Overdraft fees and UDAAP

Does your bank charge an overdraft fee? If you’re nodding “yes” right now, you’re not alone. Data from the Consumer Financial Protection Bureau reveal that in 2019, U.S. consumers paid a staggering $15.5 billion in overdraft and bounced-check fees.

Wave of overdraft fee lawsuits

Your bank may need to reevaluate its practices regarding overdraft fees. Several banks and credit unions have faced allegations that they used deceptive practices in charging customers excessive overdraft fees. Now, some customers have filed lawsuits against the banks, claiming the financial institutions used deceptive practices related to excessive overdraft fees.

Excessive bank overdraft fees lawsuits have been filed and/or settled against a variety of banks, including Wells Fargo, Bank of America, M&T Bank, HSBC, UMB Bank and Wachovia. The lawsuits allege that banks charge excessive overdraft fees when customers' accounts go into overdraft. They further allege that the banks use a number of unethical practices to push their accounts into overdraft, such as misrepresenting customers' account balances and reordering debits and credits to accounts.

Credit unions are similarly impacted

While credit unions operate differently than banks, they may still face similar legal issues, such as lawsuits claiming excessive overdraft fees. According to the Credit Union Times, a wave of overdraft lawsuits had struck credit unions across the country.

"At least one dozen credit unions in nine states have been hit with class action lawsuits over their overdraft practices, Credit Union Times reported in January 2016. "Often, the dispute is over how credit unions disclose the methods under which they apply overdraft fees.

CFPB and OCC scrutiny increasing

The CFPB will be enhancing its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees. The bureau did not identify any banks it may be targeting, but said it had asked its examiners to focus on banks that rely heavily on overdraft fees. Banks with “a higher share of frequent overdrafters or a higher average fee burden for overdrafting” should also expect close supervisory attention. In recent years, the CFPB ordered TD Bank to pay $122 million