Banks are charging overdraft fees on ATM and debit card transactions even when they have no authority to do so, the Consumer Financial Protection Bureau (CFPB) said today.
The agency is trying to stamp out "phantom opt-ins," which occur when banks claim they have customers’ consent to charge overdraft fees but there is no proof they actually obtained that consent.
Under the Electronic Fund Transfer Act, banks cannot charge overdraft fees on ATM and one-time debit card transactions unless consumers have affirmatively opted in.
“The CFPB has found instances where banks have no evidence that they obtained consent for overdraft,” said CFPB Director Rohit Chopra. “No Americans should be hit with bank account fees that they never agreed to.”
Balance drops below zero
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. 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 has opted into overdraft services.
Consumer protection law enforcers should assume consumers have not opted into overdraft unless the banks can prove otherwise, the CFPB said. The CFPB has found that 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.
Part of the problem, the CFPB said, is that banks make it hard for consumers to know when their account has dipped to the point where an overdraft may be necessary to clear a transaction. Sometimes, consumers who frequently hover around the overdraft point are surprised when, for no apparent reason, the bank imposes an overdraft fee.
The CFPB recently took action against Regions Bank for the bank’s "unintelligible and manipulative processes" that resulted in unexpected overdraft fees.
In 2023, the CFPB ordered Atlantic Union Bank to pay $6.2 million for, among other overdraft violations, improperly enrolling customers in overdraft. The CFPB has taken similar actions against TD Bank and TCF National Bank.
The CFPB today issued guidance to help federal and state consumer protection enforcers to stop banks from charging overdraft fees based on phantom opt-in agreements.