Wells Fargo and Regions Banks’ Overdraft Fees in CFPB Crosshairs

The Consumer Financial Protection Bureau’s enforcement actions against Wells Fargo & Co. and Regions Financial Corp. for alleged overdraft fee abuses are top of mind as the agency eyes a new crackdown, the agency’s director said.

CFPB Director Rohit Chopra told senators Thursday that the agency hasn’t yet determined whether banks’ overdraft protection programs will be covered by federal financial disclosure rules, and he declined to provide a timeline for releasing the overdraft fee proposal. Bloomberg reported Tuesday that the CFPB plans to unveil its heavily anticipated proposal in early December.

Chopra stressed that the proposal is intended to ensure that consumers are protected from needlessly harmful practices, such as paying multiple overdraft fees for a single over-extension of their bank accounts. The agency isn’t seeking to eliminate a needed source of liquidity for Americans, he said.

“Borrowing is really how families and businesses survive. So I do want to assure you, there’s not an effort to eliminate or make that need not able to be fulfilled,” he said in response to questions from Sen. Mike Rounds (R-S.D.) at a Senate Banking Committee hearing.

Another regulator, the Federal Reserve, initially exempted overdraft programs from Regulation Z, the 1968 Truth in Lending Act’s operating regulation, because it was clear that doing so “would be impractical,” Rounds said to Chopra.

Reg Z, which went into effect in 1970, requires lenders to disclose credit terms on mortgages, credit cards, auto loans, and other forms of credit.

Chopra said that while the CFPB hasn’t decided whether to treat overdraft programs as a credit product under Reg Z, the agency is “looking at what the Federal Reserve did many years ago in the era of paper checks and mailing checks.”

The CFPB director mentioned enforcement actions last year against Wells Fargo and Regions to illustrate the type of conduct his agency is looking to address.

Wells Fargo reached a $3.7 billion settlement with federal regulators in December 2022 over allegations it illegally charged “surprise” overdraft fees, among other claims. Regions agreed to pay $191 million to settle a similar case in September 2022, in which the CFPB called the bank a “repeat offender.” Neither bank admitted nor denied the regulator’s allegations.

“We have to address the harms while still allowing consumers to access the liquidity when they have a shortfall,” Chopra said.

The CFPB is considering asset thresholds so that any final overdraft rule doesn’t apply to the smallest banks and credit unions, according to industry sources, who asked not to be identified discussing the regulator’s internal deliberations.

Rounds noted that many large banks have already provided customers with more time to cover shortfalls in their bank accounts, reducing the number and total amount of fees significantly. Some banks have eliminated overdraft fees entirely. Banks’ overdraft fee revenue in the fourth quarter of 2022 was 48% lower than it was three years earlier, he said.

Chopra commended the industry for “really starting to compete now on overdraft.” Wells Fargo and Regions are among the banks that have announced changes to their overdraft programs in recent years.

Still, many banks are looking for more clarity on what is, and what isn’t, allowed in overdraft protection programs, the CFPB director said.