On January 17th the CFPB issued a Proposal that is intended to rein in excessive overdraft fees. The proposed changes would amend both Regulations E (Electronic Funds Transfers) and Regulation Z (Truth in Lending) but would only apply to “very large financial institutions”. A very large financial institution would be one with assets of more than $10 billion.
The CFPB estimates that, over the last two decades, consumers have paid an estimated $280 billion in overdraft fees. As overdraft services became more automated, they also became more expensive, turning what started as a convenience into a “massive profit driver”. In the CFPB’s eyes, very large financial institutions led the way, …responsible for more than two-thirds of total marketwide overdraft fee revenue. The remaining institutions are overwhelmingly relationship-focused community banks and credit unions.
The proposal will still allow courtesy overdrafts (those not subject to Regulation Z); however, any fee would need to be a “benchmark fee” (predetermined by the CFPB) or based on a “breakeven standard”. Anything beyond these amounts would be subject to credit protections. For instance, “covered overdraft credit” would require a consumer to receive certain loan disclosures as prescribed by Regulation Z. Additionally, any covered overdraft credit accessed by a debit card or other routing/checking account numbers would be subject to Regulation Z’s credit card protections. This would include such things as determining a consumers’ ability to repay and the option to repay manually versus automatic payments.
The CFPB’s Fact Sheet gives a good overview of how we got here. It is interesting to point out that the Fact Sheet does appear to contain an error in that it states the Proposal applies to institutions with assets of $10 billion or more. The proposed regulation clearly states over $10 billion.
Comments are due on or before April 1, 2024.
Published
2024/02/09
