CFPB Director Chopra warns banks—and bank executives—about overdraft practices

CFPB Director Chopra used the release of two new reports about bank overdraft practices to warn banks—and responsible executives—that they could be at risk if the banks engage in overdraft practices deemed to violate Dodd-Frank’s “UDAAP” prohibition.  Prior to the issuance of the two new reports, the Bureau’s most recent report on overdrafts was issued in August 2017 under the leadership of former Director Cordray.  Two earlier reports were issued in June 2013 and July 2014, also under former Director Cordray.

Following a pattern established under former Director Cordray, the CFPB used relatively neutral language in its formal documents and more aggressive language in its press release, leaving the most alarming comments for the Director to personally deliver.  Thus, the press release advised that the CFPB will be “enhancing” its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees.  However, in a conference call with reporters, Director Chopra reportedly attacked big banks for “harvest[ing] billions in overdraft fees off Americans during the pandemic” and stated that bank overdraft practices reflect a “clear market failure.”  Ominously, in words that apply not just to bankers structuring overdraft programs but to all executives managing consumer financial services programs, he warned: “The CFPB will also seek to uncover the individuals who directed any illegal conduct.”

Significantly, neither the Director nor the recent CFPB reports identify specific overdraft practices of concern.  Rather, the Director seemingly objects to the aggregate dollar amounts banks have generated from overdraft fees.  However, a recent study commissioned by the Consumer Bankers Association (CBA) shows that overdraft fees have declined 40% in the past decade, a circumstance apparently unremarked by the CFPB.  And, in any event, high fees alone are not unlawful.