Overdraft Fee Debate Goes in Different Directions

Exterior of the CFPB headquarters in Washington, D.C. Credit/Adobe Stock

The political fight for and against the CFPB's proposed rule on overdraft fees reached new levels this week with letters submitted to the Bureau from nearly 150 community and civil rights groups from all 50 states strongly supporting the proposed rule to govern overdraft lending practices of the largest financial institutions. On the other side of the argument, America's Credit Unions filed its letter continuing to voice its strong opposition to the same proposed rule.

The CFPB's proposed overdraft rule, which was announced in January, would set overdraft fees at a maximum of $14 for the largest credit unions and banks – those with $10 billion in assets or more.

Since then, America's Credit Unions has been "vehemently opposed" to the proposal. A letter filed Monday by the trade group's Senior Regulatory Affairs Counsel James Akin continued to state the proposed rule would harm the smaller, community-based credit unions and their members.

"The proposed rule, with its singular focus on overdraft, ignores the interconnected nature of financial products and services and would only serve to harm or eliminate programs that consumers benefit from," Akin stated. "Furthermore, the proposed rule, in the guise of providing a benefit to consumers, would instead drastically reduce the ability of community-based credit unions to help their members in times of financial uncertainty and have widespread impacts on supposedly exempt credit unions and their members."

The letter continued, "The Bureau should rescind the proposed rule and focus its efforts not on setting market prices, an authority the Bureau does not have, but rather on educating consumers and empowering community financial institutions to provide valued financial products and services. Alternatively, as credit unions represent such a small proportion of covered institutions and yet the exempt institutions would still be so seriously impacted, the CFPB should use its exemption authority to exempt all credit unions."

On the other side of the argument, the National Consumer Law Center (NCLC) and 143 consumer, civil rights, legal services and community groups filed a joint letter with the CFPB strongly supporting the proposed rule which, the groups believe, would "promote more honest, fair, and affordable forms of overdraft coverage and prevent big banks from charging junk fees that push people out of the banking system."

The letter stated, "Overdraft fees can quickly snowball at families' most financially vulnerable moments, discouraging people from keeping money in a bank and even causing some to lose their bank accounts. Charging these high fees is not a 'courtesy'; it is a form of predatory lending. Overdraft fees exacerbate wealth disparities and racial inequalities. Overdraft fees are a big reason why 11.3% of Black households and 9% of Latino households are unbanked compared to only 2.1% of white households."

In a prepared statement, NCLC Senior Attorney Carla Sanchez-Adams said, "Banks should not be allowed to harm families by hiding their costs in back-end junk fees. We strongly support the proposed rule, which will provide consumers with needed financial relief and help to restore trust in big banks."

The letter filed by the community and civil rights groups added the CFPB should actually lower the proposed overdraft fee threshold from $14 to $3. "Indeed, some banks have shown that they can continue to provide overdraft coverage without charging any fees. Rather than deterring overdrafts, high fees increase them by giving banks a profit incentive to push people into overdrafting," the letter stated.

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Editor-in-Chief at CU Times. To connect, email at [email protected]. As Editor-in-Chief of CU Times since 2016, Michael Ogden has led the editorial team in all aspects of content strategy and execution, including the creation of the publication’s exclusive and proprietary research database of the credit union industry’s economic landscape. Under Michael’s leadership, CU Times has successfully shifted to an all-digital editorial product with new focuses on the payments, fraud, lending and regulatory beats. Most recently, he introduced a data-focused editorial product for subscribers that breaks down credit union issues into hard data, allowing for a deeper and more factual narrative for readers. In 2024, he launched the "Shared Accounts With CU Times" podcast, which offers a fresh, inside-the-newsroom perspective through interviews with leaders from the credit union industry and the regulatory world. He dives into pressing credit union issues, while revealing the personalities working behind-the-scenes to push the credit union world forward. His background includes years as a radio and TV anchor/reporter and a public relations and digital/social media manager, where he covered the food and music industries, as well as cooperatives and credit unions. Over the years, he has launched numerous exclusive video and podcast series, including a successful series of interactive backstage interviews with musicians at music festivals, showcasing his social media and live streaming production skills.