Overdraft Proposal for Very Large Financial Institutions

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.

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Amy Kudlacek

Amy brings many years of banking and compliance experience to Banker’s Compliance Consulting. She has worked for both large and small financial institutions and spent time working in every area of a bank. She started out as a teller in college and eventually became a branch manager. Her love, however, was always compliance. Amy began her career with Banker’s Compliance Consulting in 2000. Her knowledge and experiences have allowed her to develop a well-rounded and practical approach to regulatory compliance. Amy is CRCM certified, has a Bachelors Degree in Business Administration and is a graduate of the ABA Compliance School. Amy & her husband have two children at home and stay busy following their activities. They spend a lot of time in the bleachers!

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