CFPB Proposes Overdraft Rule for Credit Unions, Banks with More Than $10 Billion in Assets
Credit union trade groups sharply criticize proposal
The Consumer Financial Protection Bureau on Wednesday issued its long-awaited proposed overdraft rule, a plan that could drive overdraft fees down to as low as $3.00 at the nation’s largest financial institutions.
The proposed rule would only apply to financial institutions with at least $10 billion in assets; the CFPB estimates it would cover the 175 largest credit unions and banks in the nation.
“Overdraft loans, along with the hefty and often surprising fees that come with them – affect families across the country,” CFPB Director Rohit Chopra said. “For many of those charged overdraft fees, the market is not working for them, even if they are happy a bank processed a transaction instead of declining it. Compared to credit cards and other forms of credit, overdraft lending is very expensive.”
Credit union trade groups denounced the proposal, even though many credit unions would not be subject to the rule since they do not have at least $10 billion in assets.
President Biden immediately endorsed the plan. “For too long, some banks have charged exorbitant overdraft fees—sometimes $30 or more—that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” Biden said. “Banks call it a service—I call it exploitation.”
As part of the proposal, the CFPB is seeking comments on whether to allow large financial institutions to charge a fee of $3, $6, $7, or $14. Banks would be able to charge more if they calculate a “breakeven fee” above the set fee.
The agency also is proposing to treat overdraft fees as normal consumer loans, which would require financial institutions to disclose interest rates and fees, just as they would for a credit card or other loan. The Truth in Lending Act protections provided to consumers using traditional credit cards also would apply to overdrafts.
The CFPB said it plans to monitor the market’s response to the rule before determining whether it should apply to financial institutions with under $10 billion in assets.
The agency said that if adopted, it would expect the rule to go into effect on Oct. 1, 2025. That date falls during the next presidential administration. Depending on who is elected president, the next administration could make significant changes to the rule.
America’s Credit Unions President/CEO Jim Nussle said that the CFPB “has deliberately exceeded its intended purpose at the expense of the hardworking Americans they claim to protect.”
He added, “Its latest overdraft fee proposal is another devastating blow to working class Americans as it takes away a lifeline many consumers in financial distress rely on to make ends meet. The bureau must be held accountable for its war on American families and Main Street America.”
“While the rule targets institutions with more than $10 billion in assets, the realities of the marketplace mean that overdraft programs at all credit unions are endangered," said Virginia Credit Union League President/CEO Carrie Hunt. "We know that credit unions have responsible programs that provide members a valued service at a reasonable cost. CFPB again misses the point that not all fees are abusive. They are the cost of doing business and can be a deterrent." Hunt will become America’s Credit Unions chief advocacy officer on March 1.
Republicans also condemned the rule. “The Biden Administration’s attempts to mandate one-size-fits-all consumer financial products and services diminish financial inclusion, limit consumer choice, stifle innovation, and ultimately raise the cost of banking for all consumers,” House Financial Services Committee Chairman Rep. Patrick McHenry, R-N.C. and Financial Institutions and Monetary Policy Subcommittee Chairman Rep. Andy Barr, R-Ky. said.
On the other hand, Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, endorsed the proposal. “I’m glad to see the CFPB continue its work to eliminate junk fees so that Americans can keep more of their hard-earned money,” he said.
Consumer advocates also praised the rule.
“The CFPB’s proposal would rein in a junk fee that has gouged financially vulnerable families for far too long,” said Mike Calhoun, president of the Center for Responsible Lending. “High-cost overdraft fees exploit consumers right when they are out of funds. In moving to protect consumers from this harm, the CFPB is carrying out its mission."
“Overdrafts fees are not so much a useful service as they are a lucrative profit center underwritten by the most economically vulnerable consumers,” added Kimberly Fountain, consumer field manager at Americans for Financial Reform.