The Consumer Financial Protection Bureau (CFPB) released guidance regarding junk fee practices that are unlikely unfair and unlawful under existing law. The junk fees that are the focus of the guidance are (1) surprise overdraft fees and (2) surprise depositor fees.
Surprise Overdraft Fees
An unanticipated overdraft fee occurs when financial institutions assess overdraft fees on transactions that a consumer would not reasonably expect would give rise to such fees. One example of an unanticipated overdraft fee is when the available balance on a consumer’s account is sufficient to cover a debit card transaction at the time the consumer initiates it, the balance on the account may not be sufficient to cover it at the time the debit settles. A consumer would not reasonably expect to incur an overdraft fee on a debit card transaction when their balance showed there were sufficient available funds in the account to pay the transaction at the time they initiated it. These transactions, often referred to as “authorized positive, settle negative” or APSN transactions, give rise to these unanticipated overdraft fees and is a potentially unlawful practice by financial institutions that inflicts a “substantial injury” – an injury that inflicts a monetary harm such as fees or costs paid by consumers because of the unfair act or practice. The CFPB highlights that an unanticipated overdraft fees inflict a substantial injury on consumers. Depending on the circumstances of the fee, such as when intervening transactions settle against the account or
how the financial institution orders the transactions at the end of the banking day, consumers could be assessed more than one such fee extenuating that injury. These overdraft fees are particularly harmful to consumers since they cannot reasonably anticipate or plan for them. The CFPB encouraged enforcers to closely scrutinize these situations that give rise to unanticipated overdraft fees and provided a non-exhaustive list of examples of such practices that warrant scrutiny, including unanticipated overdraft fee assessed through APSN with intervening debit transaction and unanticipated overdraft fee Assessed through APSN by a financial institution using available balance for fee decision and not the actual (ledger) balance.
To read the Consumer Financial Protection Circular 2022-06, please click here.
Surprise Depositor Fees
When a consumer deposits a check that bounces, banks sometimes charge a fee to the depositor. However, a person trying to deposit a check has no idea or control over whether the check will clear or has the ability to verify with a financial institution that there are sufficient funds in the check issuer’s account for the check to clear prior to depositing the check. Financial institution policy may then charge a fee to the depositor consumer for the returned deposited item, in addition to any non-sufficient fund fees that the originating bank may charge the originating customer. Collectively, the financial institutions involved in this transaction would cash in from their customers. The CFPB released a bulletin that focuses on returned deposited item policies that indiscriminately impose fees in circumstances where the consumer does not know the check would be returned and not blanket returned deposited item policies targeted to address patterns of behavior indicative of fraud or other circumstances where the consumer reasonably should have anticipated that the check would be returned. The bulletin cited that blanket policies of charging returned deposited item fees to consumers for all returned transactions irrespective of the circumstances of the transaction or patterns of behavior on the account are likely unfair and these fees cause substantial injury to consumers. The CFPB notes that it is unlikely that an institution will violate the prohibition if the method in which fees are imposed are tailored to only charge consumers who could reasonably avoid the injury. For example, if a depository institution only charges consumers a fee if they repeatedly deposit bad checks from the same originator, or only charges consumers a fee when checks are unsigned, those fees would likely be reasonably avoidable.
To read the Compliance Bulletin, please click here.