‘Unanticipated’ overdraft fee can count as an unfair act or practice, circular declares

An assessment of an unanticipated overdraft fee can constitute an unfair act or practice even if the bank or other entity charging the fee complies with key financial regulations, according to a circular published Wednesday by the federal consumer financial protection agency.

According to the Consumer Financial Protection Bureau’s (CFPB) Circular 2022-06, overdraft fees must comply with such rules as Truth in Lending Act (TILA) and Regulation Z, and the Electronic Fund Transfer Act (EFTA) and Regulation E – as well as the prohibition against unfair, deceptive, and abusive acts or practices (UDAAP), as defined under the Consumer Financial Protection Act (CFPA).

However, the agency wrote, fees assessed by banks that a consumer “would not reasonably anticipate are likely unfair.” The agency said that such unanticipated overdraft fees “are likely to impose substantial injury on consumers that they cannot reasonably avoid and that is not outweighed by countervailing benefits to consumers or competition.”

“Unanticipated overdraft fees may arise in a variety of circumstances,” the bureau wrote. “For example, financial institutions risk charging overdraft fees that consumers would not reasonably anticipate when the transaction incurs a fee even though the account had a sufficient available balance at the time the financial institution authorized the payment (sometimes referred to as ‘authorize positive, settle negative (APSN)’).”

The circular includes a table displaying unanticipated overdraft fees assessed through ASPN with intervening debit transactions. It includes another table exhibiting unanticipated overdraft fees assessed through ASPN by a financial institution using “available balance for fee decision.”

Consumer Financial Protection Circular 2022-06