CFPB Overdraft Inquiry

Today, the Consumer Financial Protection Bureau (CFPB) issued a Notice and request for information into the impact of banks’ overdraft practices on consumers. The inquiry will look into whether banks are reordering customers’ debit-card charges to maximize overdraft fees. Reordering transactions can double or triple penalties. The practice has been the target of several class-action lawsuits against the nation’s biggest banks. In Gutierrez v. Wells Fargo Bank, NA, 730 F. Supp. 2d 1080 (2010), US District Court Judge William Alsup for the Northern District of California ordered Wells Fargo to return $203 million in overdraft fees to customers whose transactions were reordered. Earlier this month, JP Morgan Chase agreed to pay $110 million to settle litigation on overdraft fees for checking accounts. Last November, Bank of America agreed to pay $410 million without admitting liability to settle an overdraft lawsuit brought by its customers. See In re Checking Account Overdraft Litigation Order of Final Approval of Settlement. The CFPB’s inquiry also will focus on bank overdraft policies, how they market the plans, and their impact on low-income and young consumers. The agency will solicit feedback from the public. Consumers complain that withdrawals of as small as $3 result in penalties as high as $37.

The CFPB said it is seeking information on how prevalent the practice remains and how it affects consumers. It is also concerned about a 2008 FDIC report that found that 9 percent of checking account customers made up about 84 percent of overdraft charges, suggesting that the fees were concentrated among low-income customers. CFPB Director Richard Cordray said in remarks earlier this week that the agency hopes to educate consumers about the overdraft rules with a campaign called “What’s your overdraft status?” and that that the CFPB has developed a “penalty fee box” that would appear on checking account statements to help consumers understand any overdraft charges.

Researchers at Brooklyn Law School can use CCH’s Intelliconnect platform to access the Consumer Financial Protection Bureau Reporter, a comprehensive resource covering the federal laws and regulations governing consumer financial protection and the Consumer Financial Protection Bureau, with practice commentary and analysis by Ralph C. Ferrara. The reporter provides the full text of the Consumer Financial Protection Act and the consumer laws over which the Bureau has regulatory authority, as well as the regulations of the Bureau. It has explanations that discuss the enumerated consumer laws, with case annotations included. In addition, the reporter provides the full text of consumer financial protection court opinions, pertinent agency issuances and related materials, Bureau rulemaking proposals and adoptions, and a list of articles.

On Friday, March 2, 2012, the Brooklyn Journal of Corporate, Financial and Commercial Law is hosting a Symposium: The CFPB After a Year.