The CFPB published guidance Tuesday to help federal and state consumer protection enforcers stop financial institutions from charging overdraft fees based on “phantom” opt-in agreements. The bureau defines this as when financial institutions claim they have customers’ consent to charge overdraft fees but there is no proof consent was obtained.
“The CFPB’s latest messaging on overdraft fees shows their enforcement approach is guilty until proven innocent. This is unfair to the legitimate financial institutions like credit unions that offer this opt-in service to members in dire financial situations,” said America’s Credit Unions President/CEO Jim Nussle. “Credit unions serve consumers from all walks of life – including those who are struggling through tough times. The CFPB needs to recognize that programs like overdraft are clearly disclosed by credit unions to their members and can be the difference in someone’s ability to put food on the table.”
Financial institutions cannot charge overdraft fees on ATM and one-time debit card transactions unless consumers have affirmatively opted in under the Electronic Fund Transfer Act.
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, financial institutions can either decline the transaction or let it go through by extending an overdraft loan.
Consumers must opt into overdraft services before accessing the program, and that opt-in must disclose any fees up front. The CFPB notes “consumer protection law enforcers should assume consumers have not opted into overdraft unless the banks can prove otherwise.”
