Judge in court room
The U.S. District Court for the Southern District of Mississippi has become the latest battleground in a legal fight against the CFPB. This legal showdown involves America’s Credit Unions and bankers associations against the CFPB’s final rule on overdraft services.
On Thursday, the CFPB’s final rule on overdraft fees was announced. The rule reforms overdraft fee options for credit unions and banks with assets more than $10 billion. Those financial institutions, according to the final rule, can choose to charge $5 overdraft fee, charge a fee that covers no more than the cost or losses of an overdraft transaction, or charge a fee while disclosing the interest rate of the loan.
Immediately following the announcement, America’s Credit Unions and other financial groups said they would fight the ruling. Hours later, a jointly-filed lawsuit was submitted, to challenge the Bureau’s rule.
The lawsuit was jointly filed in the U.S. District Court for the Southern District of Mississippi Thursday by America’s Credit Unions, the American Bankers Association (ABA), Consumers Bankers Association (CBA), and the Mississippi Bankers Association. Other plaintiffs in the lawsuit include Arvest Bank in Fayetteville, Ark., Bank of Franklin in Meadville, Miss.. and The Commercial Bank in DeKalb, Miss.
According to the 63-page lawsuit, the groups argue that the CFPB’s overdraft fee final rule is primarily based on flawed logic of “the Truth in Lending Act (TILA), a statute regarding disclosure obligations for credit products, to impose an expansive and complex new regulatory regime on overdraft services offered by large financial institutions, replete with de facto price caps and significant restrictions on the terms under which the services can be offered. But TILA in no way supports the Final Rule. Most fundamentally, overdraft services are not “credit,” as customers do not have a right to incur overdrafts or defer repayment of the overdraft; as such, they cannot be regulated under TILA. Moreover, the CFPB far exceeds the disclosure-related scope of TILA by imposing price caps and significant substantive restrictions on the terms under which these services can be offered.”
The lawsuit also stated, “To make matters worse, the CFPB acted arbitrarily and capriciously by failing to consider the costs and benefits associated with the Rule, and by making the definition of credit hinge on the financial institution’s size and 'breakeven cost,' rather than the nature of the charge. A regulation is arbitrary and capricious if the agency failed to consider an important aspect of the problem.”
Concerning the lawsuit, America’s Credit Unions President/CEO Jim Nussle said, “The CFPB issuing its final rule on overdraft nearly a month before the Trump Administration is set to begin is risky behavior for a regulator and for the consumers they claim to protect.”
He added, “Not only does it exceed the bureau's authority, but it threatens to eliminate financial protections for consumers. Everyone should have access to services that allow them to make ends meet without having to choose between buying groceries or paying a utility bill. These financial hardships have serious consequences on families, and overdraft programs provide an affordable lifeline in these circumstances. America’s Credit Unions' mission is to ensure consumers can partner with credit unions for their financial health and to achieve their best lives. The association is going to continue to fight through legal action to reverse this grave mistake from Director Chopra.”
In a prepared statement, ABA President/CEO Rob Nichols said, “It’s unfortunate that we have to turn to the courts once again to rein in a CFPB director unwilling to recognize the clear legal boundaries set by Congress. The CFPB’s final overdraft rule exceeds the Bureau’s statutory authority, ignores thoughtful industry and stakeholder feedback, and will harm the very consumers the CFPB claims to protect. Surveys consistently show that Americans understand and appreciate overdraft protection, and if this rule is allowed to move forward, many Americans will lose this service. Consumers don’t want that to happen, which is why we have joined this litigation. We look forward to the court’s review.”
Thursday’s legal action is the second such instance of America’s Credit Unions joining the ABA in a lawsuit in the past four months.
In August, America's Credit Unions, the ABA, the Illinois Bankers Association and the Illinois Credit Union League filed a lawsuit to halt the implementation of the Illinois Interchange Fee Prohibition Act (IFPA) which was signed into law on June 7.
The IFPA would ban banks, payment networks and other entities from charging or receiving interchange fees in Illinois on the portion of a debit or credit card transaction attributable to tax or gratuity.
In Thursday’s filing, the groups said the CFPB had exceeded its regulatory authority with this final rule. “The CFPB does not have the statutory authority to cap prices on services by financial institutions, nor do overdraft services meet the statutory definition of credit. The CFPB's final rule also reverses 50 years of legal precedent without sufficient justification,” according to a joint statement released by the groups.
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Michael Ogden
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.
