CFPB Issues New Guidance to Stop Banks from Harvesting Overdraft Fees

The Consumer Financial Protection Bureau (CFPB) has published new guidance to help federal and state consumer protection enforcers stop banks from charging overdraft fees based on phantom opt-in agreements.

Phantom opt-ins occur when banks claim they have customers’ consent to charge overdraft fees but there is no proof they obtained that consent.

Under the Electronic Fund Transfer Act, banks cannot charge overdraft fees on ATM and one-time debit card transactions unless consumers have affirmatively opted in.

When people withdraw money from an ATM or make a purchase with a debit card, the transaction sometimes can drop their account balance below $0.

In these cases, banks can either decline the transaction or let it go through by extending an overdraft loan.

If a bank covers the transaction through an overdraft loan, the bank can only charge a fee if the consumer opted into overdraft services.

The new guidance states that consumer protection law enforcers should assume consumers have not opted into overdraft unless the banks can prove otherwise.

The CFPB has found that some banks have been unable to provide such evidence before they charged consumers fees for overdraft loans to cover ATM and one-time debit transactions.

The CFPB has observed that in many circumstances, financial institutions have created serious obstacles to consumers taking steps to anticipate and avoid overdraft fees.

Rohit Chopra, CFPB Director, said:  “The CFPB has found instances where banks have no evidence that they obtained consent for overdraft. No Americans should be hit with bank account fees that they never agreed to.”