2022 Bank Fees and Overdrafts

Some Regions Bank customers will get refunds after the Consumer Financial Protection Bureau (CFPB) found the bank had imposed “surprise” overdraft fees after telling consumers they actually had sufficient funds at the time of the transactions.

According to the CFPB, the fees were imposed on customers making ATM and debit transactions from August 2018 through July 2021. The bank was ordered to pay $50 million into the CFPB’s victims' relief fund and to refund at least $141 million to customers.

“Regions Bank raked in tens of millions of dollars in surprise overdraft fees every year, even after its own staff warned that the bank’s practices were illegal,” said CFPB Director Rohit Chopra.

“Too often, large financial firms make a calculation that continuing to break the law is more profitable than following it. We have more work to do to change this mentality.”

Regions Bank has 1,700 brick-and-mortar branches and 2,000 ATMs in 16 states, mostly in the Southeast and Midwest. 

Financial regulators have repeatedly warned banks about charging overdraft fees in these types of cases. The regulator claims top executives at the bank knew about the practice and could have ended it years ago.

Crackdown on ‘junk’ fees

The CFPB order came in the same week that the Biden administration declared war on so-called junk fees -- hidden cancellation charges and convenience fees that are sometimes added to some goods and services.

“Unnecessary hidden fees, known in the parlance as ‘junk fees,’ are hitting families at a time when they can’t afford it,” Biden said in remarks at a meeting of the White House Competition Council. “It hits middle- and working-class families especially hard.”

Biden says federal regulators will investigate companies that tack on these fees without making them transparent, such as termination fees some cellphone carriers charge customers who are changing providers. Biden expects the Council to come back with a plan to reduce or eliminate the fees.

This week the U.S. Department of Transportation said it would require airlines to disclose upfront if they charge a rebooking fee for canceled flights.

“You know, it could have cost you up to $200 to have to rebook a flight, and that’s $200 you can pay your monthly bills or your electric bill or whatever for it with,” Biden said. 

The overdraft fee bonanza may be coming to an end for U.S. banks. When the Consumer Financial Protection Bureau (CFPB) raised its voice about fees earlier this year, the message was apparently heard loud and clear. On Thursday, Bank of America demonstrated proof of the agency’s action.

The company announced that it has made a sizable, customer-favoring shift for its 35 million consumer checking account holders. The bank said fees related to overdraft services declined by 90% in June and July when compared to the same period in 2021. June and July were the first two months after sweeping changes related to these services were implemented.

That comparison is hefty, too. According to ConsumerAffairs' research, Bank of America's overdraft fees accounted for 1% of its revenue in 2021. One percent may seem insignificant, but it comes out to close to $320 million. Now, for the second quarter of 2022, consumer client overdraft fees made up less than 0.4% of the company’s total revenue.

Things will likely get even better if we’re to take Bank of America at its word. In making its announcement, the company said new solutions and enhanced programs introduced over the last decade will reduce consumer overdraft fees by 97% from 2009 levels by next year.

“For more than a decade, Bank of America has invested heavily in supporting our clients’ financial health through industry-leading solutions and ongoing enhancements to our overdraft services,” said Holly O’Neill, President of Retail Banking, Bank of America. “Our scale, client focus and technology investments have allowed us to adopt policies and innovate in ways that help clients manage their everyday finances and liquidity needs on their own terms, while also delivering for our shareholders.”

Fees aren’t going completely away

Bank of America customers should note that the company is not completely eliminating overdraft fees; it's just reducing the amount that consumers have to pay. As part of its recent actions, customers now only pay $10 for overdraft fees instead of $35. 

However, customers can get around those reduced fees through Bank of America's SafeBalance checking account. The program costs $4.95 each month, with exceptions for students, people under age 18, or customers who are enrolled in the bank’s Preferred Rewards program. 

If you’re someone who takes advantage of payday loans, then you should double-check to make sure you're taking advantage of the payment plans that are offered by lenders.

In particular, the Consumer Financial Protection Bureau (CFPB) says payday loan borrowers should take better advantage of extended payment plans. The agency says those who don't could be paying more in rollover fees.

“Our research suggests that state laws that require payday lenders to offer no-cost extended repayment plans are not working as intended,” said CFPB Director Rohit Chopra in announcing the agency’s recent findings. “Payday lenders have a powerful incentive to protect their revenue by steering borrowers into costly re-borrowing.”

What payday borrowers need to know up front

Out of the 26 states where payday lending is allowed, 16 states require payday lenders to offer no-cost extended payment plans – a scenario in which a borrower can repay just the principal and fees already incurred and split the remaining balance over several months. A borrower’s other, costlier option if they do not repay their loan on time is to rollover their loan. When the borrower chooses that route, their loan is renewed for another pay-period and the borrower is charged an additional payday loan fee.

