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Nation’s Consumer Watchdog Declares War on Overdraft Fees

The head of the Consumer Financial Protection Bureau pledged Wednesday that the consumer watchdog agency would be going after banks that abuse overdraft fees, and it is looking for ways to make it easier for unsatisfied customers to switch banks.

“Banks, especially big banks, continue to rely on overdraft and non-sufficient funds fees as a major source of revenue,” CFPB Director Rohit Chopra said in a conference call with reporters. “Rather than competing on transparent, upfront pricing, financial institutions are still hooked on exploitative junk fees that can quickly drain a family’s bank account.”

The agency estimated that overdraft fees ballooned to $15.47 billion in 2019, dwarfing other fee revenue such as account maintenance and ATM fees. The three biggest banks in the country — JPMorgan Chase, Wells Fargo and Bank of America — accounted for roughly 45% of the total.

Consumer advocates have long decried overdraft fees, calling them abusively high (averaging around $35 a pop) and accusing banks of using sneaky practices — such as manipulating the way they process payments — to rack up the most fees.

“The families who are getting hit hardest with these complicated charges are often the ones who can least afford them,” Chopra said.

He said the CFPB would be taking action against large financial institutions “whose overdraft practices violate the law.”

And he said he had instructed the agency’s bank examiners to prioritize examinations of banks that rely heavily on overdraft fees.

“The CFPB will be escalating its scrutiny of banks overly dependent on overdraft fees,” he said. “The bottom line is that we will make sure that this market is upfront, not underhanded.”

Chopra noted that some big banks recently have voluntarily taken steps to reduce overdraft fees. Capital One, among the top 10 banks in the country, on Wednesday announced that it would be eliminating all overdraft and NSF fees for consumers starting next year. The McLean, Virginia-based bank said the move would cost it an estimated $150 million in lost revenue per year.

Locally, market leader PNC Bank this summer rolled out its “Low Cash Mode” account to electronic “Virtual Wallet” customers that helps avoid overdraft fees by alerting them to low or negative balances and allowing them to put more money into the account or reverse payments that triggered the overdraft. At the time, PNC CEO Bill Demchak called the industry’s reliance on overdraft fees “unsustainable.”

Citizens Bank, another top bank in the state, began offering a similar overdraft-avoiding service — called Citizens Peace of Mind — for all of its checking accounts in October.

While some industry observers expect the trend toward voluntarily reining in overdraft fees will continue, “the CFPB is not holding out hope that this will happen quickly,” Chopra said.

“We will be considering a range of regulatory interventions to help restore meaningful competition to this market rather than allowing large institutions to rely on junk fees forever,” he said.

He said the agency would be looking for ways to use technology to help families dissatisfied with their bank to go elsewhere.

The way it is now, switching bank accounts isn’t easy, he said. “It involves new account numbers, new debit cards, updating direct deposit, updating auto-debits and much more.”

If switching banks can be made easier, “it will be harder for banks to trap customers into an account for the purpose of fee harvesting,” Chopra said.

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