The Consumer Financial Protection Bureau is trying to clamp down on overdraft fees issued by the nation's largest banks.
CFPB Director Rohit Chopra joined Yahoo Finance's Jennifer Schonberger to discuss the proposed overdraft fee changes, noting they aim to empower consumers to "manage their overdraft loans more effectively," though the proposals do not eliminate them entirely.
Chopra says banks have displayed "a lot of abuse" around overdraft fees, fueling a "billion dollar bonanza." He argues these new rules look to "close a longstanding loophole" and force fairer, upfront terms for customers.
While banks "will always look to find profits everywhere they can," Chopra calls the CFPB proposal "quite reasonable." Chopra claims the average family that deals with these fees will save about $150 per year, adding public input can help shape strong guardrails against unfair practices while preserving responsible fee structures.
"I don't want to be in a world where we keep bailing out the largest financial institutions on the planet," Chopra tells Yahoo Finance, adding, "When they take risks, it should be their shareholders and executives who lose, not the public who bears risk of a financial crisis."
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Editor's note: This article was written by Angel Smith
Video Transcript
[AUDIO LOGO]
JENNIFER SCHONBERGER: Welcome back to Yahoo Finance Live. I'm Jennifer Schonberger. The Consumer Financial Protection Bureau released a long-awaited proposal today to rein in overdraft fees banks charge when a customer overdraws their account. The rule would cap fees anywhere between $3 to $14, compared with $35 on average now. For more on this, I want to welcome into the program CFPB Director Rohit Chopra. Director Chopra, thanks so much for joining me. It's great to see you.
ROHIT CHOPRA: Great to be with you.
JENNIFER SCHONBERGER: You propose capping overdraft fees for banks with $10 billion in assets or more in the range of $3 to $14, compared with $35 on average currently. How do you expect that this new rule could impact overdraft protection for consumers? And how much could consumers save on this rule?
ROHIT CHOPRA: Well, what we've seen when it comes to overdraft in recent years is a lot of abuse. It used to be a real convenience back in the day when you mailed a check and it took a few days to get there. But over time, as debit cards became ubiquitous, these overdraft fees turned into a billion-dollar bonanza. We have caught so many large banks engaged in illegal overdraft abuses.
So what we're doing is we're looking to close a longstanding loophole that allows large banks to sidestep the consumer protections that are available with other loans, like credit cards. Banks will still be able to make money, but they'll need to be upfront with it, and they'll need to be fair. We do anticipate that this will save the average family that experiences overdraft around $150 a year. I think at the end of the day, this is going to make the market more competitive, more fair, and really in the best interest of everyone.
JENNIFER SCHONBERGER: To your point, Director Chopra, banks stand to lose billions of dollars on this. Do you worry that banks will try to make up for that lost revenue by trying to charge higher fees to consumers for other banking products or try to dial back availability of banking products like overdraft protection?
ROHIT CHOPRA: Well, trust me, banks will always look to find profits everywhere they can. But here's what we found when it comes to reining in abuses, back in the day, when there were new credit card reforms, we did not see a massive reduction in availability or any of the other predictions that the bank lobby put out there.
We think what we've done is quite reasonable today. We're going to be collecting public input before finalizing it. We still think that there will be plenty of availability of credit, and that people will be empowered to manage their overdraft loans more effectively.
JENNIFER SCHONBERGER: And Director Chopra, what other fees can we expect the CFPB to propose going forward?
ROHIT CHOPRA: Well, we've looked hard at a number of places where financial firms are seeking to build a business model when their customers fail. So we've looked at certain credit card penalty fees, we've looked at non-sufficient funds fees, where we even caught Bank of America double-dipping and charging multiple fees per incident.
We also have been looking at all sorts of other customer service junk fees, and have made it clear that there are certain places where it's just illegal to charge them. We even found a paper statement fee where the bank didn't even print it out or mail it. The results, I think, will ultimately be billions of dollars back in consumers pockets.
JENNIFER SCHONBERGER: Switching gears. The comment period for the Basel III proposed capital requirements ended yesterday. We've already heard from two Fed officials who have proposed major revisions to the rule, in line from what we are seeing from comments that have come in already. What is your impression on what revisions could be made? And what could you support?
ROHIT CHOPRA: Well, we're going to look at all of the input we're receiving. But here's a real core piece, a lot of the biggest financial firms, sure, they don't want to hold more capital. But guess what? The public doesn't want to bail them out anymore. We have seen some blockbuster quarterly earnings results, big numbers from JP Morgan Chase, Goldman.
Many of them will be able to shore up their capital position using their earnings, using some of the existing assets that they have. So we're going to look, but I have to tell you, I don't want to be in a world where we keep bailing out the largest financial institutions on the planet. When they take risks, it should be their shareholders and executives who lose, not the public, who bears risk of a financial crisis.
JENNIFER SCHONBERGER: And speaking of comment periods ending, last week the comment period ended for a rule that you, the CFPB, proposed to regulate big tech payment systems like, Apple Pay and Venmo, the same as the nation's largest banks. My question to you there is, big tech has said that this has gone too far. They'd like to see the rule reproposed. Are you considering making any changes to that rule? And when could we see a final rule on this?
ROHIT CHOPRA: Well, we're going to look at every piece of input we receive. But I guess what I'm wondering is the rule we've proposed doesn't put any new substantive regulation or obligations, it just allows us to take a closer look at their operations. If big tech companies are following the law, they should have nothing to fear about it.
The reality is that there are now billions of dollars in payments being trafficked on Apple Pay, Venmo, so many other digital payment apps. They need to grow their business fairly, and not use regulatory arbitrage. So Jennifer, I really want to make sure that consumers, they have their protections under federal law are being honored regardless, if they're working through a bank or through a big tech company.
JENNIFER SCHONBERGER: Well, we'll have to leave the conversation there, Director Chopra. Thank you so much, as always, for your insight. So appreciate it. Hope to see you soon.