The CFPB thinks consumers should know that the upsides of a no-cost extended payment plan can be substantial. As an example, the agency says a borrower would pay $45 in rollover fees every two weeks until they pay off the principal and fees on a typical $300 loan. That means a borrower would have paid $360 in rollover fees after four months while still owing the original $300. 

However, if the same borrower chose a no-cost extended payment plan when the first rollover was triggered, they would only have to pay $345 over an extended period. In a previous study, CFPB researchers found that most payday loans were made to borrowers who use the rollover option so many times that the accrued fees were greater than the original principal.

Ask questions

When taking out a payday loan, there are several things a borrower should check. One of them is the lender’s disclosures. As they say, the devil is in the details, and the legalese in those disclosures may reveal some points that the lender may not offer when asking the borrower to sign on the dotted line. 

One thing that should be in the disclosure is the borrower’s right to choose an extended payment plan when they're signing off on the loan. The CFPB says the contract language should spell out details of an extended payment plan, such as the right to repay the loan in several installments and that there will be no additional fees charged for an extended payment plan.

Other things to look for in a contract include details on "usage rates," whether or not the borrower is required to enroll in credit counseling to be eligible for an extended payment plan, and information on how many times a consumer can use an extended payment plan. As an example, Utah law restricts a consumer to one extended payment plan per 12-month period.

Can’t pay off your payday loan?

If worse comes to worst and borrowers can’t make good on their payday loan or are not given the option of an extended payment plan, the CFPB says there are some things they should do.

For example, you may wish to speak with a credit counselor in your area or contact a legal aid attorney to discuss your options. If you are a service member, contact your local Judge Advocate General’s (JAG) office to learn more. You can also use the JAG Legal Assistance Office locator to find help or ask your installation financial readiness office for information.

For more information about payday loan companies, ConsumerAffairs has created a guide that is available here. 

ConsumerAffairs recently noticed comments regarding “cost recovery fees” that were issued by Brinks Home Security in reviews posted by Alan, of Duncan, S.C., and Paul, of Ft. Lauderdale, Fla. 

Alan claimed that Brinks used a cost recovery fee “as a way to raise prices.” He noted that his monthly bill from Brinks is $25.00 and that his cost recovery fee is now over $6.00 per month. Paul’s concern was that since he was on a month-to-month contract with Brinks, his rates kept going up. When the cost recovery fee was added last year, his rate went up even higher.

Alan’s and Paul’s concerns raised a question about how these cost recovery fees work, so ConsumerAffairs decided to research the legality of the fees and what options exist for consumers who have to pay them. Here’s what we found out.

Are cost recovery fees legal?

In Alan’s and Paul’s case, Brinks has the right to charge cost recovery fees. While they might not sit well with consumers, those fees are not illegal. In fact, they’re used for everything from vehicle rentals to fisheries. The bottom line is this: companies and service providers are allowed to cover any fee that is imposed on them such as regulatory fees for operating their service. 

In Brinks’ situation, a company spokesperson told ConsumerAffairs that the cost recovery fees that it charges customers help offset things like the company’s out-of-pocket costs to keep its technology up to par. 

“By the end of 2022, the company is estimated to spend ~$125 million on 2G and 3G technology upgrades as cellular companies eliminate previous generation technologies. The cost recovery fee is charged by the company to fairly recoup a portion of such fees,” a company spokesperson told us. 

Like Brinks, companies that charge cost recovery fees tend to disclose them on their websites. The amount of the fee depends on the service provider, where the consumer lives, and the level of service or plan a customer signed up for. As an example, AT&T charges a $1.50 fee per line in Hawaii to cover some of the costs from government-imposed fees. 

Are there alternatives to paying those pesky fees?

ConsumerAffairs asked consumer and money-saving expert Andrea Woroch if there’s a way consumers can either avoid cost recovery fees or find an alternative where the fees have less of an impact on their bill. She said doing consumers should do their research before signing up with a company to give themselves the best deal.

“You can find details about cost recovery fees in your contract or on the service provider's website. Keep in mind, comparing rates with different service providers can help you spend less on this fee. Negotiating may also help recover some of these fees, but the fastest way to stop wasting money on this fee is to lower your overall bill,” Woroch told ConsumerAffairs. 

Woroch cautioned consumers to keep in mind that fees are often charged on a percentage of the overall bill. She suggests that consumers scrutinize their plan (cable, wireless, home security systems, etc.) to figure out if they’re actually using everything they’re paying for. If they’re not, they should consider switching to a lower-cost option. 

“For instance, you can now get premium wireless service for just $15 a month through an online-only carrier like Mint Mobile-- with less overhead, they can pass on savings to the consumer,” Woroch said. “Switching to a cheaper option can help you spend less on these cost recovery fees!”

