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California Attorney General Rob Bonta.
California Attorney General Rob Bonta.

California AG Issues Letter on Overdraft and Returned Item Fees

This week, California Attorney General Rob Bonta issued a letter to credit unions and banks with assets under $10 billion warning that overdraft and returned deposited-item fees may violate California’s Unfair Competition Law (UCL) and the federal Consumer Financial Protection Act (CFPA).

According to the attorney general’s letter, some financial institutions charge up to $36 or more for each overdraft. California consumers paid an estimated $200 million in overdraft fees in 2022, with the financial burden “disproportionately falling on low-income consumers and consumers of color.”

Bonta states: “Overdraft and returned check fees needlessly strip away money better spent elsewhere and penalize poor consumers. All too often, consumers don’t have a chance to avoid these surprise fees. The Consumer Financial Protection Bureau (CFPB) has already put a stop to the worst practices by the biggest banks and credit unions. Now it is time for everyone else to follow suit. I urge all of California’s banking institutions to comply with federal and state law by eliminating these unfair fees.”

The letter also mentions regulatory guidance recently issued by the CFPB to large banks regarding overdraft services, specifically the topic of “authorize positive, settle negative” and returned deposited-item fees, as well as “enforcement actions against several banks for charging overdraft fees.” This issue of authorize positive/settle negative has been addressed by the CFPB and seems to repeat the bureau’s guidance from 2022.

Regarding the “surprise” overdraft aspect, this is known as an “authorized positive, settled negative” transaction when the consumer had enough funds in the account to cover a debit charge at the time the financial institution authorized it. These transactions were once largely triggered by operational issues, yet have since been addressed by technology improvements made by many financial institutions and their vendors. Since the CFPB issued guidance, many of our credit unions have been aligning with that guidance and eliminating these types of fees altogether.

Lastly, the Leagues are analyzing the attorney general’s latest announcement in light of a separate bill recently introduced in California (Senate Bill 1075), as well as related state and federal legislative and regulatory activities on overdraft and non-sufficient funds (NSF) fees. The Leagues continue monitoring all fronts as it prepares to advocate for your credit union and your members in Washington, D.C. (March) and Sacramento (April).

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