U.S. Chamber of Commerce Comments on CFPB Proposed Overdraft Lending Rule

​ To Whom It May Concern:

The Center for Capital Markets Competitiveness (“CCMC”) believes the Consumer Financial Protection Bureau (“CFPB”) Notice of Proposed Rulemaking for Overdraft Lending: Very Large Financial Institutions (the “Proposed Rule”)[1] should be withdrawn.  The Proposed Rule is an anti-consumer measure that would restrict consumer access to financial products and drive-up costs. 

A recent study by the Federal Reserve Bank of New York found that when the Office of the Comptroller of the Currency (OCC) exempted national banks from state overdraft fee caps in 2001, banks “raised overdraft fees but also expanded overdraft coverage and deposit supply, leading more low-income households to open accounts.”  We believe the proposal has the following significant flaws and the best course of action is to withdraw the rulemaking:

• Reducing availability and access to overdraft services will harm consumers.
• Limiting overdraft fees to a “benchmark” or “breakeven cost” is deeply flawed.
• Regulating overdraft services as loans under TILA and Regulation Z is statutorily unauthorized, unnecessary, and impractical.
• The application of the Proposed Rule to only depository institutions with over $10 billion in total assets is unsupported and arbitrary, and conflicts with the purposes of TILA.
• If the rule is not withdrawn, the CFPB should provide at least one year to comply.

Discussion​

Financial institutions offer a wide range of consumer banking services. These services have long been supported by fees and interest rates designed to meet customer needs while also encouraging prudent consumer behavior, fostering a safe and sound banking system, and achieving other important goals. Overdraft services enable consumers to complete desired transactions when there may be insufficient funds to cover those transactions, allowing critical transactions to go through when they would otherwise be denied. Overdraft services have been a familiar part of the banking landscape and consumers have long understood that they will pay a set fee if their bank authorizes a transaction that overdraws their account. The fees for this important service have decreased and even become less common in recent years due to market shifts, but overdraft services remain an appropriate—and requested—feature of many checking accounts.

The Bureau nonetheless has sought to drastically reduce overdraft fees, thus effectively curtailing overdraft services in their current form. When the CFPB announced its initiative against “junk fees” in January 2022, it specifically called out overdraft fees as a type of fee that may “obscure the true cost of a product and undermine a competitive market.”[2] Despite reporting that revenue from overdraft and nonsufficient funds (“NSF”) fees decreased by nearly 50% between 2019 and 2022, the CFPB also noted in May 2023 that it would “continue to track overdraft/NSF fees and [is] considering rulemaking activities related to these fees.”[3] And on other occasions in the past three years, the CFPB has repeatedly maligned overdraft services, characterizing them as a tool that banks use to generate unreasonable profits.[4] Even though market forces are working, the CFPB is embarking on the next step in its campaign to impose its preferences around overdraft fees on the market.

Notwithstanding the unknown consequences for consumers and market participants, the CFPB will likely force financial institutions to offer these services below their true cost or face insurmountable regulatory burden—setting up a false choice for institutions to make. In doing so, the CFPB will dramatically limit the availability of overdraft services for consumers who need and want access to them without offering feasible alternatives. The Proposed Rule fails to consider the value of overdraft services and whether consumers will be better off if overdraft services become scarce or non-existent because of the impractical regulatory requirements that the CFPB would impose. The CFPB also fails to consider that overdraft services enable consumers to pay for necessities like food, medicine, shelter, electricity, and other critical household expenses. The CFPB does not consider that these consumers may not be able to obtain those necessities without overdraft services and certainly not without incurring a higher cost from alternative liquidity sources compared to current overdraft fees. Nor does the CFPB consider potential late fees that consumers may incur from service providers if their payments are late because they no longer have access to overdraft services.

The Proposed Rule would limit how banks provide overdraft services by changing how fees charged for overdraft services are treated under the consumer financial laws. Departing from fifty years of precedent, fees for overdraft services would be treated as finance charges subject to the Truth in Lending Act (“TILA”). The CFPB would apply this rule selectively, arbitrarily making it applicable only to financial institutions with assets exceeding $10 billion without an adequate explanation for the distinction. Bifurcating consumer protections is a new concept that lacks logic, study, or explanation. The CFPB also offers an exception if the fees do not exceed an institution’s cost to provide the service or a benchmark fee set by the CFPB. The promise of these exceptions is illusory, however. Because the CFPB’s proposed exceptions are extremely impractical, the Proposed Rule will effectively impose a price cap of the CFPB’s choosing on the market. In so doing, the Proposed Rule will limit consumer access to overdraft services and dramatically change market practices in a piecemeal and unsupported fashion. The result could be the effective elimination of overdraft services altogether.

To read the full letter click here.

[1]See CFPB, Proposed Rule; Request for Public Comment: Overdraft Lending: Very Large Financial Institutions, 89 Fed. Reg. 13,852 (Feb. 23, 2024) (hereinafter “Proposed Rule”).

[2] CFPB, Consumer Financial Protection Bureau Launches Initiative to Save Americans Billions in Junk Fees (Jan. 26, 2022), https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-launches-initiative-to-save-americans-billions-in-junk-fees/.

[3] CFPB, Data Spotlight:Overdraft/NSF revenue down nearly 50% versus pre-pandemic levels (May 24, 2023), https://www.consumerfinance.gov/data-research/research-reports/data-spotlight-overdraft-nsf-revenue-in-q4-2022-down-nearly-50-versus-pre-pandemic-levels/full-report/#:~:text=Overdraft%2FNSF%20revenue%20for%20the,over%20%245.5%20billion%20going%20forward. (hereinafter “Data Spotlight”).

[4]See, e.g., CFPB, CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees (Dec. 1, 2021), https://www.consumerfinance.gov/about-us/newsroom/cfpb-research-shows-banks-deep-dependence-on-overdraft-fees/.