Financial regulators crack down on bank overdraft fees

Read Time:3 Minute, 28 Second

Rohit Chopra, Director of the Consumer Financial Protection Bureau.

Alex Edelman/Bloomberg via Getty Images

The bureau announced on Wednesday that the Consumer Financial Protection Bureau is cracking down on banks charging fees for customers who overdraft checking accounts.

CFPB Director Rohit Chopra said at a press conference that financial regulators are planning to implement “a series of regulatory interventions” for companies that rely heavily on overdraft fees as a source of income.

When the customer’s account does not have enough funds to pay for the transaction, an overdraft occurs. The bank may allow the transaction to proceed, but will charge a fee to cover the fee.

Chopra said that charging for overdrafts and insufficient funds is a major means of making money for banks, and has been so during the Covid-19 pandemic. According to the bureau, banks profited more than US$15 billion from such fees in 2019, and this number has been rising steadily.

More from personal finance:
Changes you must know about the upcoming tax season
As omicron’s concerns intensify, more than half of employers need Covid vaccine
Why did social security pension applications not surge during Covid-19

Chopra said these costs are usually around $34 per overdraft, which largely affects the families that are least able to afford these costs.

“Banks, especially large banks, continue to rely on overdrafts and [non-sufficient funds] Expenses are the main source of income,” Chopra said. “Large financial institutions compete with transparent upfront pricing and are obsessed with exploitative garbage costs, which can quickly deplete households’ bank accounts. “

According to the announcement on Wednesday, the CFPB, a federal agency created by the Dodd-Frank Financial Reform Act after the Great Recession, will strengthen the supervision of banks that “heavily relied on” overdraft fees.

Officials did not quantify the reasons for their heavy reliance on overdraft fees. Chopra said the agency will tell companies how they measure their peers.

The market will not solve this problem on its own.

Rohit Chopra

Director of Consumer Financial Protection Bureau

The bureau stated that the agency’s supervision will be achieved through additional supervision and law enforcement reviews.

Chopra said the agency will take action against large banks that violate the law on overdrafts, and officials will prioritize inspections of banks that rely heavily on overdrafts.

Officials declined to say whether additional measures will be taken to curb this practice.

Chopra said that during the Covid-19 pandemic, banks continue to charge overdraft fees, and shareholders can get a predictable and stable source of income from them.

According to CFPB data, the three banks, JPMorgan Chase, Wells Fargo and Bank of America, accounted for approximately US$5 billion, or 44%, of the total overdraft fees collected in 2019.

Of course, not all banks charge customers overdraft fees. For example, online bank Ally Bank cancelled overdraft fees earlier this year. Other companies, including PNC Bank and Bank of America, make it more difficult for customers to overdraft accounts.

Capital One said on Wednesday that it will eliminate all overdraft fees for retail bank customers starting in 2022. It is the largest bank in the United States, but has not yet ended its practice in the industry. The bank is expected to lose 150 million US dollars in annual revenue.

Chopra said that he does not expect other banks to follow suit in the near future.

“The market will not solve this problem on its own,” Chopra said. He added: “We obviously have a market failure here.”

A small number of households account for most of the overdraft income. According to CFPB data, approximately 9% of consumer accounts pay 10 or more overdrafts per year, accounting for nearly 80% of all overdraft income.

Chopra said the bureau will also “use technology” to make it easier for customers to switch banks, which is a daunting task because of the need to update information, such as automatic debits from many sources. He advocated the establishment of an “open banking infrastructure” in the future to make this easier, but did not elaborate on how or when this will be achieved.

Do you like money and finances? I invite you to go to finance news

0 %
0 %
0 %
0 %
0 %
0 %
We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners. View more
Cookies settings
Privacy & Cookie policy
Privacy & Cookies policy
Cookie name Active

Who we are

Suggested text: Our website address is:


Suggested text: When visitors leave comments on the site we collect the data shown in the comments form, and also the visitor’s IP address and browser user agent string to help spam detection. An anonymized string created from your email address (also called a hash) may be provided to the Gravatar service to see if you are using it. The Gravatar service privacy policy is available here: After approval of your comment, your profile picture is visible to the public in the context of your comment.


Suggested text: If you upload images to the website, you should avoid uploading images with embedded location data (EXIF GPS) included. Visitors to the website can download and extract any location data from images on the website.


Suggested text: If you leave a comment on our site you may opt-in to saving your name, email address and website in cookies. These are for your convenience so that you do not have to fill in your details again when you leave another comment. These cookies will last for one year. If you visit our login page, we will set a temporary cookie to determine if your browser accepts cookies. This cookie contains no personal data and is discarded when you close your browser. When you log in, we will also set up several cookies to save your login information and your screen display choices. Login cookies last for two days, and screen options cookies last for a year. If you select "Remember Me", your login will persist for two weeks. If you log out of your account, the login cookies will be removed. If you edit or publish an article, an additional cookie will be saved in your browser. This cookie includes no personal data and simply indicates the post ID of the article you just edited. It expires after 1 day.

Embedded content from other websites

Suggested text: Articles on this site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website. These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.

Who we share your data with

Suggested text: If you request a password reset, your IP address will be included in the reset email.

How long we retain your data

Suggested text: If you leave a comment, the comment and its metadata are retained indefinitely. This is so we can recognize and approve any follow-up comments automatically instead of holding them in a moderation queue. For users that register on our website (if any), we also store the personal information they provide in their user profile. All users can see, edit, or delete their personal information at any time (except they cannot change their username). Website administrators can also see and edit that information.

What rights you have over your data

Suggested text: If you have an account on this site, or have left comments, you can request to receive an exported file of the personal data we hold about you, including any data you have provided to us. You can also request that we erase any personal data we hold about you. This does not include any data we are obliged to keep for administrative, legal, or security purposes.

Where we send your data

Suggested text: Visitor comments may be checked through an automated spam detection service.
Save settings
Cookies settings