Over the past few weeks, there has been a renewed focus (not that it ever really went away) by certain banking agencies on bank overdraft practices. First, the Consumer Financial Protection Bureau (CFPB) issued a press release discussing the reliance by banks on overdraft revenue, drawing from two recent research reports. One report was titled “Overdrafts/NSF Fee Reliance Since 2015,” and the other was titled “Checking Account Overdraft at Financial Institutions Served by Core Processors.” Current CFPB Director Rohit Chopra was quoted as saying, “Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model.” He further stated, “We will be taking action to restore meaningful competition to this market.” The press release concluded by stating, “The CFPB will be enhancing its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees,” and then noted two enforcement actions it had taken in the past with respect to overdraft practices.

In addition to the CFPB press release, the acting comptroller of the Office of the Comptroller of the Currency (OCC), Michael Hsu, focused his speech to the Consumer Federation of America’s Annual Financial Services Conference on reforming bank overdraft practices. In his remarks, he stated that traditional bank overdraft programs play a significant role in contributing to income and wealth inequality and referenced the CFPB report on overdraft practices. He stated that the OCC had recently concluded a review and identified attributes of a responsible and fair overdraft program. He also stated that the OCC is coordinating efforts with the CFPB to “ensure there are effective guardrails and backstops in case the momentum for [private] overdraft reform stalls.” He went on to state, “[N]ew rules and the credible threat of enforcement actions for harmful practices should help ensure that at least some progress will be made in the future.”

Hsu concluded his remarks by outlining the OCC staff’s list of features of a responsible and fair overdraft program, including (i) requiring consumer opt-in to the overdraft program, (ii) providing a grace period before charging an overdraft fee, (iii) allowing negative balances without triggering an overdraft fee, (iv) offering balance-related alerts, (v) providing consumers with access to real-time balance information, (vi) linking a consumer’s checking account to another account for overdraft protection, (vii) collecting overdraft/insufficient fund fees from a consumer’s next deposit only after other items have been posted or cleared, and (viii) not charging separate and multiple overdraft fees for multiple items in a single day and not charging additional fees when an item is re-presented.

While not carrying the same level of importance and enforceability as a regulation or guidance, the CFPB press release and the comptroller’s remarks are an indication of what might be forthcoming from the federal banking agencies in terms of overdraft reform, and they signal the importance of this topic to the federal banking agencies. This is an area for banks to watch closely for further developments.