CFPB’s planned overdraft crackdown could signal more pro-consumer efforts on the way

The news: Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra announced the regulatory body is planning a “range of regulatory interventions” following new CFPB research that showed banks still heavily rely on overdraft fees.

More on the data: Overdraft and NSF fees made up close to two-thirds of banks’ fee revenue as of 2019, according to the CFPB.

  • Three of the country’s largest financial institutions (FIs)—Bank of America, JPMorgan Chase, and Wells Fargo—generated 44% of the total overdraft fees that year by banks with assets greater than $1 billion.
  • The bureau also pointed to previous research that showed just 9% of consumer accounts shouldered almost 80% of total overdraft revenue for banks.

The bigger picture: While overdraft charges have remained a key profit driver for FIs across the US, banks are moving away from or abandoning the controversial practice:

  • Capital One recently announced it was no longer charging consumers overdraft or NSF fees on their accounts—foregoing $150 million in annual revenue.
  • Ally revealed in June that it was ditching overdraft charges after suspending them due to the pandemic.
  • Regions Bank said in October that it was rolling out a checking account without overdraft fees in exchange for consumers paying $5 per month.
  • TD Bank announced in June that it would offer a checking account without the fees in exchange for paying $4.95 per month.
  • Bank of America said in September that it would reduce consumers' exposure to the fees by offering them a tool to set up a prioritized list of outside accounts from which they could draw funds.
  • PNC launched its Low Cash Mode offering in April, letting customers control the processing timing of certain debit transactions.

Looking ahead: The CFPB’s warning of a crackdown on overdrafts is a step toward returning control and choice to consumers—and that could mean focusing on more than just overdrafts.

In addition to calling out banks for getting “hooked on overdraft fees to feed their profit model,” CNBC reported that Chopra voiced support for the bureau using technology to make it easier for customers to switch banks.

  • Currently, customers in the US who want to move to a new financial institution must follow a lengthy series of steps they likely don’t have the time or patience for.
  • Should the CFPB help streamline the account-switching process, banks whose revenue depends heavily on overdraft fees risk losing many customers: 61% of US Adults said they were somewhat or very likely to change their primary bank to avoid monthly service, overdraft or other related fees, according to data cited in Civicscience’s company blog.