California AG Rob Bonta takes aim at high overdraft charges in California’s smaller financial institutions


Oakland, California – California’s attorney general, Rob Bonta, has sent out warnings to smaller banks and credit unions. He pointed out that the charges they impose for overdrafts and bounced checks might not be fair under California’s Unfair Competition Law and a nationwide consumer protection law. It’s been noted that these fees can go as high as $36 for each incident. In 2022, people in California ended up paying around $200 million because of these overdraft fees. This issue mainly affects those with less money and people of color, adding more to their financial struggles. The warning went to financial groups in California that have less than $10 billion in assets.

Attorney General Bonta advises these companies that the money can be used for other purposes instead

Bonta explained that fees for overdrafts and bounced checks unfairly take money that could be used more wisely, especially hurting those with less. He mentioned that bigger banks have already been made to stop these harsh practices by federal actions. Now, he wants all the smaller financial institutions to do the same by getting rid of these harsh charges.

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It’s more common for households with lower incomes, and Black and Hispanic people, to face these overdraft charges. The Consumer Financial Protection Bureau discovered that those who get hit with more than 10 overdraft charges a year are the ones who end up paying the majority of these fees. These charges can seriously hurt families financially, turning small problems into big emergencies. At the same time, banks across the country made more than $7.7 billion from overdraft and insufficient funds fees in 2022.

In his letter, Attorney General Bonta elaborates on the adverse consequences overdraft and bounced check charges have on consumers, raising concerns that such practices may infringe upon the principles of the Unfair Competition Law (UCL) and the Consumer Financial Protection Act (CFPA). These statutes are designed to shield consumers from practices that are deemed unfair. The UCL defines a practice as unfair if the damage it inflicts on the victim outweighs any potential usefulness of the action in question.

Further elaboration is provided on what constitutes an unfair act under the CFPA, which is identified as any action that either causes or has a high probability of causing significant harm to consumers, a harm that consumers cannot easily sidestep. Moreover, for an act to be considered fair under the CFPA, any harm it causes must be significantly outweighed by benefits to consumers or to the competitive landscape. Overdraft charges often catch consumers off guard due to the intricate nature of financial transactions processing and the delay in settlement of these transactions. This complexity obfuscates the decision-making process for consumers, making it challenging for them to opt between utilizing overdraft protection services or seeking alternative payment methods.

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Bonta’s letter also sheds light on the contentious issue of fees charged for depositing bounced checks. Such fees are levied when a consumer deposits a check that is subsequently returned due to issues with the check issuer, such as insufficient funds, account closure, stop payment orders, or questionable signatures or information. Typically, the depositor has no foreknowledge or control over these situations, rendering the fees particularly unfair since they penalize the depositor without providing any additional services or benefits.

This practice of imposing unforeseen fees, which consumers have little chance of anticipating, is likely considered an unfair business practice under both the UCL and the CFPA. The financial detriment these surprise fees impose on consumers does not come with any compensatory benefits or utility, either to the consumer directly or to the broader competitive market. Such “back-end” pricing strategies serve to conceal the true cost of banking services, thereby complicating the process for consumers to effectively compare financial products and services.

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This initiative aligns with recent actions taken by the Consumer Financial Protection Bureau (CFPB), which has issued guidelines to major banks on similar fee practices. The CFPB has also indicated that the routine practice of imposing returned deposited item fees for every bounced check is likely an unfair practice in violation of the CFPA.

In its commitment to enforce these guidelines, the CFPB has initiated enforcement actions against several banks, including Regions Bank and Wells Fargo, compelling them to pay substantial amounts in restitution and penalties for their overdraft fee practices.

In a significant move in April 2022, Attorney General Bonta, together with a coalition of state attorneys general, called on leading financial institutions like JPMorgan, Bank of America, U.S. Bank, and Wells Fargo to eliminate overdraft fees entirely. This collective effort underscores a growing recognition of the need for fair banking practices that do not disproportionately impact consumers, especially those from vulnerable communities.

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A copy of the letter can be found here.

Jack Wolf
Jack Wolf
Jack is Long Beach native and proud member of US News Hub team. Jack knows best what Long Beach residents want and need to hear as he is one of them. At US News Hub, Jack is the one responsible for local news in Los Angeles county, with the focus on the Long Beach area.

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