WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) published guidance to help federal and state consumer protection enforcers stop banks from charging overdraft fees based on phantom opt-in agreements.

Phantom opt-ins occur when banks claim they have customers’ consent to charge overdraft fees but there is no proof they actually obtained that consent. Under the Electronic Fund Transfer Act, banks cannot charge overdraft fees on ATM and one-time debit card transactions unless consumers have affirmatively opted in.

“The CFPB has found instances where banks have no evidence that they obtained consent for overdraft,” said CFPB Director Rohit Chopra.

“No Americans should be hit with bank account fees that they never agreed to.”

When people withdraw money from an ATM or make a purchase with a debit card, the transaction sometimes can drop their account balance below $0. In such cases, banks can either decline the transaction or let it go through by extending an overdraft loan. If a bank covers the transaction through an overdraft loan, the bank can only charge a fee if the consumer opted into overdraft services.

Consumer protection law enforcers should assume consumers have not opted into overdraft unless the banks can prove otherwise.

The CFPB has found that some banks have been unable to provide such evidence before they charged consumers fees for overdraft loans to cover ATM and one-time debit transactions.

The CFPB has observed that in many circumstances, financial institutions have created serious obstacles to consumers taking steps to anticipate and avoid overdraft fees.

In fact, for a sizeable group of consumers who overdraft infrequently, they report being surprised by their most recent overdraft.

The CFPB took action against Regions Bank for the bank’s unintelligible and manipulative processes that resulted in unexpected overdraft fees.

The CFPB also has taken enforcement actions when institutions have violated the Electronic Transfer Fund Act’s implementing Regulation E or engaged in related deceptive or abusive practices.

Most recently, in 2023, the CFPB ordered Atlantic Union Bank to pay $6.2 million for, among other overdraft violations, improperly enrolling customers in overdraft. The CFPB has taken similar actions against TD Bank and TCF National Bank.

Today’s circular is the latest step in the CFPB’s work to make sure financial institutions’ overdraft services follow the law and that people are not charged junk or unlawful fees.

Earlier this year, the CFPB proposed a rule to require the nation's largest banks to apply longstanding consumer protections, including interest rate disclosures, to overdraft loans.

After the CFPB began its work to tackle junk fees, many banks began reforming their overdraft fee policies, which have resulted in $4 billion in annual savings.

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