CFPB Wants to Close Overdraft ‘Loophole’ for Largest FIs, CUs Aren’t Buying It
Credit union leaders see this as another regulatory example that puts credit unions at risk.
The CFPB released a proposal Tuesday that would set overdraft fees at a maximum of $14 for the largest credit unions and banks. Credit union leaders were quick to point out their skepticisms of the Bureau’s proposal as a move that would place all credit union overdraft programs at risk of being “endangered.”
According to the CFPB, the Overdraft Notice of Proposed Rulemaking (Overdraft NPRM) “would close an outdated loophole that exempts overdraft lending services from longstanding provisions of the Truth in Lending Act and other consumer financial protection laws.” The outdated loophole mentioned concerns amending Regulations E and Z and would apply to credit unions and banks with more than $10 billion in assets.
The CFPB stated the proposed rule would require very large financial institutions to treat overdraft loans like credit cards and other loans as well as to provide clear disclosures and other protections. “Many banks and credit unions already provide lines of credit tied to a checking account or debit card when the consumer overdraws,” the CFPB said.
The CFPB also proposed to limit the longstanding exemption to overdraft practices that are offered as a convenience, “rather than as a profit driver.” The Overdraft NPRM would allow financial institutions to charge a fee that is “in line with their costs or in accordance with an established benchmark.” The CFPB proposed benchmarks of $3, $6, $7 or $14.
In a statement, Virginia Credit Union League President/CEO Carrie Hunt said, “We are working our way through the 200-plus page proposed rule, but our initial take is this: While the rule targets institutions with more than $10 billion in assets, the realities of the marketplace mean that overdraft programs at all credit unions are endangered. We know that credit unions have responsible programs that provide members a valued service at a reasonable cost. CFPB again misses the point that not all fees are abusive. They are the cost of doing business and can be a deterrent.”
Hunt added, “We remain deeply concerned about the legislative and regulatory headwinds credit unions are fighting when it comes to non-interest income. With today’s CFPB proposal, pending action by the Federal Reserve Board on debit card interchange fees, and an ongoing legislative battle on credit card interchange fees, every credit union needs to understand that the risk to the credit union model continues to rise and their engagement on the advocacy front is critical.”
America’s Credit Unions President/CEO Jim Nussle also released a statement that said, “The CFPB has deliberately exceeded its intended purpose at the expense of the hardworking Americans they claim to protect. Its latest overdraft fee proposal is another devastating blow to working class Americans as it takes away a lifeline many consumers in financial distress rely on to make ends meet. We have worked tirelessly to ensure our credit union members can provide the services their members need when it comes to their financial planning and goals when opting into these products. The Bureau must be held accountable for its war on American families and Main Street America.”
Comments on the Overdraft NPRM are due by April 1, 2024.