What's 'Abusive'? A $34 Fee for a $5 Overdraft

American Banker
July 9, 2012
Kahr, Andrew

Banks often charge consumers for overdrafts, no matter how small the infraction. In such instances, even a purchase of $5 that sends a bank account balance into the red could trigger an overdraft fee several times that amount. Up to July 22, JPMorgan Chase will continue its practice of charging a $34 overdraft fee for all purchases, despite criticism from consumer advocates. After that, the bank will not assess fees for purchases of $5 or below. The Dodd-Frank Financial overhaul bans banks from using abusive practices, and the Consumer Financial Protection Bureau (CFPB) is tasked with the job of determining how to define the word, which will likely have a significant impact on the financial industry. CFPB director Richard Cordray said bankers "should be thinking carefully about whether they're taking unreasonable advantage of their customer." JPMorgan Chase was among several big banks to pay monetary penalties last year for violations related to unfair and deceptive practices. As part of its settlement, the bank has agreed to change its practices. The change is expected to cost the megabank $170 million. Dodd-Frank says charging such fees can be banned by the CFPB as abusive if it "takes unreasonable advantage of the reasonable reliance by the consumer on a covered person to act in the interests of the consumer."
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