Asking for some help might get you some

To Brinks’ credit, the company does a thorough job of responding to reviewer complaints on ConsumerAffairs. In both Alan’s and Paul’s situations, the company asked them to reach out to discuss the matter further. As Alan found out, Brinks was helpful in resolving his issue. 

“Brinks agreed to honor the monthly price, which was agreed a year ago, until the end of my contract (2 more years),” he told ConsumerAffairs in an email. “I still have not received a written explanation of the ‘cost recovery fees’ but the seemingly random pricing increases was my main concern and this will not happen in my case.” 

In response to Paul’s review, Brinks stated that it “takes all complaints seriously, and we appreciate you bringing this to our attention.” A representative asked Paul to email the company with details about his experience and that they looked forward to speaking with him.

Brinks’ response is proof that asking for help doesn’t hurt, but it’s no guarantee that every company will respond in a similar fashion. Still, writing a review starts the process of possibly achieving a win-win result for both parties.

Overdraft fees and non-sufficient fund fees (NSF) are big business for banks, generating upwards of $15 billion a year. However, these fees come at a big cost to the average consumer, and the Consumer Financial Protection Bureau (CFPB) has spent much of the last year trying to address that problem.

Changes have come slowly, but banks are starting to respond to the CFPB's concerns. After the agency got TD Bank to pay $122 million to settle charges related to overdraft fees, banks began making changes to their overdraft programs. Ally Bank and Capital One Bank even went as far as completely dropping their overdraft fees altogether. 

What consumers can expect from the CFPB’s actions

The CFPB recently outlined some of the changes it says consumers can expect from banks due to its efforts:

• Eliminating NSF fees charged when transactions bounce;

• Reducing the size of overdraft fees;

• Reducing the number of overdraft/NSF fees that banks can charge consumers each day;

• Increasing the amount that an account can go negative before charging an overdraft fee;

• Providing a grace period for consumers to bring their account back to positive before charging an overdraft fee. Wells Fargo Bank, JP Morgan Chase, PNC Bank, US Bank, and Fifth-Third are among the banks now offering a “next day” grace period.

• Eliminating “extended” or “sustained” overdraft fees charged when the account is not brought back to a positive balance after a certain period of time.

“Collectively these changes represent an encouraging step by some banks in the right direction,” the CFPB said. “We are continuing to monitor these developments to better understand the impact of these changes, and to work to ensure that banks continue to evolve their businesses to reduce reliance on overdraft and NSF fees.”

To help consumers gain a clearer insight into what their bank is doing in response to the CFPB’s efforts, the agency has prepared a table that provides a snapshot of large banks’ overdraft and NSF practices. 

Consumers cite problems with processing

While the CFPB is continuing to make progress on NSF and overdraft fees, it's not safe to assume that everything is rosy or simple on the consumer side yet.

Alani, from Trenton, N.J., recently told ConsumerAffairs about their experience with Bank of America's overdraft fee process. They say the company still has a lot of wrinkles to iron out.

“So they just started the no overdraft fee… Now all of sudden it seems like things are taking a longer time to process. Even though I see it showing up it technically didn’t clear yet. One day it’s 500$. The next I can be overdraft-300,” Alani wrote in a ConsumerAffairs review. “So something that was shown as a transaction a few days ago in your account don’t actually come out of [the account] till a few days later."

Is overdraft protection worth it?

Overdraft protection is an add-on that many banks offer to their customers to help alleviate some of the threat that NSF and overdraft fees present. However, one expert says consumers need to pay extra attention to how that protection actually plays out.

"While this may appear to be a wonderful thing, it has a cost. Depending on the bank, overdraft fees can range from $20 to $40," Lyle Solomon, a financial expert and consumer bankruptcy attorney, told ConsumerAffairs. "Overdraft protection, like overdraft fees, is a deception. Banks would not need to levy overdraft fees if customers were never permitted to consume money they didn't have."

Solomon recommends that consumers set up account alerts to keep track of their balances and stay on budget. Setting up email, SMS, or mobile push alerts on a bank's app or website can also help you get up-to-date information on your accounts.

"Most banks, for example, can alert you if your account balance falls below a specific threshold, if transactions, transfers, or withdrawals exceed a given point, or if questionable transactions happen," Solomon stated. 

Ken Tumin -- a banking expert with DepositAccounts.com and a LendingTree advisor -- suggests that consumers also link their checking and savings accounts and look into an "overdraft transfer" option.

"If they overdraw from their checking account, an automatic overdraft transfer is done in which the amount to cover the overdraft is automatically transferred from the savings to the checking account," Tumin told ConsumerAffairs.

The Consumer Financial Protection Bureau says Americans have been forced to cough up billions in junk fees every year, and it wants to do something about it.

