With a little over a month left in the Biden administration, the CFPB today finalized a controversial rule on overdraft protection.
Under the final rule, covered institutions may choose one of three options to comply with its requirements: capping their overdraft fee at a flat $5, which is what the bureau asserts would cover costs at “most banks”; selecting a cap that covers their actual costs and losses; or treating overdraft protection as a loan covered by the Truth in Lending Act, which will require compliance with Regulation Z’s account opening disclosures, sending periodic statements, and prohibiting the compulsory use of automatic funds transfers to repay the overdraft, among other requirements. The rule covers banks and credit unions with more than $10 billion in assets.
The CFPB first proposed to limit overdraft fees earlier this year as part of a broader push against so-called “junk fees” by the Biden administration. The rule finalized today would not take effect until Oct. 1, 2025.
ABA President and CEO Rob Nichols slammed the CFPB’s decision to “finalize this misguided rule at a time when every other federal bank regulator has stopped issuing new regulations” and noted that the rule will “make it significantly harder for banks to offer this valuable service to their customers, including those who have few other options to cover essential payments.
“In finalizing the rule, the CFPB is ignoring the strong majority of Americans who have indicated time and again in national surveys that they value and appreciate overdraft protection, and they don’t want it to go away,” Nichols added. In ABA’s comments on the proposed rule, the association made clear that it would lead many banks to cease offering overdraft protection entirely.
“In addition to the consumer harm this rule will cause, it‘s yet another example of the CFPB’s willingness under Director Chopra to exceed its congressionally mandated guardrails,” Nichols said. “The bureau has no legal authority to subject overdraft services offered by any financial institution to Regulation Z, much less implement a price cap on overdraft protection. We will closely review the final rule with our members and consider all options going forward. It should not be allowed to go into effect.”
