Trade Associations Urge Withdrawal of CFPB’s Proposed Overdraft Rules

The American Bankers Association (ABA) and 52 other state banker associations have urged the Consumer Financial Protection Bureau (CFPB) to withdraw proposed changes to overdraft rules.

The CFPB’s proposal would apply requirements of Regulations Z to overdraft fees at bank and credit unions with more than $10 billion in assets.

The new rule would require banks to calculate and disclose an annual percentage rate on each overdraft fee, which could cut consumer overdraft fees by $3.5 billion each year.

According to the CFPB, the rule would close regulatory loopholes that will bring long overdue transparency and competition for overdraft lending.

However, the coalition has claimed the market for overdraft services is already transparent and competitive because banks have recently introduced sufficient changes to their overdraft programs.

For example, many banks now send low-balance alerts, link the customer’s checking account to another account, impose thresholds and caps on total fees and provide overdraft grace periods.

In a joint letter, the trade associations said:  “All of these pro-consumer innovations are put at risk by the Proposal. Yet the Bureau has identified no market failure requiring additional regulation of overdraft services.”

The coalition also said the new rules would bring an end to overdraft services for millions of consumers who use their overdraft to cover emergency expenses and other liquidity shortfalls.

Meanwhile, a different coalition’s lawsuit against proposed changes to the Community Reinvestment Act (CRA) has caused the Northern District of Texas to pause implementation of the final rules.

The trade associations consisting of ABA, US Chamber of Commerce and five national and state associations previously filed a lawsuit against the Federal Reserve, FDIC and OCC for exceeding their statutory authority and acting arbitrarily when imposing new rules for the CRA.

Following the lawsuit, the Northern District of Texas has imposed an injunction delaying the implementation of the new rule until the litigation filed by the trade associations is resolved.

In response to the decision, the trade association said: “While we strongly support the goals of CRA, the Final Rules exceeded the banking agencies’ regulatory authority and created disincentives for banks to lend in low- and moderate-income communities that need access to credit the most.”