[Co-Author: Matt Benz]

On October 26, the CFPB issued guidance to help banks avoid charging illegal overdraft fees on consumer deposit accounts. In its Circular 2022-06, the Bureau stated that overdraft fees assessed by financial institutions on transactions that a consumer would not reasonably anticipate likely violate the CFPA. The CFPB further highlighted two particular categories of so-called “junk fees” that likely qualify as unfair and unlawful under the CFPA (we covered the CFPB’s focus on junk fees in previous blogs here and here):

• Surprise overdraft fees. An unanticipated or surprise overdraft fee occurs when financial institutions assess overdraft fees on transactions that a consumer would not reasonably expect would give rise to such fees. The Circular notes that overdraft fees can qualify as surprise fees even when the assessing entity discloses their transaction processing and overdraft policies to consumers.
• Surprise depositor fees. A depositor fee occurs when a consumer deposits a check that bounces and the bank charges a fee to the depositor as a result. A check bouncing, however, is most commonly the result of insufficient funds in the check originator’s account, a fact that the check depositor is unlikely to know

Putting it Into Practice: The Circular makes clear that a financial institution assessing “junk fees” on consumer deposit accounts can face harsh penalties under the CFPA, even if the assessing entity provides disclosures related to their transaction processing and overdraft assessment policies. Financial institutions should therefore review the CFPB guidance and ensure their overdraft programs provide adequate notice to consumers before assessing fees on transactions.