Bank Fees and Consumer Protection

Chase Bank may have set sail into a hurricane with its plans to begin charging about 80 million customers for the overdrafts and other checking services that they now enjoy for free.

“The changes will be broad, sweeping, and significant,” Chase CEO Marianne Lake said, noting that those most affected will be individuals who can least afford the additional expenses.

Chase, the nation's largest consumer bank, is apparently trying to get back at the Consumer Financial Protection Bureau (CFPB), which wants to cut the overdraft fees that banks charge when customers overdraw their accounts.

The overdraft fees bring in billions of dollars a year, which consumer advocates say more than covers the banks' costs to cover overdrafts for a few days.

Chase may still get by with it but it may regret doing so in an election year, making itself a target for elected officials trying to win voter approval for their consumer protection efforts.

Senators Elizabeth Warren (D-MA) and Chris Van Hollen (D-MD) lost no time responding to Chase's plans. In a letter, the two demanded the bank scrap its plans

“JPMorgan Chase’s potential imposition of new costs on its customers in response to legal and long-overdue efforts to limit abusive fees—at a time when the then bank is making record profits and funneling those profits straight into the pockets of its executives —is outrageous,” the senators wrote. 

Trying to close a loophole

The controversy traces back to January, when the CFPB unveiled a plan to close a loophole that exempts overdraft charges from the Truth in Lending Act. 

"Decades ago, overdraft loans got special treatment to make it easier for banks to cover paper checks that were often sent through the mail," said CFPB Director Rohit Chopra in January. "Today, we are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting machine."

The CFPB's proposed rule would apply to the 175 largest banks in the country. These institutions typically charge $35 for an overdraft loan, even though the majority of consumers’ debit card overdrafts are for less than $26, and are repaid within three days.

Approximately 23 million households pay overdraft fees in any given year. The CFPB estimates that this rule may save consumers $3.5 billion or more in fees per year. The potential savings would translate to $150 for households that pay overdraft fees.

2023 was JPMorgan Chase's most profitable year in history, raking in $49.6 billion, while funneling $30 billion to its wealthy investors through a stock buyback program.

While Chase may succeed with its plan, consumers should know that there are thousands of smaller banks and credit unions that offer free checking and do not charge excessive overdraft fees. They generally offer nearly all of the services of larger banks at less cost.

Within the last decade, American businesses discovered that subscription revenue is among the best. Once the customer is signed up, there is little to no marketing cost to keep the money flowing.

From the consumer’s standpoint, subscription fees aren’t a budget buster since many are often $10 or less each month. But consumers who sign up for multiple subscriptions soon find that these fees quickly add up.

When he leased a new Tesla at a monthly cost of $511, Chris Kornelis started looking for things he could eliminate from his budget. Writing in the Wall Street Journal, Kornelis said he focused on eliminating subscriptions – including his cable TV service – until he had covered the monthly lease payment.

“Paying for cellphone service is like paying the water bill: something I did without protest and never really thought twice about,” Kornelis wrote. “But I’d started to get curious about the ads I’d been seeing for low-cost services like Boost Mobile and Cricket Wireless.”

He said he ditched AT&T, that was costing $128 a month for two lines, and picked up Mint Mobile at a cost of about $65. Before long, he had carved $511 from his budget.

 “If there is a downside to making this move, I have yet to notice it,” Kornelis wrote.

Unused streaming services

With inflation eating into consumers’ buying power over the last three years, cutting back on monthly subscription costs could provide some breathing room. Streaming services may be the first place to look.

A survey by Bango, an enterprise software provider, found that the typical consumer spends nearly $1,000 per year on streaming service subscriptions. That’s about $80 a month, which could buy a lot of groceries.

These costs will only go up in the future. Netflix and many other streaming services have raised subscription rates, justifying it by saying they need additional capital to invest in programming.

Meanwhile, there is a lot of free content available, supported by commercials. For example, the Roku Channel is a free streaming service provided by Roku, which offers a wide selection of content, including over 350 live TV channels and 80,000 movies and TV shows. 

Free content

Other free services include:

• Pluto TV: This service provides a mix of live and on-demand content, including movies, TV shows, and channels designed to replicate the experience of traditional live TV.

• Freevee: Owned by Amazon, Freevee offers a range of movies and TV shows without a subscription fee. It was previously known as IMDb TV and is available in the U.S., UK, and Germany.

• Crackle: Crackle is known for its selection of original content, classic shows, and a variety of movies. It is a free service that does not require users to purchase the content.

• Vudu: While Vudu is primarily known as a service for renting and buying digital movies and TV shows, it also offers a selection of free content P.

• Hoopla and Kanopy: These services are free for users with a library card from a participating library. They offer a wide range of movies and some TV shows.

Streaming services aren’t the only subscriptions that could be weighing down your budget. Consumers often sign up for credit monitoring and other services, and then forget about them.

There are several available apps that can find these forgotten subscriptions and make it easier to cancel them. Subscription Stopper and Manger is a free app whose maker claims it to be “the all-in-one app designed to effortlessly manage and cancel subscriptions.”

The banks and the credit card companies can’t say they weren’t warned. Only six weeks after the CFPB made it known that it wasn’t happy with the late fees they were charging consumers, it has officially lowered the boom.

