Since the start of the new year, the Consumer Financial Protection Bureau (CFPB) has been busy proposing rules targeted at eliminating or significantly restricting the ability of banks to assess fees for processing overdrafts or returning payments that overdraw consumers’ accounts. The CFPB issued this notice of proposed rulemaking (NPRM) as part of its initiative on what it describes as “junk fees.” Bankers have responded in protest, citing a Morning Consult poll that found that nine in 10 consumers (88%) find their bank’s overdraft protection valuable, and nearly eight in 10 consumers (77%) who have paid an overdraft fee in the past year were glad their bank covered their overdraft payment, rather than returning or declining payment.

This latest action by the CFPB follows the back-and-forth seen in the prudential bank regulators relating to the imposition of overdraft fees and insufficient funds (NSF) fees. Many bankers will recall that in August 2022, the FDIC issued guidance noting that the imposition of multiple NSF fees for the same transaction “results in heightened risks of … unfair or deceptive acts or practices (UDAP),” even when fully disclosed to the customer. The OCC followed suit in April 2023 with similar guidance. In response to significant industry protest, the prudential regulators began to walk back their earlier positions with the FDIC noting that it will “not request an institution to conduct a lookback review absent a likelihood of substantial consumer harm.”