CFPB Proposes to Apply Reg Z to Overdraft Protection at Large, Midsize Banks

Posted: Jan 24 2024

In a backdoor move to impose a de facto price cap on overdraft fees, the CFPB has proposed to apply the requirements of Regulations Z to overdraft fees at banks and credit unions with more than $10 billion in assets. The proposal would also require banks to calculate and disclose an annual percentage rate on each overdraft fee.

‌
The CFPB noted that overdraft fees have, since the passage of the Truth in Lending Act in the 1960s, been excepted from Reg Z’s definition of finance charges. Under this proposal, Regulation Z would apply to overdraft protection services provided by banks and credit unions with assets over $10 billion, unless the overdraft services are “provided at or below costs and losses as a true courtesy to consumers.” The proposal envisions two ways of determining cost: allowing covered institutions to calculate their own costs and losses using the bureau’s proposed standards, or by relying on a benchmark fee set by the bureau. (The CFPB asked for comment on $3, $6, $7 or $14 as proposed benchmarks.)
‌

The bureau also proposed to amend Regulation E to prohibit compulsory use of preauthorized electronic fund transfers for repayment of transactions paid into overdraft by institutions covered by the proposal that charge overdraft fees above a certain threshold.
‌
While the proposal does not cover financial institutions with assets of $10 billion or less, the bureau warned that it “plans to monitor the market’s response to this rule before determining whether to alter the regulatory framework for financial institutions with assets less than or equal to $10 billion.” Comments on the proposed rule are due April 1.

To read the proposed rule, visit: https://files.consumerfinance.gov/f/documents/cfpb_overdraft-credit-very-large-financial-institutions_proposed-rule_2024-01.pdf