful” along with teasing forthcoming regulations to reign in what it terms as “junk fees” and “surprise billing”. This legislation will affect several industries, including bank debit processing, concert tickets, airline tickets, and cable services to name a few. Several legislative actions are now coming forward in the new year.

Banking Sector

For the banking sector, the CFPB guidance directs that charges for insufficient funds should not be applied to account holders, including re-presentment charges where a merchant continues to attempt payment through the bank multiple times. Instead, the guidance to stay within existing regulations is to not pay the debt and to not charge an overdraft fee unless the account holder has elected either overdraft coverage or overdraft protection. Overdraft coverage is when an account holder elects to have their banking institution pay a bill even if there are insufficient funds and charge the account holder a fee. Overdraft protection is when an account holder elects to have their banking institution transfer a payable amount to a credit card or other credit agency when there is an overdraft and charge the account holder a fee.

Need More Guidance? Reach Out!

Additional information can be found on the CFPB website in the article “CFPB Issues Guidance to Help Banks Avoid Charging Illegal Junk Fees on Deposit Accounts”. Contact us for a consultation if you have questions or want further information regarding this new guidance.