Warning that “consumers will lose” if the CFPB’s overdraft proposal is finalized, ABA and 52 state bankers associations today urged the CFPB to withdraw it. The proposal would re-classify overdraft as “credit,” despite Congress’ determination 50 years ago to the contrary, and would permit financial institutions to offer overdraft under the existing Regulation E framework only if their overdraft fee is below a “breakeven” fee or a “benchmark” fee set by the agency. Charging a fee that exceeds this government price cap would subject overdraft services to the requirements of the Truth in Lending Act and Regulation Z.
The associations noted that if finalized, the proposal would lead many banks to stop offering—or significantly reduce access to—overdraft, depriving consumers of a valued and needed form of short-term liquidity. The groups warned that banks that continue to offer overdraft under this framework may reduce or eliminate pro-consumer overdraft features like grace periods and de minimis thresholds for charging an overdraft fee.
While the proposal purports to only apply to banks and credit unions with more than $10 billion in assets, the groups emphasized that all depository institutions and their customers will be affected, as all will face market pressure to confirm their overdraft practices with the rule. The groups further noted that TILA provides the CFPB with no authority to engage in this arbitrary line-drawing.
“Fewer consumers will have access to low-cost, full-service deposit accounts,” under the proposal, and “those that do will be required to meet higher minimum balance requirements,” said the groups. The CFPB’s proposal is “antithetical to the free-market principles that drive innovation, promote financial inclusion, and provide consumers with a robust set of choices from which they can select the financial products and services that best meet their needs.”
