Regulators Point the Finger at Banks for Overdraft Fees, Fintech Records

We’ll call it a pair of bank shots from Washington. 

Two US financial regulators told banks Tuesday to step up protections for consumers: in the first case, to keep their overdraft fees away from people’s money; in the second, to better keep track of where fintechs put people’s money.

So Not Over It

The first issue taken on Tuesday was overdraft fees, from which US banks have made more than $280 billion in revenue since 2000, according to the Consumer Financial Protection Bureau. The CFPB said it found banks have been charging fees using “phantom opt-ins” — in other words, claiming they have consent from a customer to levy fees without any actual proof. The warning comes after, earlier this year, the CFPB introduced new rules that would cap overdraft fees, which average about $35, significantly reducing the toll on consumers. Pending approval, it will take effect in 2025.

The second issue is how the money held by fintech companies is accounted for, and is a little more complex:

• The Federal Deposit Insurance Corporation proposed new rules that would require banks to keep track of the identity and account balances of people whose money it holds on behalf of fintech companies. While online apps and fintech firms offer competing services for holding money — like higher interest rates or microloans — they almost always put the money in a traditional bank, sometimes even in one big account.
• Earlier this year, when fintech middleman Synapse collapsed, thousands of Americans and businesses saw $160 million frozen — some of them were cut off from their money for months because it wasn’t immediately clear where it was. Hence, the FDIC’s desire to make sure that doesn’t happen again.

The Sound of Knuckles Cracking: Not to be outdone, US Justice Department sources told Bloomberg Tuesday that it’s escalating a criminal probe into how banks that lent to Archegos unwound $150 billion in bets placed by convicted fraudster Bill Hwang’s collapsed investment firm. Nobody said it was National Go Rough On Banks Day.