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Earlier this year, the Consumer Financial Protection Bureau (CFPB) proposed a rule that would overhaul overdraft lending practices and impact financial institutions across the country. The proposed rule would apply to financial institutions with more than $10 billion in assets and require them to limit overdraft protection fees and to apply Regulation Z disclosures to overdraft programs. The CFPB claims the ruling “would allow consumers to better compare certain overdraft credit to other types of credit.”
The CFPB solicited public comment on the proposed rule from interested parties. The League joined our partners at America’s Credit Unions and other industry allies in expressing our strong opposition to the proposed changes. In a letter sent to CFPB Director Chopra on April 1, the League outlined the negative impacts this rule making would have on the credit union system.
“The proposed rule will create a chilling effect to credit unions as a whole. Members will move their deposits into large banking institutions, who can charge fees on different business lines, to avoid paying finance charges and overdraft fees harming the overall strength and vitality of credit unions.”
The League’s letter went on to explain why overdraft fees should not be associated with “junk fees.”
“Instead of eliminating fees entirely for very large financial institutions, CFPB should rescind the proposed rule and focus on educating consumers by first promoting overdraft fees as a service fee. Overdraft fees should not be associated with junk fees. Overdraft charges are financial lifelines to the everyday operating cost of labor (wages, cost of employee benefits, and payroll taxes paid to employees by the credit union) to support and sustain credit union and small financial institutions’ ability to support vital loan services to their members.”
The League also encouraged the CFPB to institute clear guidance for existing Regulation E requirements.
The comment period for the proposed ruling has now closed. The League will be monitoring the CFPB closely as the bureau works to finalize the rule in the months ahead.