CFPB Closes Overdraft Route for Large FIs

Read time:

Last week, the Consumer Financial Protection Bureau took action to close what it termed “an overdraft loophole that exempted overdraft loans from lending laws.” The final rule makes several key updates to federal regulations governing overdraft fees for financial institutions with more than $10 billion in assets.

These institutions would have to choose one of the following options when charging for overdrafts:

• Cap their overdraft fee at $5: Under this option, covered banks and credit unions could simply cap their fee at $5, the estimated level at which most banks could cover the costs of administering a courtesy overdraft program.

• Cap their fee at an amount that covers costs and losses: For banks that wish to offer overdraft as a convenient service, the final rule allows financial institutions to set their fee at an amount that covers their costs and losses.

• Disclose the terms of their overdraft loan just like other loans: Financial institutions that wish to profit from overdraft lending may do so by complying with the standard requirements governing other loans, like credit cards. This would include giving consumers a choice on whether to open the line of overdraft credit, providing account-opening disclosures that would allow comparison shopping, sending periodic statements, and giving consumers a choice of whether to pay automatically or manually.

Read the CFPB’s press release.