The Consumer Financial Protection Bureau plans to
Under a proposal to be released Wednesday, the CFPB plans to radically change how overdraft fees are calculated and charged by financial institutions that have more than $10 billion in assets. Banks and credit unions with less than $10 billion in assets would be exempt from the proposed rule.
Two years after many large banks
CFPB Director Rohit Chopra said that what began more than a half-century ago with banks offering overdraft services as a convenience to customers when bills were paid with paper checks has morphed into what he called "a junk fee harvesting machine." The advent of debit cards changed the calculus with banks collecting $12.6 billion in overdraft fee revenue in 2019. The CFPB has estimated that recent policy changes by some banks have lowered overdraft revenue to about $9 billion a year.
"We're proposing a rule that would establish clear, bright lines and ensure customers know what they are getting when it comes to overdraft," Chopra said Tuesday on a conference call with reporters. "Right now, overdraft lending is one of the only types of consumer loans where consumers are not told an APR or given lending disclosures."
A key aspect of the proposal is that the CFPB would set a benchmark fee of either $3, $6, $7 or $14 that would not require the financial institution to calculate their own costs and losses for providing overdraft services. The bureau calculated how much it would cost to cover costs and losses based on data collected from various financial institutions, and proposed those four benchmark amounts. The CFPB is seeking comment on which of those benchmarks is appropriate, senior CFPB officials said on the call with reporters.
Under the proposal, large financial institutions would have the choice of either offering customers overdraft services as a courtesy and charging the benchmark amount set by the bureau, or charging higher fees in line with their costs. Alternatively, banks could also provide overdraft as a line of credit to customers, though doing so would require compliance with TILA, including disclosing an applicable interest rate for overdraft services. The pricing for overdraft services translates to an annual percentage rate of roughly 16,000%, Chopra said.
Because the largest financial institutions cover roughly 80% of consumers, the bureau exempted smaller banks and credit unions. As a result, it did not have to convene a small business review panel, which is typically required for major rules that would impact small institutions.
The CFPB is seeking public comment by April 1. A final overdraft rule is expected to go into effect Oct. 1, 2025, due to TILA requirements.
Chopra has repeatedly blamed the Federal Reserve Board for giving banks an exemption from the Truth in Lending Act's disclosure requirements that allowed overdraft to become what he called a "profit driver." Technically, the CFPB plans to propose eliminating an exemption for overdraft services from complying with the Truth in Lending Act.
Chopra said consumers have paid an estimated $280 billion in overdraft fees in the past two decades. In 2022 alone, Wells Fargo and JPMorgan Chase accounted for one- third of all overdraft revenue, the CFPB said.
Lael Brainard, director of the National Economic Council and a former vice chair of the Federal Reserve, joined Chopra from the White House on a call with reporters and said the CFPB's overdraft proposal was part of President Biden's efforts to eliminate hidden fees generally for all Americans.
"We're calling on all corporations that are benefitting from yields and supply chains and lower input costs, to pass those savings along to consumers," Brainard said.
Under Chopra, the CFPB has announced a slew of enforcement actions and settlements with banks.
Some experts point to
The Trump administration opened the door to
Authority for regulating overdraft fees was transferred from the Fed to the CFPB in the 2010 Dodd-Frank Act.
