CFPB announces rule limiting overdrafts

The Consumer Financial Protection Bureau released a final rule Dec. 12 limiting the overdraft fees banks with more than $10 billion in assets can charge. .Under the rule, banks could charge $5 for overdrafts, the estimated amount the bureau said banks need to cover overdraft costs; issue a fee that covers no more than losses or costs; or comply with longstanding lending laws, including disclosing applicable interest rates. ."This would include giving consumers a choice on whether to open the line of overdraft credit, providing account-opening disclosures that would allow comparison shopping, sending periodic statements, and giving consumers a choice of whether to pay automatically or manually," according to the bureau. .The fate of the rule, issued under Director Rohit Chopra, is in doubt as Republican President-Elect Donald Trump prepares to take office in January. A Trump-appointed CFPB director is expected to be less active than Chopra, a progressive, and could eliminate the limit. .According to the CFPB, the rule will add up to $5 billion in annual overdraft fee savings to consumers, or $225 per household that pays overdraft fees. The CFPB said the rule, which applies to banks and credit unions with more than $10 billion in assets, closes a loophole in the 1968 Truth in Lending Act that exempted overdraft fees as a finance charge. According to the bureau, overdraft services at the time were only considered a courtesy service from a bank when a paper check sent through the mail could have arrived late. Over the past few decades, the loans have allegedly increased consumer costs by billions of dollars, while leading tens of millions of consumers to lose access to banking services. ."For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans' deposit accounts," said CFPB Director Rohit Chopra. "The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they're charging on overdraft loans.".American Bankers Association President and CEO Rob Nichols said his organization "will closely review the final rule with our members and consider all options going forward." He predicted the rule will make it much harder for banks "to offer this valuable service to their customers, including those who have few other options to cover essential payments. ."We're deeply disappointed that the CFPB has chosen to finalize this misguided rule at a time when every other federal bank regulator has stopped issuing new regulations," Nichols said. "By taking this action, the bureau has once again chosen to prioritize demonizing highly regulated and transparent bank fees over its mission to help consumers.".Independent Community Bankers of America President Rebeca Romero Rainey said the ICBA "is in close contact with policymakers — including the incoming administration and Congress — to reject and overturn this harmful rulemaking." .Also on Dec. 12, the ABA, Consumer Bankers Association, Mississippi Bankers Association and other associations representing banks and credit unions filed a lawsuit challenging the overdraft cap in the U.S. District Court for Southern Mississippi. The groups claimed that overdraft fees are not credit products and therefore cannot be regulated under the Truth in Lending Act. They also alleged the CFPB "acted arbitrarily and capriciously by failing to consider the costs and benefits of the rule."