The biggest problem the agency has with those pesky little “service charges,” “resort fees,” “order processing fees,” etc., is that when companies charge excessive fees on top of the upfront price, it’s difficult or impossible to comparison shop based on actual cost.

Fortunately, the CFPB has some regulatory power and is embarking on a new mission “to ensure banking and lending markets are fair, transparent, and competitive for everyone.”

What the CFPB is going to tackle

Many consumers have gotten used to fees being a part of their everyday life. They take many different forms, including fees for late penalties, overdrafts, returns, using an out-of-network ATM, money transfers, and more. However, the CFPB says these fees are often baffling and unclear to many people.

The agency has pegged five areas that it wants to investigate further -- and officials say they will be making changes to favor consumers where possible.

Account maintenance fees. Fees for not having enough money in the bank -- also called “account maintenance fees” -- are the CFPB’s primary target.

“The cost of signing up for a bank account is generally advertised as account maintenance fees, which can vary substantially from bank to bank,” the agency said. “However, the vast majority of fee revenue banks make from deposit accounts comes from back-end penalty fees for overdrafts or from not having enough funds to cover a transaction.”

CFPB researchers estimate that the overall market revenue from overdraft and NSF fees was $15.47 billion in 2019.

Late fees. Companies – particularly credit card companies – owe a lot to late fees. Out of the $23.6 billion in fees charged by card issuers in 2019, $14 billion came from late fees alone.

Fees to pay your bill. Another added revenue source for companies comes in the form of fees to accept payments on your bill, such as the ability to transfer payments, conduct a foreign transaction, or even pay bills online. These are sometimes called “convenience fees."

Prepaid card fees. Many unbanked consumers use prepaid cards to buy things and pay for services. The CFPB is fine with prepaid cards as a transaction source, but it isn't fine with consumers having to pay additional or unadvertised fees just for using them.

Closing costs and home buying fees. Historically, homeownership has been a great way to build personal wealth. However, the CFPB says fees associated with closing on a home, such as document preparation or title insurance, have got to be addressed.

“[They] can act as a significant barrier to families trying to buy a home or refinance and can significantly cut into household equity,” the agency said.

To help it in its crusade, the CFPB is asking consumers to share their stories about junk and service fees. The agency is accepting comments here.

Bank of America and Wells Fargo are the latest banks to reduce their fee structures. Announcing significant changes to its overdraft services, Bank of America said it plans to eliminate non-sufficient funds (NSF) fees beginning in February.

At the same time, the bank said it would reduce overdraft fees from $35 to $10 beginning in May. The company will also eliminate the transfer fee associated with its Balance Connect for overdraft protection service. The bank estimates that it will reduce revenue from overdraft fees by 97% from 2009.

"Over the last decade, we have made significant changes to our overdraft services and solutions, reducing clients' reliance on overdraft, and providing resources to help clients manage their deposit accounts and overall finances responsibly," said Holly O'Neill, president of Retail Banking, Bank of America. 

Wells Fargo said it plans to limit overdraft-related fees and give customers more flexible options to meet their personal financial needs. The changes include earlier access to direct deposits, a 24-hour grace period before incurring any overdraft fees, the elimination of several fees, and a new, short-term loan. 

“Core to Wells Fargo’s evolution is making sure we stay focused on our customers, first and foremost,” said Mary Mack, CEO of Wells Fargo Consumer and Small Business Banking. “The enhancements we’re announcing add to changes we’ve made previously and give our customers more choice and flexibility in meeting their needs.”

Customers may welcome the news

Kristine, of Gardnerville, Nev., is one Bank of America customer who will likely be happy to hear the news. She told us her husband deposited a check in their Bank of America account on Dec. 30 and was hit with a fee for doing so.

“My online Bank of America account stated funds from this deposited check would not be available for withdrawal until January 5, 2022, but would cover any items posting December 30th and beyond,” Kristine wrote in a ConsumerAffairs review. “No problem, I have had this happen in the past where I wasn’t able to withdraw funds but any pending or electronic items were covered. The next day, I get an email stating I was charged two $35 nonsufficient fund fees, and my house payment was returned, along with a $500 credit card payment!”

The Bank of America policy change taking effect in February would have eliminated the two fees. Also in February, Bank of America will make it impossible for customers to overdraw their accounts at ATMs.

Capital One scraps overdraft fee

Bank of America and Wells Fargo are not the first major national banks to eliminate some fees. In early December, Capital One announced that it was eliminating overdraft fees on all of its financial products.

Bank customers’ complaints about overdraft fees led to changes in banking regulations more than a decade ago. When customers overdrew their accounts, banks honored the purchase but assessed a $30 fee for each transaction.

Under current rules, customers must “opt in” for overdraft protection. Otherwise, a debit card transaction with insufficient funds is denied and there is no fee involved. As part of its change, Capital One is providing free overdraft protection with no fee.