The agency is finalizing a rule that will reduce typical late fees from a $32 average to, in most cases, $8. If things go the way the CFPB postures the move, American families who’ve been subjected to these fees will save an average of $220 a year.

Crawling from the wreckage

The genesis of this issue goes back more than a decade ago when Congress voted to pass the CARD Act to clean up widespread abuses in the credit card industry – one of those abuses being excessive penalties like late fees.

In the law, Congress allowed credit card companies to charge “reasonable and proportional” fees to incentivize on-time payment and cover the costs associated with late payments. 

But the responsibility of regulating the law was squarely on the shoulders of the Federal Reserve Board of Governors and it failed miserably when it gave financial institutions some wiggle room on what was “reasonable and proportional” as long as they stayed below a certain threshold. It was that loophole that got us here and the one the CFPB decided to close.

One big loophole equals tens of thousands of complaints

The spillage was over the top, to say the least. In ConsumerAffairs' analysis of CFPB complaints, there have been 12,330 about credit card or prepaid card fees over the last three years. 

Consumers paid for that dearly, too -- on average, charges of $138 per year per card, and many consumers have multiple credit cards.

The status quo makes late fees an irresistible revenue stream. Just ask Mandora of Mt. Vernon N.Y., who claimed in a review of Credit One Bank on ConsumerAffairs that when their payment was due on the 28th, they did what seems fair -- they paid it on the 28th.

But Mandora says paying on time wasn't good enough for Credit One.

"They charged me a $30 late fee because they said I did not pay it before 5 o'clock p.m., I paid an early payment on July 3rd of 130.00. My payments are only 30.00. They said it didn't count for July because the billing cycle starts after the 5th of July and that I would still owe July 28th payments. How can they do this to people and get away with it?"

'What's in your wallet -- more fees?'

What credit card providers chalk up the most fee-related complaints at the CFPB? Topping the list is Capital One.

Next is Bread Financial Holdings, Inc. You might not recognize that name, but it provides card programs for retail brands such as Ulta, Victoria’s Secret, the NFL, AAA, Academy Sports, Ann Taylor, Arhuas, Big O Tires, Bealls, Burlington, BuyBuyBaby, DSW, Dell, Forever 21, J. Crew, IKEA, Eddie Bauer, Lexus, Lane Bryant, Land's End, Petco, Toyota, Wayfair, and Zales.

Coming in third is Synchrony Financial, another sort of anonymous lender, but like Bread, it has partner cards in place with lots of big brands: Ashley Furniture, MattressFirm, Dick's Sporting Goods, Walgreens, Rheem, HSN, Crate & Barrell, and others.

When will all of this officially be in the consumer’s favor?

The effective date of the final rule will be 60 days after publication of the rule in the Federal Register. However, the CFPB encourages consumers not to wait if they sense their bank or credit card company is overstepping their bounds, especially when it comes to fees.

If that’s you, your chances are good that you'll receive either a full explanation from the bank/credit card company, which happens 67% of the time, or monetary relief, which 27% of complaining consumers receive.

You can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Just like ninjas in the middle of the night, overdraft fees are sneakily draining hundreds of dollars from hardworking families each month.

But if you ask anyone at the White House or the Consumer Financial Protection Bureau (CFPB), these aren't harmless pranks perpetrated by banks. Instead, they’re burdening Americans already on tight budgets.

According to the administration, overdraft fees are nothing more than exploitation and come what may, they’re taking yet another shot to limit the practice.

On Wednesday, the CFPB proposed a rule to rein in excessive overdraft fees – a gambit that would close a loophole that exempts overdraft lending services in the Truth in Lending Act and other consumer financial protection laws. 

The CFPB has been busy trying to find the one single move that works its magic. The agency had already ordered Wells Fargo to pay an unprecedented $3.7 billion for overdoing it with overdrafts. It even tried to play nice and wrote up guidance so banks could avoid fines by doing the right thing. Still, nothing happened. 

As things stand now, consumers are paying nearly $9 billion in overdraft fees – more than $2.3 billion to just 10 large banks in 2023.

What would change

As things stand now, many of the larger banks commonly charge about $35 per overdraft. Those banks include JP Morgan/Chase, Wells Fargo, Truist, and Regions Bank.

Under the proposal, large banks could still charge overdraft fees, but not anywhere near $35, and only if they agree to comply with lending laws, including disclosing any applicable interest rate.

What appears to be preferable in the CFPB’s mind is a reasonable fee to recoup their costs at an established benchmark. However, they’d have to show their data and prove their reasons for the fee.

The agency said it’s flexible on the fee that banks choose and proposed benchmarks of $3, $6, $7, or $14 -- less than half of what customers are paying now.

U.S. Public Interest Research Group's (PIRG) consumer campaign director Mike Litt said his group fully supports the proposed rule.

“It’s long overdue to rein in overdraft fees," he said. If the CFPB’s proposed rule takes effect, overdraft fees will be more reasonable and in line with the actual costs to banks."

In practice, Litt said overdraft fees have functioned as "high-cost credit," so it only makes sense to regulate excessive fees as such.