On February 22, California Attorney General Rob Bonta sent letters to 197 state-charted banks and credit unions warning them that certain fees they charge may constitute “unfair” business practices under California’s Unfair Competition Law and the federal Consumer Financial Protection Act. Bonta encouraged the financial institutions to review their policies and procedures to ensure consumers were not being assessed these fees.
The Fees At Issue
- Overdraft Fees. Bonta warned banks and credit unions about assessing “surprise” overdraft fees that are not reasonably foreseeable by the consumer. The letter stated that due to the complexity of how financial transactions are processed, consumers may reasonably believe they have sufficient funds in their account to complete a transaction based on the balance in their online or mobile banking app, when in fact they do not. These “authorize-positive, settle-negative” transactions impose “significant” financial harm on customers, and disproportionately impact economically disadvantaged consumers.
- Returned Deposited Item Fees. A returned deposited item fee is charged to a consumer when the consumer deposits a check that is returned because the check cannot be processed against the originator’s account. The consumer that deposited the check has no knowledge of, or control over, the circumstances that cause the check to be returned. Despite this, consumers are charged a fee for the returned check. Bonta warned that this fee constitutes an unfair practice under the UCL and the CFPA.
It is, perhaps, no surprise to see the California AG following the CFPB’s lead in going after fees. The CFPB issued a circular in October 2022 targeting bank overdraft fees, and a compliance bulletin in November 2022 against returned deposit item fees, and Bonta’s letter repeated many of the same arguments the Bureau raised. What is notable, however, is that Bonta’s letter cited not only to the California UCL but also the CFPA. While the CFPB traditionally enforces the CFPA, the Bureau released an interpretative rule in May 2022 arguing that state enforcement authorities could also bring claims under the federal statute. The California AG seems to agree with that interpretation.
Putting it into Practice: Violations of the UCL can be costly for smaller institutions. The UCL provides for civil penalties up to $2,500 for each violation in an action brought by a state or city official. However, it also provides for a private right of action and permits any person to bring a claim for specific or preventative relief. Given the high profile fight against fees, plaintiffs lawyers will be on the look out for financial institutions who assess fees they believe violate state law. Companies that do business in California should take the appropriate steps to ensure their fees are in compliance with both federal and state law.
