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Financial Services Law Insights and Observations

Seven largest U.S. banks answer committee questions on overdraft fees and P2P fraud

Federal Issues House Financial Services Committee Senate Banking Committee Consumer Finance Overdraft Peer-to-Peer

Federal Issues

On September 22, the Senate Banking Committee held a hearing entitled “Annual Oversight of the Nation’s Largest Banks” where chief executive officers from the seven largest U.S. retail banks testified on bank activities related to topics including peer-to-peer (P2P) payment networks; mortgage practices; overdraft fees; forced arbitration; and environmental, social, and governance agendas. Among other things, senators pushed the CEOs to take more aggressive action to eliminate overdraft fees and compensate P2P payment fraud victims.

  • Overdraft fees. Democratic senators stressed that charges still fall too heavily on low-income and minority customers, with Senator Bob Menendez (D-NJ) saying that there is “no reasonable explanation to continue to charge overdraft fees on working families.” The CEOs discussed their respective efforts to relax overdraft policies to reduce fees, with one CEO noting that “there are a lot of occasions where if [overdraft protection] is not used, [customers] would be charged a higher fee on the other side.” These fees, he noted, “can often reduce the cost on the other side and stop them from going to payday lenders.” Another CEO added that he believes “giving people a choice and letting them opt in or out is the proper thing to do.” One bank CEO noted that his bank offers two accounts with no fees and provides customers the opportunity to choose in the moment if they want to return or pay for an item.
  • P2P platforms. Senators Sherrod Brown (D-OH) and Elizabeth Warren (D-MA) asked the CEOs if they would give customers their money back if they are defrauded on a certain P2P platform and complain to the bank. The CEOs emphasized that their banks currently reimburse customers for fraud and “unauthorized transactions” and are taking measures to reduce the incidence of fraud, including educating consumers on how to detect scams. “There’s a tremendous amount that we can do as owners of the network to drive down the ability for thieves to take advantage of the network,” one CEO said when asked if banks believe it is their responsibility to make a consumer whole again. “That is what we're working on. That’s what we have to do.” Another CEO pointed out that other P2P platforms have “15 times the number of disputes” coming into the bank than the highlighted platform. One CEO also stressed that banks need to work through partnerships with law enforcement and regulatory agencies “to actually catch the criminals who are perpetuating this fraud against our customers.”

The previous day, the same CEOs discussed similar topics during the House Financial Services Committee’s hearing entitled “Holding Megabanks Accountable: Oversight of America’s Largest Consumer Facing Banks.” Several proposed bills containing provisions that would impact the banks if enacted were also discussed, including those that would (i) improve dispute procedures and disclosures related to reinvestigations of consumer reports (see H.R. 4120); (ii) amend and modernize bank merger laws (see H.R. 5419); and (iii) amend Community Reinvestment Act provisions to improve the assessment process for financial institutions (see H.R. 8833).

During the hearing (see committee memorandum here), committee members questioned the CEOs on a broad range of topics related to consumer protection compliance, enforcement, diversity initiatives, capital standards, emerging technologies and cybersecurity, merchant category codes for firearm purchases, and banking deserts. The CEOs addressed ways their banks have engaged in “responsible growth” and spoke on measures they have taken to bolster customer relations, including modifying overdraft practices. They also noted they are working on improving data protection and cybersecurity. In discussing P2P digital payment services, one CEO emphasized that “scams are growing daily” and regulators and legislators need to respond. He added that “[i]t’s not enough that we apportion blame after the fact. We need to stop fraud and scams before they occur. Secure [P2P] networks, real-time payments, and potentially FedNow allow for direct authentication with a host bank. They also allow members of the network to identify [] and police against scam accounts. This is not the case with nonbank networks. These networks are not held to the same security standards as banks.” He stated that banks “have zero visibility into where the money went, zero capability to recover the money, and zero capability to close the bad account.”