Regulation of Unfair Bank Fees in the United States and the European Union: Current Trends and a Proposal for Reform
AN EVALUATION OF LEGISLATION REGARDING COMMERCIAL PRACTICES AND CONSUMER CREDIT IN THE EUROPEAN UNION, Bank of Malta, 2007
Conference Proceedings, International Association of Consumer Law, Promoting Consumer Interests, Malta, March 16, 2006
33 Pages Posted: 12 Nov 2007 Last revised: 6 Jun 2014
Due to the legislative power of the banking industry, the U.S. federal government has been more reluctant to place limits on bank fees and charges than the European Union (E.U.). There was a trend in the courts of several American states in the 1980s and early 90s toward striking down excessive bank fees charged to consumers, such as overdraft charges and late fees, through the application of state "Little FTC Acts," such as California's Unfair Business Practices Act. But this trend stalled due to the Supreme Court's decision in Smiley v. Citibank (1996); the assertion by the Office of the Comptroller of the Currency (OCC) of federal preemption of state laws on the subject; and state legislative and constitutional amendments, particularly in California, narrowing standing and remedies under the Little FTC Acts.
Meanwhile, the E.U. has been moving in the opposite direction. A casual reader of the Unfair Commercial Practices Directive adopted by the E.U. in May 2005 might think it is directed only at the sale of goods, because the Directive frequently refers only to "products." However, due to its expansive definition of "product" as including services, the Directive covers fees for bank services. These fees are also governed by the Distance Marketing of Financial Services Directive of 1998 and the Unfair Contract Terms Directive of 1993, as well as national regulations pursuant to the 1993 Directive such as those adopted by the United Kingdom in 1994 and 1999.
This article discusses these divergent trends, the factors that have contributed to them, and the rationales for and against bank fee regulation. It also sets forth a proposed solution to the problem of unfair bank fees through standardized regulation and review of consumer contract forms in the financial services industry.
Keywords: banking, credit cards, law and economics, preemption, consumer credit, bank fees, European Union, unfair contract terms
JEL Classification: K12, K23
Suggested Citation: Suggested Citation