According to a recent report by Bloomberg Law, a leading U.S. consumer watchdog is gearing up for a confrontation with financial institutions over the billions of dollars that banks garner from overdraft fees. Banks collected approximately $8.5 billion in 2021 from insufficient fund fees and certain low-balance charges. This controversial revenue stream has become a target of the Biden administration, which has put the clamp down on what it calls “junk fees”.
Officials from the Consumer Financial Protection Bureau (CFPB) have indicated privately that the regulator will likely announce its long-awaited plan to crack down on these fees in December. While the details of the plan remain confidential, the scale of the new regulations suggests that the size of the pushback from the financial industry might be significant.
Several major banks have already been subjected to regulatory scrutiny over their overdraft charges. Last year, Wells Fargo reached a $3.7 billion settlement with federal regulators over allegations of illegal overdraft charges, among other issues. Likewise, Regions Financial Corp. agreed to pay $191 million to settle a similar allegation. Amidst this backdrop, other major banks such as Capital One and Citigroup have phased out overdraft fees that could go as high as $35 per charge.
Despite this, many smaller banking institutions and credit unions still depend on these fees for their revenue. As the CFPB plan draws nearer to its announcement, the banking industry girds for what may be a major battle against regulatory intervention. While the specifics of the CFPB’s plan remain in flux, rumours suggest that asset thresholds may be included in the rule to exempt certain smaller banks and credit unions from the effects of the new policy.
Expectations concerning the direction of the regulatory initiative will likely be addressed during the upcoming hearings of the House Financial Services Committee and Senate Banking Committee. As they stand before these panels, the CEO’s of leading banks are likely to face stiff questioning concerning the status of the CFPB’s new regulatory proposals.