The Consumer Financial Protection Bureau (CFPB) has put forth a proposed rule aimed at large banks' overdraft fees and overdraft protection loans. This proposal has drawn criticism from Rob Nichols, President and CEO of the American Bankers Association (ABA), who views it as an attempt to "demonize and mischaracterize" fees that are already sufficiently regulated and appropriately disclosed.
Nichols argues, "The proposal would make it significantly harder for banks to offer overdraft protection to customers, including those who have few, if any, other means to access needed liquidity." He further states that "The CFPB is effectively proposing to take away overdraft protection from consumers who want and need it." According to Nichols, the proposal could disrupt the competitive market by "restricting access to overdraft with a government-imposed price cap". Lastly, he suggests that in a bid to score political points, "the CFPB is seeking to eliminate a valuable service and push consumers who need overdraft protection into the hands of less-regulated, more-costly alternatives."
According to a press release issued by the CFPB, the proposed rule targets the 175 largest depository institutions in the United States. The goal is to curb excessive overdraft fees and close a loophole that currently exempts overdraft loans from provisions under the Truth in Lending Act and other consumer financial protection laws.
The press release further explains that the proposed rule would require banks to treat overdraft loans like credit cards and other loans. This includes providing clear disclosures and other protections for customers using these services.
Every year, approximately 23 million households pay overdraft fees which contribute billions of dollars in revenue for banks—nearly $13 billion in 2019 alone. The proposed rule aims at forcing banks to align these fees with their true costs. As per CFPB's estimates, this could save consumers $3.5 billion or more in fees each year, with proposed benchmarks for these fees set at $3, $6, $7, or $14.
