Guidance aimed at stopping banks from charging overdraft fees based on so-called “phantom opt-in agreements,” which allegedly occur when fees are charged even though there is no proof banks have consent to do so, was published Tuesday by the federal consumer financial protection agency.
The Consumer Financial Protection Bureau (CFPB) said its guidance is designed to help both federal and state consumer protection “enforcers” stop the practice.
The agency asserted that the Electronic Fund Transfer Act (EFTA) prohibits banks from charging 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,” the bureau said in a release. “In such 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 agency said consumer protection law enforcers “should assume consumers have not opted into overdraft unless the banks can prove otherwise.” The bureau asserted that it has determined 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 agency pointed to recent enforcement actions related to the “phantom opt-ins” it has taken, including: against Regions Bank for its “unintelligible and manipulative processes that resulted in unexpected overdraft fees;” a $6.2 million fine levied agasint Atlantic Union Bank for improperly enrolling customers in overdraft (among other overdraft violations); and similar actions against TD Bank and TCF National Bank.
The agency said it has taken enforcement actions when institutions have violated the EFTA’s Regulation E or engaged in related deceptive or abusive practices.
CFPB Takes Action to Stop Banks from Harvesting Overdraft Fees Without Consumers’ Consent